EXCLUSIVE ANALYSIS: Waiting for sub-£500 fashion watch sales to re-surface

Pop sensation Joe Jonas is the current face of Guess watches.Pop sensation Joe Jonas is the current face of Guess watches.

2016 was a tough year to be selling inexpensive watches, with the value of sales falling by almost 13%. But stories of the death of fashion and lifestyle watches have been greatly exaggerated, and the sector is actually worth more today than it was back in 2011. Sorting the winners from the losers is the key to staying on top at this end of the market, so WatchPro spoke to industry experts to see if we could identify the next big thing.

Britain’s leading retail analyst GfK calculates that UK sales of watches priced at under £500 totalled £475 million in 2011. Over the following five years up to 2016, the market has seen peaks and troughs, but ended up roughly where it began with sales totalling £486 million last year. That is growth of just £11 million or 2.3% over five years.

value sales growth

Source: GfK

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2016 was a bust for the sector. As sales of luxury watches priced at over £1000 rocketed following the post-Brexit slump in the value of the pound, the sub-£500 market was battered, falling 12.9% from £558 million in 2015 to £486 million in 2016.

The total value of watch sales is also the slightly more flattering statistic to study. If we look at GfK data on the volume of watch sales, the picture looks even more bleak.

unit sales growth

Source: GfK

There were over 10 million watches costing under £500 sold in 2011. This has fallen to just £7.2 million in 2016.

At least that means average prices have been rising.

total sales volume by year

Source: GfK

 

total sales value by year

Source: GfK

Paul Mitchell, account director at GfK, is a glass half full kind of analyst, and suggests that any growth at all should be welcomed.

“It may feel like the lower end of the market has been in decline for a number of years, but this is not actually the case. Whilst value sales fell by -12.9% in 2016 compared to the year before for the market under £500 and in 2015 value sales were down -0.7% year on year, prior to this value sales were up 12.9% between 2013/14 and rose 6.1% between 2012/13. Before then, in 2012, year on year value sales were down -1.2%,” he describes.

There have been multiple psychology papers written on why bad news affects people more strongly and for longer than good news. This might explain why the growth in the value of sales in 2013 (+6.1%) and 2014 (12.9%) – often referred to as the Michael Kors effect – is now seen as a false dawn for fashion watches. Certainly it is a spike in sales from which the only way has been down ever since.

Willie Hamilton

Willie Hamilton, chief executive of the Company of Master Jewellers (CMJ), a buying group with around 140 retail members running over 220 shops – believes the Michael Kors spike will only be repeated when a similar set of circumstances evolves or is created. “What I would say is that the watch companies need to make the next fashion icon, not just a watch,” says Mr Hamilton.

Fossil Group, which makes Michael Kors watches under license from the fashion house as part of the UK’s biggest portfolio of fashion watch brands, is under no illusions about the need to constantly come up with the ‘next big thing’.

There is science, focus groups, trend analysis and much more behind the group’s planning, but success can sometimes feel more like luck than judgement.

The Michael Kors Bradshaw – a watch with a passing resemblance to a rose gold Rolex for girls – became the timepiece of choice for a generation of young women brought up on reality television stars from Towie and Made in Chelsea in 2013-14, reversing a trend among teenagers and young adults who were quickly considering their mobile phones as their timekeeping device.

What happened, Mr Hamilton suggests, is that these young women made a fashion choice that a rose gold watch would look good on their wrists. The brand name of the Michael Kors fashion house and the Fossil Group design of its watches did the rest. As the fashion moment faded, the graph for fashion watch sales settled back towards a long term downward trend line.

What retailers want to know is what might create another fashion moment, and which watch brand or design is going to causes it. In other words, what will be the next Michael Kors Bradshaw? “It was a fashion accessory that caused a spike on the watch graph. Maybe the next fashion accessory will be a Fitbit, maybe it will be the Apple Watch,” Mr Hamilton answers. “If we are only looking at watches then that market is going to be deflated,” he adds.

GfK does not entirely agree. Mr Mitchell reminds retailers that the value of sub-£500 watches was actually higher in 2016 than in 2011, it is just that the past 18 months have been bad.

He also thinks that comparisons between the red hot luxury watch sector and the relatively cool fashion watch market have created a perception that sales of inexpensive watches are collapsing.

Paul Mitchell_GfK

Paul Mitchell, account director at GfK.

“The perception of long term decline may have been driven by the relatively recent contrast with the luxury end of the market, which performed exceptionally well last year, but also by a widely acknowledged decline in the sales of some fashion watches. As to the question of why sales fell in the last two years, as already pointed out sales were only marginally down in 2015, whilst in 2016 one needs to consider the impact Brexit had on consumer confidence. With a higher level of uncertainly, particularly regarding price increases across all areas of consumer spend, it is likely that some consumers would have delayed purchases on non-essential items, but a key driver is the decline in sales of fashion brands,” Mr Mitchell says.

“However, it’s also important to realise that in absolute value terms, the market under £500 was £11m larger in 2016 than it was in 2011. When looking at the year-on-year picture, the market grew total value sales in 2013, 2014 and 2015. Last year was a challenging period, with sales down £72m, a decline principally driven by the fashion brands, however in the long term the market recorded growth,” he reminds retailers.

The rise in the value of sales since 2011, despite the fall in the volume of sales, is due to rising prices, Mr Mitchell explains. “The price rises were highest in 2012-2014, when fashion brands performed strongly, peaking at an 11.5% increase in price in 2014. Even in 2016, average sale prices rose 2%,” he reveals.

The retail channel for sub-£500 watches has been changing over the past decade. GfK tracks what type of retailers sell watches, and has recorded a significant shift away from mass merchandisers and an upturn for jewellers. “For watches under £500, there is a long term trend of mass merchandisers losing volume and value share. Five years ago this channel accounted for over half of unit sales (53.9%), in 2016 this was down to 39.9%. On the value side, this channel’s share fell from 22.1% in 2012 to 14.9% in 2016. This share is being taken by the multiple jewellers (value share up from 40.8% to 49.1% in the five years) and independent jewellers (13.7% to 14.6% in the same period). Department stores are almost flat in terms of their volume share of the market under £500 over the five year period, with value share falling from 23.4% to 21.5%,” Mr Mitchell reveals.

Across the retail landscape, whether outlets are mass merchandisers, jewellers or department stores, sales are rising online. “E-commerce continues to grow in importance. Almost a third (31.1%) of value sales came from internet retailing in 2016, a proportion which almost doubled (from 16.5%) since 2012,” Mr Mitchell says.

Online watch retail has become highly competitive, with giants including Amazon and Asos competing with specialists such as Watch Shop. Savvy customers continually look for the best deals on the web, which has led to aggressive price comparison practices.

“It’s standard practice now for any retailer competing online to compare prices and react to changes if these will not detrimentally affect their sales or a brand’s position,” explains Mr Mitchell.

But the perception that everything is discounted online does not stand up to analysis, the GfK expert says. “The devil is in the detail. Of the top 50 brands, 26 had higher average sale prices (ASPs) online, showing us that the picture is dynamic between brands and even for the same brand year on year (where one year the ASP can be higher online, with the ASP being higher in traditional retail the following year).

“Fundamentally, though, some retailers will be more price competitive than others and, whilst the data suggests that it’s wrong to think of the internet as a discount route to market, for certain retailers and for certain brands at specific points in time, this can be a valid argument. However, the picture is complex and it is not always the case that online prices are lower. Due to this complexity, it’s not readily apparent how this has affected the wider market, but it does emphasise the importance of omnichannel retailing; customers are increasingly likely to expect the same ease of interaction, the same information to be available and the same brand experience however they interact with the watch market,” Mr Mitchell suggests.

The CMJ’s Mr Hamilton wonders whether any fashion watch that he’s seen this year has the potential to move the needle. “Looking at it from a retail jeweller’s point of view, they look at watches now and ask, what is my return on investment stocking a certain watch brand against stocking jewellery from a Thomas Sabo? The margins in the jewellery industry are far better than in the watch industry. That is what drives retail jewellers – what is my return on investment by brand, by category,” he says. “They want watch brands, they just do not know which ones to invest in because it is such a mêlée of a market. You can go into the [CMJ] show and tell me if you can identify the next big watch brand. It is impossible. Every sales rep will tell you their brand is the next big thing.”

One trick is to study catwalk fashion and look for watches that pick watches that work with the trends they see in clothing. Helpfully, the fashion world works half a year ahead, so it is often possible to get a feel for colours and textures that will dominate the fashion stores before selecting collections for a watch store.

“Watch retailers have to listen to the fashion world. The fashion world might say that next year is going to be all about yellow and pink, but the retailer decides they don’t like yellow and pink and won’t buy watches in that colour. Not only do the watches that they choose not sell, they also would have sold a lot of yellow and pink watches if they had listened to the fashion experts,” Mr Hamilton advises.

Olivia Burton is a master at this, matching their watch collections to fashion trends that they identify years in advance. This might explain why retailers voted for the brand to win the Fashion Watch Brand of the Year at the 2016 WatchPro Awards.

The 2017 Olivia Burton collection continues on a few of their favourite themes, with bees, flowers, birds and other wildlife featuring across their watches. Dusky pink and grey are the colours that crop up time and again.

Advertising is another clue to watch for and it is worth piggybacking on the massive marketing campaigns run by fashion brands. If a huge star is signed up by a fashion label, they will raise the profile of that brand and might even push their watches.

This year, for example, fashion giant Guess has signed pop star Joe Jonas as the face of its Spring 2017 marketing campaign for underwear. But as part of the deal, he will also be seen across the brand’s advertising wearing the fashion label’s current watches. The artist, who started his singing career alongside brothers Nick and Kevin as The Jonas Brothers, re-launched his singing career last year as lead vocalist of his new band, DNCE, whose first single Cake by the Ocean won two platinum records. Mr Jonas is also a massive social media star, reaching 8 million followers on Twitter, 5 million on Facebook and 4.5 million on Instagram.

Joe Jonas Guess

Retailers with a young female customer base should take a look at the visual merchandising and the watches and consider whether the Joe Jonas connection will pull in punters.

Daniel Wellington has just revealed that reality TV star and supermodel Kendall Jenner will be the face of its Classic Petite collection this season. That could make the watch brand a massive hit if she starts spreading the word to her 76 million Instagram followers across the world.

DANIEL WELLINGTON_Kendall Jenner

Whether Joe Jonas and Kendall Jenner appeal to the same consumer is a question for somebody more in tune with the zeitgeist than WatchPro, but it is a question that retailers will need to ponder when considering whether to stock Guess watches, Daniel Wellington watches or both.

Ultimately, once a retailer hits a fashion trend hot streak watch, they should milk it for all it is worth. “Find the icon watch,” says Mr Hamilton. “Once you have an iconic watch, run with it. Remember with Michael Kors, there was probably 20% of that range accounting for 80% of sales. The last thing a retailer should do is give any of that space to another brand,” he advises.

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One Comment;

  1. Jason Humphrey said:

    Willie Hamilton’s comment “What I would say is that watch companies need to make the next fashion icon, not just a watch” “Watch retailers have to listen to the fashion world. The fashion world might say that next year is going to be all about yellow and pink, but the retailer decides they don’t like yellow and pink and won’t buy watches in that colour. Not only do the watches that they choose not sell, they also would have sold a lot of yellow and pink watches if they had listened to the fashion experts,” Mr Hamilton advises.

    This is bang on. There are lots of well respected real watchmaking companies with heritage that sell some excellent value (Under £500 and under £200) watches which will trounce all over the fashion watch brands in terms of quality. Perhaps if they can move a little quicker in response to fashion trends then it would open up the established quality watch manufacturing companies to new younger customers. https://www.youtube.com/watch?v=jhK9uylu6hw&feature=youtu.be

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