How the Watchmaking Market Ticks
The watchmaking market might seem to be a consumer industry like any other, but in reality the industry is as complex as the movements that make the timepieces tick. The watchmaking market is first of all a conservative market. Brand heritage, long standing authenticity and location (made in Swiss) are perceived by the consumer as quality markings. These markings are not related to the product, but relate to the history of watchmaking itself. They are hard to acquire and are a threshold for those that would like to become active on the watchmaking market.
While the above makes it clear that more is needed that a functioning timepiece to enter the watchmaking market, it is less clear to the consumer that behind the brand mechanisms are in place to limit the amount of competition. To give a better understanding of these mechanisms the market is will be discussed from different angles to unravel its mysteries!
Segmentation of the Market
At a first glance the watchmaking market seems to be a general consumer market consisting of different brands, different products and different clients. But when investigating the market more closely the market turns out to be more complex than it seems. While the consumer perceives the brands as singular entities, this is in many instances not the case!
Number of Sales
Both consumers and brands do not use financial resources to define the succes of brands, but tend to base the success of a brand on the number of sold watches. When doing so the watchmaking market is often segmented in three financial segments; the Luxe, Haute Gramme and Entry level. Le Temps made an infographic of the estimated sales of the top brands per price segment, displayed in figure 1.
Infographic made by Le Temps, displaying the estimated sales of brands per segment.
The first thing that takes notice is the large amount of timepieces Swatch sells, approximately 12 million a year. With this number Swatch dominates the Entry level market, with millions more timepieces sold annually than the runner-up, Tissot. In the Haute Gramme segment the difference in sales are smaller (a few hundred thousand) and in the Luxe smallest (merely tens of thousands). However, when looking at the sales revenue the financial segmentation becomes clear. Forbes estimates Rolex’s sales revenue on $4.6 Billion, while the sales revenue of Swatch is estimated by Bloomsberg at $2.6 billion.
Conglomerates
From a sales perspective the market seems to be one of great diversity, but there are actually three major conglomerates that dominate the watchmaking market; Swatch Group, Richemont and Louis Vuitton Moët Hennessy (LVMH). These conglomerates own most of the major brands in the watchmaking industry. Figures below display the consumer brands of both Richemont and the Swatch Group.
Richemont focusses on the luxe segment. As the profit ratio is much higher in the luxe segment, Richemont’s success can hardly be defined by the number of sold timepieces. When taken into account the group sales of 2014, Richemont exceeds Swatch Group. Richemont calculated its 2014 annual sales on 10.023 million euro, while Swatch group calculated its annual sales at 9.219 million euro. However, for both Swatch Group and Richemont the projected annual sales are not solely earned in watchmaking. Swatch group is also active in the electronic industry and Richemont gains most of its financial income from crafting fine-jewellery.So what about the third conglomerate, Louis Vuitton Moët Hennessy? LVMH seems to be a small player in the watchmaking industry. According to the infographic of Le Temps the conglomerate only owns one top three player in the three financial segments, which is the brand TAG Heuer. However, Louis Vuitton is (one of) the biggest names in the fashion industry and as a conglomerate it has brands in almost every market segment that is related to fashion. Its capabilities and commitment are clearly visible with the acquisition of Bulgari. With a 3.7 billion euros it payed 28.2 times Bulgari’s earnings! This piece is impossible to justify solely on financial value. However, when looking at the portfolio of LVMH it is a strong acquisition. Bulgari is also a jeweller that is considered to be belong to the world’s top 10. Considering that Swatch Group already acquired Harry Winston and that Cartier and van Cleef & Arpels are part of Richemont’s portfolio, Bulgari seems to be a necessary acquisition to safeguard the conglomerate’s global position in the fashion industry.
An overview of the conglomerate Swatch Group.
An overview of the conglomerate Richemont.
Middle to Large Enterprises
The watchmaking market might be dominated by conglomerates, but there are still enterprises that value their independence. These independent companies actively use their independency for market strategies and advertising, as to set themselves apart from the brands that are part of the dominating conglomerates. In many cases their independence is phrased with terms such as authenticity and creative freedom, emphasising the fact that the entire timepiece is manufactured in-house and that their brand is left unbothered by higher management levels that are present at the conglomerates.
Two of the most renowned independent watchmakers are Patek Philippe and Audemars Piguet. Patek Philippe prides itself to be the ‘oldest independent family-owned watch manufacturer’. Its independence enables the company to control its own destiny and pursue its own long term vision. Audemars Piguet prides himself to be the oldest Manufacture of Haute Horlogerie that has never left the hands of the founding families. With this statement it does not only reinforce its independence but also undermines the other independent companies, such as Patek Philippe, that pride themselves for their longstanding independency.That independence is a strong accent to position a brand shows Peter Stras of Frederique Constant. Stras is also CEO of Alpina Watches and Atelier de Monaco, but. expresses quite clearly that the company is not part of any conglomerate. It positions the brand as an independent enterprises. Its ‘manufacture’ product line has been brought to life to express that every aspect, every part, of these watches is manufactured in-house.
Ateliers
The lists of Le Temps is comprised out of the major brands of the watchmaking industry. The numbers of sales forces them to use modern technologies to produce their timepieces. However, there are several small ateliers that keep the original craftsmanship and watchmaking tradition alive. These small entrepreneurs make only a selected number of timepieces a year, in most cases produced solely by hand. These single-piece timepieces are considered as a piece of art, and in many cases as an investment, rather than a consumer product with a functional use.
