CORDER’S COLUMN: FOMO is being turned on its head, and weaker brands are going to feel its force

The Swiss watch industry is not yet in crisis, but it is getting closer.

LVMH’s Watches & Jewelry business recorded a worldwide drop in sales of 4% in Q3.

The slow down worsened from 3% up year-on-year in Q1 and 1% up in Q2.

Richemont’s specialist watchmakers have seen sales to Asia Pacific drop by 29%; Europe down 8% and the Americas flat, year-on-year in its latest quarter.

Group sales at Swatch Group Group dropped 10.7% year-on-year in the first half of 2024.

All three groups are reporting far more challenging squeezes on profits as baked in inflation, materials costs and higher wages feed through their P&Ls.

Privateers Rolex, Patek Philippe, Audemars Piguet and Richard Mille are most likely bucking this gloomy trend, but they cannot prop up the entire Swiss watch industry on their own.

The total value of Swiss watch exports is down only 2.6% for the first 10 months of the year. That may seem like positive news, particularly given the record breaking 2023 to which the figures are being compared.

I see these continuingly strong exports as troubling because what I am hearing, even in the relatively solid UK and USA markets, is that watch sales both to into retailers and through to consumers are stalling.

Right now, nobody wants to be holding excessive stock, but the watches are still being manufactured and exported, which most likely means they are piling up in storage with the group’s in-country subsidiaries because retailers are reluctant to buy, and manufacturers, sensibly, are not forcing them to.

I say the manufacturers are taking a sensible approach, but the current situation may be more down to a shift in power between retailers and the brands.

The way things used to work was that ambitious retailers would be desperate to take on the best brands. Of course, they all had their sights set on Rolex and Patek Philippe (since AP and RM are direct to consumer brands), but they would work their way up through Tissot, Longines, Frederique Constant, Hamilton, Grand Seiko, TAG Heuer, Breitling, Omega, Tudor and Cartier in pursuit of their ultimate goal.

Some, located in more affluent locations, would also take on the likes of IWC, Chopard, Bulgari, Panerai, Girard Perregaux, Ulysse Nardin, Vacheron Constantin and Jaeger-LeCoultre.

Brands knew retailers would fight for their agency, and would keep buying whatever they were asked to for fear that they would lose the partnerships if they did not play ball.

Let’s call it FOMO, or fear of missing out.

I have sensed this year that FOMO is flipping.

Retailers are no longer afraid to say no when brands pitch new watches to them that they do not think will sell quickly.

In fact, they almost want to have a customer ready for every watch they do take in (although this is more of a dream than a realistic aspiration).

Demand is weak for all-but the big four luxury watch brands, and the further down the totem pole you go, the weaker it gets.

Why, then, would a retailer succumb to pressure to purchase watches where demand for particular brands is down by as much as 50% in recent months?

Pushing back is made even more likely because of the way brands behaved through the boom years.

They built their own boutiques in direct competition with their wholesale partners, and then pitched the playing field at around 45-degrees in their favour by hoarding all the best watches for their own stores.

Retailers want stable, reliable, mutually beneficial, long term partnerships with great brands, but the boom saw some pretty ordinary brands behaving like they could push partners around without consequences.

Those consequences are being felt now and I believe it will lead to a much greater shake-out of weaker players than we have seen so far.