SDC Weekly 62; Let's talk about China; Science of Motivation
SDC Weekly 62; Let's talk about China; Science of Motivation
Midwits, Swiss Watch Industry July Update, Bezel Report, Watch Events, Fresh Perspectives in Horological Media,
🚨 Welcome to another edition of SDC Weekly. Estimated reading time: ~40 mins
This week we delve into the latest Swiss watch export data, explore the landscape of watch events, and uncover emerging trends in Chinese luxury consumption and watchmaking. From high-stakes auctions to some rather peculiar watch smuggling incidents… buckle up for a journey through time, technology, and I guess, craftsmanship.
If you’re new here, welcome! Feel free to catch up on the older editions of SDC Weekly here.
🎈 Small stuff
Federation of the Swiss Watch Industry - July Update
The Federation of the Swiss Watch Industry released its latest report on Swiss watch exports for July 2024. It reveals a slight improvement, with exports ticking up 1.6% to 2.2 billion Swiss francs. The headline figures might seem encouraging, but let’s not get ahead of ourselves - we’re still looking at a 2.4% decline for the year so far, with total exports reaching 15.2 billion francs in the first seven months.
The key takeaways for July:
Precious metal watches up 12.6%, steel watches down -10.4%.
Sub-200 franc watches surprised with 13.7% growth, and the 200-3,000 franc segment tanked -14.4%.
The US and Japanese markets showed strength, up 11.3% and 25.6% respectively.
China and Hong Kong continued their downward spiral, dropping -32.8% and -19.1%. respectively
Back in April, we saw a 4.5% increase in exports, driven by strong demand from the US and Japan. This trend has continued into July, suggesting a sustained appetite in these markets. However, the China situation has dramatically worsened. In April, China was down 7.5% - fast forward to July, and we’re looking at a staggering 32.8% decline. This doesn’t seem to be a blip; it’s a concerning trend that’s been gathering pace.
June’s report was particularly gloomy, with overall exports down 7.2%. July’s modest growth might seem like a recovery, but the continued weakness in the crucial 200-3,000 franc segment suggests underlying issues (For reference, this segment grew from 11.4 billion CHF in 2020 to 19.7 billion CHF in 2023).
What’s particularly interesting is the performance of the sub-200 franc category. In June, it was down 6.4%, but July brought a remarkable turnaround with 13.7% growth. This volatility in the entry-level segment bears further observation.
As
reports on Bloomberg, the continued strength of the Swiss franc is adding another layer of complexity to the industry’s challenges. The currency situation has led to price increases in some markets, potentially deterring customers and contributing to the overall slowdown.The Bloomberg article also sheds light on specific brand performances within the Swatch Group. Exports of Omega watches rose 7% in July, while the Swatch brand saw a 27% surge. This aligns with our observation about the strong performance in the sub-200 franc category, which includes the MoonSwatch collaboration.
It’s worth noting some historical context here. Swiss watch exports have grown from 10.3 billion CHF in 2000 to 26.7 billion CHF in 2023. Impressive, but it wasn’t a smooth upward trajectory. The industry has weathered several storms, including the 2008 financial crisis and the recent pandemic, which saw exports drop to 17 billion CHF in 2020 before rebounding strongly.
The most striking trend is the Swiss-shift towards mechanical watches. In 2000, electronic watches dominated, with 27.2 million units exported compared with only 2.5 million mechanical watches. Fast forward to 2023, and while electronic watches still lead in units (10.6 million vs 6.3 million mechanical), mechanical watches now account for the lion’s share of export value: 22 billion CHF compared with 3.5 billion CHF for electronic watches.
This shift reflects a fundamental change in the industry’s focus. Swiss watchmakers have increasingly positioned themselves in the luxury segment, emphasising craftsmanship, heritage, and exclusivity. The numbers bear this out: in 2023, watches priced over 3,000 CHF accounted for a whopping 77% of total export value, despite representing only 12% of the units shipped. The middle segment of the market, particularly watches priced between 200-500 CHF, has been consistently declining since 2015. This “hollowing out of the middle” (which we observe again in the July report) could leave the industry vulnerable to changes in luxury spending habits or economic downturns.
Geographically, the landscape has shifted dramatically. In 2000, the USA was the largest market for Swiss watches at 1.8 billion CHF, followed by Hong Kong at 1.4 billion CHF. By 2023, the USA had extended its lead, with exports of 4.2 billion CHF. China’s rise has been even more meteoric, from 45 million CHF in 2000 to 2.8 billion CHF in 2023, although recent data suggests this growth is now faltering.
The resilience of the US market and Japan’s emergence as a watch-shopping hub due to its weak currency are bright spots in an otherwise challenging landscape. Japan has actually overtaken China as the second-biggest market for Swiss timepieces - something I never thought was possible! I’m not saying this will last indefinitely, but this does drive home how significantly the current dynamics have shifted.
Looking ahead, what can we expect? Well, if I had a Swiss franc for every time I’ve been asked that, I’d probably have a museum full of Greubels by now. But let’s hazard an educated guess.
The continued strength of the US and Japanese markets is likely to provide some counterbalance to the overall market. That said, the persistent and worsening decline in China and Hong Kong is probably of major concern to Swiss brands. Coincidentally, I have more on this later in today newsletter, so stay tuned!
The polarisation between high-end and entry-level watches might accelerate. Brands operating in the squeezed middle will need to innovate or perhaps move upward and try to capture market share in the higher price segments.
One crucial point to remember is the lag between these export figures and actual retail sales. The watches leaving Switzerland today might not hit store shelves for weeks or months. So, the full impact of current economic conditions might not be fully reflected in these numbers yet.
The next few months will be crucial in determining whether July’s slight improvement was the start of a recovery or merely some brief respite in a more challenging long-term trend.
Here’s the report if you’re interested:
Bezel’s 2024 Mid-Year Report
Perhaps far less interesting that the FHH report, but Bezel recently released a Market report, serving up data from their $500 million worth of listings. A lot of it reads like a ‘marketing report’ than an actual market report, but that’s to be expected. There' was enough juice in the report to make it worth the squeeze, but… just barely, so lower your expectations here.
Bezel’s rejection rate has inched up to 24% from last year’s 23% - that’s watches which were submitted for sale, but did not pass their QC checks. Rolex and Cartier lead the pack in rejections, and it’s not just about spotting outright fakes. They cover two examples in the report of swapped movements in Patek Philippe Ladies’ Nautilus and a “wiped” Rolex warranty card. They use this as proof of their reliability, as they continue to build trust with the community. This seems to be bread-and-butter stuff, so I’m not sure anyone would care. More marketing fluff.
Rolex, unsurprisingly, tops their “most wanted” list, followed by Omega and Tudor. Steel watches make up 78% of total “wants.” It would appear the steel craze is far from over. Also, black dials reign supreme, accounting for 42% of wants and 41% of sales. As my buddy NH would say about black dials: “always in style, never out of place.” Size-wise, 41mm is surprisingly, the magic number, being the most sought-after case size.
When it comes to actual sales, Rolex still wears the crown. They account for 37% of sales, down from 40% last year. Meanwhile, TAG Heuer (!?) has jumped into fourth place, having not even made the top 10 last year.
Most interesting to me, and why I chose to cover this, is 70% of Bezel’s sales come from Gen Z and Millennials. Gen Z boasts the highest average order value; It seems the avocado toast generation has developed a taste for Swiss luxury - which reiterates my point from a couple of weeks ago about the importance of Gen Z. See? I sometimes do make sense!
The vintage market is showing signs of life too. While watches from the last decade still dominate sales, there’s a growing trend of buyers graduating to older pieces in subsequent purchases. This also might feed back and contribute to the Swiss watch export declines.
Bezel claims their median selling time is half that of other platforms, with payouts in 1-2 days compared to 7+ elsewhere. More marketing BS, because I have dealt with other platforms, and they also payout withing 2 days. Why lie?
In short, it’s young o’clock, with a chance of vintage later. The steel trend shows no signs of rusting, and black is the new... well, black. As for Bezel, they’re trying to position themselves as the hall monitors of the industry in the digital age, but they ought to stop with the BS and stick to the facts before people can take them at their word for anything.