Outlook 2018 5 challenges the Swiss watch industry faces
Geo-political instability is now one of the main causes of concern for the watch industry.
It’s a matter of weeks before the GPHG and Only Watch, after which thoughts will turn to Christmas, which is followed inexorably by SIHH and the preparations for Baselworld 2018, which promises a tumultuous conclusion to the busiest half of the year for the watch industry. So now is perhaps a good time to start considering what 2018 might have in store for the industry.
Since Quentin Mayerat used the Deloitte Watch Industry Study to find five reasons that things are looking up for the industry (read the article next Wednesday), I decided to play the “glass half empty” role. For the sake of balance, I looked at the same report from a different angle (especially given its subtitle “It’s all about digital”) to highlight some of the risks and challenges that the industry faces.
1) Exports are growing but demand is still weak
The Deloitte study quizzes members of the industry with questions that are often closed and at best allow a choice between several answers. Considering the “external risk factors” faced by the industry, for example, we don’t know whether the respondents were given more than the five options presented in the report, or whether they had to rank these five in order of importance. In any case, weaker foreign demand and the strong Swiss franc top the list.
2) Political uncertainty has become a concern
Since last year’s study, the UK has voted to leave the European Union and Donald Trump has been elected President of the United States. Both events were feared but not considered likely until they actually happened. That fear now becomes concrete with every passing tweet and every bank deciding to relocate staff from London to somewhere that will still be in the European Union in two years’ time.
The only country among the five biggest export markets for Swiss watches where respondents in the Deloitte study considered the level of political uncertainty to be low was Germany. The confidence level was extremely high, but that was before Angela Merkel secured a rather hollow election victory that will leave her negotiating on a coalition government for the foreseeable future. The study puts the number of people who believe there is a low political uncertainty in France and Italy at just a whisker above those who think it will be high. Unsurprisingly, there is a distinct lack of confidence in the US and UK markets, followed by China. For the watch industry this should be all the more worrying, since these countries also happen to be its top three markets.
3) The challenge of e-commerce
It’s telling that Deloitte decided to include a question about developing e-commerce and digital channels for the first time only this year. This business strategy comes straight in at top priority for 2018, beating market expansion, R&D and cost savings. Having online authorised dealers and own mono-brand e-boutiques has also eclipsed the once-hallowed mono-brand stores among the priorities of industry executives. Just two years ago, the industry consensus was that mono-brand stores would be the most important sales channel for the next five years. This year, for the first time, online authorised dealers are considered the most important channel for the next five years. This is a huge shift in thinking that will require the industry to adapt to a whole new way of doing business in an exceedingly short time frame.
4) Getting the digital balance right
While brands are investing heavily in e-commerce, they would do well to pay close attention to their customers’ habits. According to Deloitte the large majority of customers around the world still prefer to buy a watch in store. They do, however, use a so-called “ROPO” strategy (research online, purchase offline) that is the exact opposite of the “showrooming” that another type of customer uses, particularly for electronics, where goods will be examined in store and later purchased online. Brands therefore need to be sure that they have a strong digital presence, both through their own channels and the major online channels that these customers turn to for information.
According to the study 60% of consumers use online and digital channels to research watches before they go in-store.
5) Mastering social media
One area where the views of brands and customers coincide is on the importance of social media. It is the biggest influencer of customers’ decisions to buy a watch and brands are therefore right to have it at the top of their marketing strategy. Putting this marketing strategy into place is the challenge, however. Talk of targeting “millennials”, for example, seems out of date. The term spans an entire generation but social media allows a much higher level of granularity in targeting, which brands should be embracing. Even though detecting fake followers and bots on Facebook and Instagram is a relatively simple affair (and the US election helped to increase awareness of them), brands still seem to be focussing too much on the size, rather than the quality, of an influencer’s audience. The number of people in the world with the cash to spend upwards of 10,000 Swiss francs on a watch is, after all, quite limited in the grand scheme of things.
SIDE NOTE: Beware the suppliers!
Not that long ago, Swatch Group succeeded in pushing through measures at government policy level that allowed it to cut back on its movement deliveries to companies outside the group. The move did have the intended consequence of encouraging numerous other brands to produce their own movements or look to alternative suppliers. Yet ETA now finds itself in the unfortunate position of trying to sell its movements to the very same customers it was keen to abandon just a few years ago. But this nevertheless serves as an example of the clout that a strong supplier can wield in the market. It’s therefore worth keeping an eye on the activities of Groupe Acrotec, already the largest independent Swiss manufacturer of precision parts, which made four acquisitions this year, the most significant of which was no doubt Mimotec, which produces silicon parts using its UV-LIGA technology. Respondents to the survey concur that suppliers acquiring other suppliers are the most likely acquisitions at the moment, overtaking the number of brands acquiring suppliers, which has been declining for the past three years. It’s a clear sign that vertical integration is shifting from brands to suppliers.