I spent the weekend poring over the latest annual report on the state of the Swiss watch industry from Morgan Stanley and LuxeConsult and three inescapable conclusions jump out of the data.
First, size matters.
Compare the performance of the top 25 Swiss watchmakers with the next 25 biggest that make up the top 50 and you find that the top 25 averaged growth of 53% from 2019 to 2023. The 25 in the second tier shrank on average by 5% over the five years.
Secondly, it is better to be privately-owned than publicly-traded.
Private watchmakers saw sales rise by an average of 43% over the five years since 2019. Those within the publicly-traded LVMH, Swatch Group, Richemont and Kering rose by a more modest 16%.
Thirdly, pitching four-figure watches as affordable luxuries has not paid off.
The term affordable luxury may be part of the problem. Frederique Constant, Tissot, Rado and Longines have all been comfortable being described in this way, but the evidence from sales figures says they need a rethink.
The report says that sales for Frederique Constant have more than halved since 2019, a figure that is strongly denied by the company. Baume & Mercier is down 13% in comparison to five years ago, Rado is 37% smaller, Tissot is down 30% and Longines by 33%, according to Morgan Stanley and LuxeConsult estimates.
It is important to note that the figures have been contested over the seven years and the report’s authors are clear that they are, in the main, estimates and subject to revisions.
Since publication of the 2023 report, Frederique Constant has made clear to WatchPro that the 2019 turnover figure was too high (Morgan Stanley’s estimate for 2019 was CHF 160 million but a highly placed source at the company said sales that year were under CHF 100 million that year) and the 2023 figure is too low (the same source says Frederique Constant’s turnover is up 11% between 2019 and 2023.
However, Frederique Constant does agree with the assertion that the affordable luxury space has become tough, which is why it now focuses on increasing the value for every watch it sells, which pushes up average selling prices and reduces sales volumes.
Pricing quartz-based steel watches or mechanicals housing mass-produced ETA or Sellita movements at £1,500 does not make them luxurious or affordable, just because the brands say so.
Capping or reducing production while increasing prices seems to have been the most likely path to success since the pandemic.
Breitling’s average retail price in 2021 was CHF 4,888 in 2021; a year when it manufactured 190,000 watches, according to Morgan Stanley estimates. Two years later, the company made 12,000 fewer units in 2023, but the average retail price shot up to CHF 6,769.
Compare this to TAG Heuer, which by Morgan Stanley estimates made 460,000 watches in 2021 with an average retail price of CHF 2,095. By 2023, it made 390,000 but its average price had risen to only CHF 2,228.
Breitling and TAG Heuer were virtually tied for tenth place in a league table of Swiss manufacturers in 2021 with estimated turnover of CHF 680 million. Last year Breitling rose to ninth place, with sales of CHF 870 million while TAG Heuer dropped to 15th place with turnover of CHF 615 million.
Breitling has managed to elevate itself above the affordable luxury morass while TAG Heuer has found itself stuck there.
