What the Swiss watch industry thinks
The first Deloitte Swiss watch industry study
Zurich, 13 of November 2012
Deloitte, the professional services firm, conducted personal in-depth interviews and an online survey with 50 Swiss watch executives, analysing the Swiss watch industry and its business outlook.
The Swiss watch industry has been an extraordinary success-story: Exports were at a record high (19.3 billion CHF) in 2011 and at a monthly record (1.97 billion CHF) in July 2012. However there is a gathering sense of caution amongst Swiss watchmakers after September 2012, the total value of exports declined for the first time in 30 months. Deloitte has chosen this interesting time to conduct personal-in-depth interviews and an online survey with 50 Swiss executives to analyse the economic outlook of the watch industry.
The executives who responded look cautiously optimistic into the future, with 31% being optimistic for the business outlook for the next 12 months, but a growing concern about the progress of the global economy.As Jean-Francois Lagasse, Deloitte Partner in Corporate Finance, explains: “Worries about a possible growth slowdown in the main export markets are persistent with the executives. But the growth of the Chinese and other emerging markets is still high – and there are still untapped opportunities for the Swiss watch industry in many of these markets including China.” According to the survey respondents, Asia will keep its important position, 58% are expecting the strongest export growth in Asia in the next 12 months.
The high Swiss Franc is a challenge for the watch industry – especially for the smaller brands and the manufacturers – as there is no escape from the impact of an appreciating currency. Only some of the bigger brands have proven powerful enough to share exchange rate risks with distributors and consumers. However even for them a further strengthening of the Swiss Franc would represent a major challenge. But Howard da Silva, Lead Partner Consumer Business at Deloitte, is optimistic for the future of the watch industry: “Though times are tough, the range and depth of the business strategies of the Swiss watch industry remain formidable. This industry has managed the ups and downs of fate and fortune for more than 400 years – and there are no signs of it ceasing to do so.”
With the strong growth, supply side risks deserve special attention: More than 30% of the executives consider the shortage of skilled labour as a significant risk to their company. Another risk is the availability of third party parts and movements. This can be influenced by government or regulatory decisions (such as the COMCO ruling to allow the Swatch Group to reduce output, or “Swiss made” legislation aimed at protecting the Swiss brand). The COMCO decision gets a mixed reception in our survey, while the “Swiss made” legislation is widely supported.
Almost all watch executives believe that verticalisation is a growing trend: To alleviate sourcing problems (in production and skilled labour), large groups and brands have focused on vertical integration. Almost two thirds of respondents expect the M&A levels to rise in the next 12 months – by formation of large supplier groups as well as acquisitions of larger producers by brands.
Optimisation of sales channels is a priority for our survey participants, but many also recognise the rising potential of social media. Several respondents indicate plans for online distribution through e-boutiques. The big sales trend of recent years – mono-brand stores – is still going strong, with new openings planned around the world.
The Deloitte Swiss Watch Industry Study 2012 is based on personal interviews with executives and an online survey. The personal interviews were conducted from June to September 2012. The online survey was conducted in September 2012. A total of 50 watch executives participated, 52% of participants work for component manufacturers, 30% for a brand and 18% for companies across the value chain. Two thirds of participant’s companies sell watches at a retail price of more than 5’000 CHF, one third below.
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