I have been writing for the best part of a year about the dangers of watch manufacturers over-producing in a cooling market, pushing retailers to buy more than they can sell, and risking another round of discounting and/or dumping on the grey market.
We can see this trend clearly in the UK if we compare the year-on-year growth of retail sales (using GfK data) with Swiss watch export figures (from the Federation of the Swiss Watch Industry).
I have plotted the two data sets on the graph below where, put simply, in months where Swiss watch exports, the blue line, are above retail sales, in orange, then unsold inventory is building up in the wholesale channel or at retailers.
The odd month here or there when these growth figures are out of balance is fine if it is quickly corrected.
It is also harmless, and could be viewed positively, if watches in short supply and with long waiting lists, are more plentiful. We might even see the dreaded “For Exhibition Only” signs being removed from Rolex and Patek Philippe windows as supply catches-up for the hottest models.
But a prolonged period of supply rising and demand falling, as we have seen in the UK from May of last year until February of this, is concerning.
It points to inventory rising in the channel, which will put downward pressure on prices.
Another data set, this time from the Luxury Watch Barometer in the United States, shows how average inventory per store was up 10% year-on-year in March. This has risen from an increase in January of 8%, which was already a troubling figure.
This hasn’t, yet, fed through to declining average prices per watch sold through retail, but that may start to change unless we see a reaction.
Brands and retailers face a choice. Keep the CNC machines whirring at 2023 speed and hope demand can be stimulated for the same quantity of watches through great salesmanship and marketing, or dial down production to the point supply meets demand, which will maintain a solid foundation under prices.
Where brands sit on this scale is a crucial question, but my assumption would be that only a handful of brands Rolex, Patek Philippe, Audemars Piguet, Richard Mille and Cartier, will be in the low percentage sales drop range. Everybody else will be down by double figures.
Swiss manufacturers are, finally, starting to show they have a grip on this issue, with worldwide exports dropping by 16.1% last month compared with March 2023.
Exports to the UK fell by 13.2%, a healthy correction following almost a year of over-supply. Exports to the United States dipped by 6.5% as the economy cools.
A dramatic drop in exports to China and Hong Kong is an important correction, and may save us from a flood of watches onto the grey market from, shall we say, a less transparent part of the world.
Interestingly, economic news is improving, so we may be approaching the start of a more positive cycle, but manufacturers should not bank on a bounce back this calendar year.
Right now the industry needs to be focused on stimulating demand and intelligently managing supply. We cannot afford to let supply run ahead of demand for long. It is time to mind the gap.
