Horological Meandering

In an earnings call today, Swatch Group's President Nick Hayek had to announce really bad news: The watch conglomerate's profits drop by 60% for the first 6 months of 2016 (y-o-y), mainly attributable to dwindling sales in Hong Kong and Europe, particularly France and Switzerland. Furthermore, the profit margin halved from 18% to 9%, which analysts consider an alarming sign.

IMHO (non-exhaustive list):

Managers have to be watch lovers who understand what they do and do it with enthusiasm and focus on a sustainable development.

Reasonable prices (in Austria i.e. a Rolex DD40 Platinum costs K€ 22 more than the WG version...). Greed leads to nowhere.

Quality of product and service on one hand and prices for them on the other have to be in a certain relation (I don't want to wait months of months for a service just to have the watch sent back again)

Attractive offers also for the average watch enthusiast who cannot afford / doesn't want to afford a steel watch for K€30 and more. Apart from the fact that the middle class simply breaks away...

Best, Thomas

Quality: I'm not sure watches today are inferior in quality than the watches from the 1980's for instance. Steel quality is better, finishing is better in our movements than in former versions (324 from 315 or actual other movements compared the 27-460 etc...). It is a bit like cars: vintage is beautiful but plastic, leather and steel were poor quality compared to today's.

Real new competition: knowing the huge number of watch brands, at every level of price, there is a lot of competition.

Furthermore, I don't think we can compare car or appartment prices to watches: it doesn't depend on the inherent value but on the demand/offer issue and what people buying them want. Otherwise a Picasso would cost 100$.

The problem is the price level that has been pushed up (like cars, real estate, and all other luxury goods) by the Asian growth from the 2000/2014 (roughly) period.

The price increase has been stronger than the real demand.

So, I think this burst is a good thing but I don't find the same reasons.

This being said, the analysis and solutions are not the same for every level of watches. 1000/5000€ watches are not the same world (and clients) than 30 000/100 000€. A decrease in production volume in the latter can maybe be enough, but doing so in the first one will not be enough.

Cheers Kari,

Mark

No message body

No message body

I must sell only three wristwatches ( and not the most expensives ) from my collection to finance the 50% of the price of my Porsche Panamera!
It is quite strange and the jump is high from Bmw to Porsche, and gives me a lot of satisfaction, much more, if I would save the three watches in my collection.
On the other hand, almost every car has a great pricedrop and the running expenses are much more by a V8 engine car as a high-end wristwatch.

Yours,

Adam

No message body

for this working class, I think that pricing strategy is just insane. Yes, they will sell you that economists' smoke screen of supply vs demand but ultimately there has to be some kind of value justification. Of course if one is born with money, then by all means.
I am also starting to get disappointed with the Swiss watch industry in general. For example, I have a humble Rolex Date for 20 years now. Every 6 year I sent it to the official service center in Singapore for the recommended service. Each time the price went up and the wait takes a little longer. The last time the watch completely stopped the seconf day I had it back. Of course, Rolex can afford such sloppy service since their products are in such demand, for now.

please enjoy your life, especially the Ferrari. I am contend with just occasional glimpse of the Ferraris or the Pateks in this life

Luck always plays a role but in the end, everything depends on how hard one works. I trust that even nearly every marriage could succeed if both try hard. And nearly everybody can drive on day a Ferrari and wear a Patek if those are the ultimate goals. Still I think there are more important things in this life.

boys from Nike sweatshops in Vietnam?
Regards
D
P.S. Thing about marriage I agree completely

No message body

They make great watches at even more affordable prices.

I had great experience with the Rolex service, i think your unsatisfactory service is a rare exception. Should not happen nevertheless and I agree the price and wait for the service is not optimal .

But more importantly, there is a huge choice of mechanical swiss watches from a few hundred to a few hundred thousand dollars. Why do we always have to look at Rolex or PP? Why not try Mido or Loius Erard? Very nice designs at reasonable prices. Oris and Longines should be mentioned as well.
All of them can be serviced and repaired for decades, if not generations. While I don't recommend it, ETA movements can also be serviced by an unassociated watchmaker in a side street.

Conclusion from my point of view is: the choice is ours!

Best

Stefan

No message body

......however, I would add that the expansion of the EM markets has been in no way a small thing in the demand/supply (imbalance). I would also add that global central banks have been printing money for a number of years now...and with interest rates negative in many developed economies, it is inevitable that price bubbles will appear in specific areas. Now, bubbles can go on for a long time and many don't actually burst....it is not clear to me that the watch industry will generally face a bust. Your comments about capacity and quality are well-made...and i think I have also seen that process unfold many times with bad consequences. Will it happen again? Maybe...maybe it hits only specific sectors of the market....kings with no clothes maybe....or maybe it hits everyone. I think its hard to single out the watch industry as being specifically prone...i have seen it happen across a lot fo asset classes....money printing may make the outcome different this time....in past cycles, we just haven't had the same situation...makes me unsure of how it will unfold

.....the printing of money as a solution creates all manner of distortions.

No message body

.....if you or I could print money legally, would we use that money to buy government bonds paying zero interest? I think I would use it to buy other stuff!

Thanks for sharing a great point of view. I equally feel time pieces have become way to expensive for mediocre pieces and waves of "limited" editions that are meaningless. I hope a correct will bring some sanity back for the true collectors and future ones as well.
Cheers
J

Profit margins were just insane and unsustainable. In a not so far sector, Apple will know the same trajectory quickly.

It is a salutary adjustment even if it will be to the detriment of employees as usual.

Do not forget (and it is valid for everything) that the trees do not grow to heaven.

Best wishes

Alkiro

... the Asia boom has covered it for a while, but there are limits to luxury products, especially when they are long lasting and all important real innovation took place.

No message body

Numbers sinking and becoming a buyers market. No silly prices of new watches and no new extra extra insanely prices watches .
Evident from the fact that Piaget just launched a polo prices under 10k , Vacheron started a new steel watches line going for sub 15k category, tag Heuer selling tourbys at 15k mark and Lange coming out with an affordable Saxonia line ..
Swatch groups action will be judged by new omegas at a lower pricing levels, possible lower price entry for Breguet and blancpain ...
Keeping fingers crossed and in my option on a chance to get your Grail pieces at the right price !

As I already told here, we are privileged people and, sometimes, we do not keep our feet on the ground.

Of course making a splendid watch requires time, investment, qualified people... but profit margins in this industry are too high and finally insane.

I think the comparison of Kari between a PP and a Ferrari is interesting.

Well, the future will tell us how this industry wants to change.

Best wishes

Alkiro

The new Overseas line came out with very high prices. I believe the steel chrono retails for nearly 30k. When I bought the previous version, which I still happen to like better, the watch retailed for about 16k which seemed fair.
Tony