It has been a few days since I returned from a glorious few days at Watches & Wonders in Geneva, and a good time to reflect on what I learned at the show.
It is the first time that the FHH event has been held under its new name, after retiring the SIHH brand for a gathering last seen in January 2019, so it has been over three years since the industry last came together in earnest.
Casting my mind back to 2019, there was a major question mark over the future of trade fairs.
Baselworld was already looking in trouble, with its 2019 event significantly diminished by the withdrawal of all Swatch Group brands, Breitling and many other smaller watch, jewellery, gems and equipment exhibitors.
When the pandemic began, the inaugural Watches & Wonders and Baselworld were postponed for a year, and then two.
New watch launches moved online, Watches & Wonders went entirely digital, and we all settled into life in front of screens.
I was miserable, and said so, but the industry seemed strangely accepting of the new normal.
Moreover, after an initial slump in manufacturing and sales, it recovered most of the lost ground by the end of 2020, and notched up record sales and profits in 2021.
Who needs exhibitions costing tens of millions of dollars when you make more money doing business over Zoom?
That question hung in the air as we traveled to Geneva last week, but was immediately answered as we stepped into the hushed halls of the Geneva Palexpo.
There are myriad reason we need exhibitions, and here are just a few that occurred to me.
First, luxury is about experience as much as product, and experience comes more from people than environment.
This is why W&W is set up for chance meetings between brands, retailers and press.
Lunch is served on large round tables where you just have to grab a chair and start speaking to your neighbours; there are large seating areas with space for 20-30 or more people so a conversation in one corner might be joined by a group in another; press rooms also have large round tables so you cannot simply log in and stare at your screen, you will find yourself chatting to another journalist from your country or elsewhere in the world.
These opportunities to mingle are on top of the chance encounters as you walk around the show, and at the evening drinks and dinners where the unguarded trade gossip.
Secondly, we were reminded that you cannot truly learn about watches over zoom or with a picture on social media.
You have to get up close.
W&W organisers encouraged all 38 exhibitors to arrange what they called “Touch and Feel” sessions with press and retailers.
That probably sounded better in the meeting at FHH (and in French) than it did in practice. I never got comfortable walking up to the reception desk of a watch brand and announcing I was there for my touch and feel session.
But the concept’s name says it all. You cannot review hundreds of watches, making instant comparisons and calculations about their potential, without touching them and noting what feelings they evoke.
Thirdly, it was obvious the luxury watch industry is overwhelmingly optimistic and affluent right now.
The first quarter of the pandemic in 2020 required immediate measures to cut costs and protect cash.
When demand rocketed by the summer of 2020, these cost savings were baked in while top line turnover surged.
This was true of the luxury watch sector, and also for its customers.
Big business leaders became much richer as their companies outperformed budgets and, on the home front, these executives could not spend their money on the usual holidays and lavish nights out, so they bought ‘stuff’ instead.
This optimism and affluence fed through to product and prices at W&W.
I remember how product and prices were affected after the global financial crisis and again after the Chinese cracked down on gifting luxury watches to grease the wheels of industry.
On both occasions, watchmakers responded by introducing new references at the bottom end of their portfolios; lowering entry point prices for their cheapest watches.
This tactic has been reversed this year. Nobody was talking about lower entry prices.
Quite the opposite.
Brands with sub-£5,000 watches removed them from their collections and added others with five-figure price tags.
Prices across the landscape have been nudged up.
Steel on steel watches suddenly became bi-colour with a bit of gold added to a bezel or bracelet. An extra £200 added to the cost of production turned into an extra £1,000 on the price to the consumer.
Upgrading to a new movement (often a cost saving over time to a manufacturer) was another opportunity to bump prices.
In aggregate, the industry is making fewer watches and making much more money.
This is benefiting retailers, which have the strongest balance sheets in years, and are ready to invest in providing even better experiences to customers.
This has the potential to transform large swathes of the global watch industry because investment in real estate, ecommerce and marketing generates demand.
The UK is ahead of the rest of the world on this because of the bonanza this country enjoyed after the Brexit referendum in 2016.
Voting to leave the EU crashed the pound, giving the UK a 25-30% price advantage over the rest of Europe and a dramatic spike in sales to customers from Asia, the Middle East and even America.
Family-owned independents and huge multiples like Watches of Switzerland invested this windfall to stimulate even more growth, catapulting the UK to fourth place in the global ranking of the largest watch markets, even as the price advantage was closed.
America had its Brexit moment last year as the government and Fed overshot with its support measures and flooded the market with cash; almost all of which found its way into the bank accounts of the wealthy.
Every American retailer I spoke to at W&W was rubbing their eyes in disbelief at the boom they were enjoying.
Most are using the cash to refurbish and reconfigure their showrooms and open others. This will set the stage for long term demand generation, as we saw in the UK.
Continental Europe needs to keep pace or its retailers will become acquisition targets for larger groups.
My final takeaway from W&W was that the industry is ready to think global but act local.
It remains to be seen whether this theory survives, but it goes something like this: Major conglomerates — LVMH, Richemont, Kering and Swatch Group — have increasingly centralised their decision making at the head office level, leaving in-country offices acting as little more than conduits between retailers on the ground and the bean counters above them.
The speed at which retailers adapted to the restrictions imposed during the pandemic was inspiring. Watchmakers took notice and gave them more autonomy and support. They had little choice since, while retailers battled through, luxury groups sent staff home on furlough.
Brands like Omega, which seemed to be on an irreversible path to sell all watches directly to customers, are suddenly investing more time and energy into helping their wholesale partners.
Midfield Richemont brands like Panerai and IWC look like going the same route. Hublot, Vacheron Constantin and others are adding doors in strong markets (and with the strongest retailers) after reducing them for years.
All of the above set the stage for strong and sustainable growth over the next decade.
The only wrinkle is a bottleneck in production.
Watch manufactures cannot snap their fingers and make more product, particularly as there are still supply chain issues that could get worse if (whisper it) components from China cannot be made quickly enough.
There will also be some caution over covid. Is Omicron the final wave, or might something worse return next winter?
This will crimp major capital investment in manufacturing until the virus is a dot in the distance in our rear view mirrors.
Assuming the pandemic is coming to an end, those that invest most today will reap the greatest benefits down the line.
