Swiss watchmaker industry is facing a new crisis, but it’s not the first
During World War II, while major nations shifted their industrial strengths towards military use, Swiss watchmakers prospered in absence of substantial competition, gaining a position of actual monopoly until the 1970s.
The Quartz Crisis
In the late 1960s a new technology entered the market: Quartz watches. Many once-profitable and famous Swiss watch houses became insolvent or disappeared as a result of the economic turmoil that ensued.
By 1983 the crisis reached its peak: if in 1970 Swiss watchmakers were about 1.600, this number plunged to 600 by that year.
The Luxury Refuge
The quartz revolution pushed Swiss manufacturers in the luxury high end of the market, in which Rolex managed to consolidate itself as a leading brand. The lower end of the market is now a battlefield where Swiss watchmakers have strong Japanese and Chinese manufacturers, who benefit mass production scale effects.
66% of Swiss watches are premium
The effects of the quartz crisis of the 1970s and the consequent high-end luxury segment positioning of the Swiss watch manufacturers is represented by the following chart: Even if only 6% of the volume of exports are represented by watches over 3.000 CHF (2.800 EUR approx), they account for 66% in terms of value: The luxury segment is the stronghold of the Swiss Watch industry.
The New Normal of Luxury
After the growth of the 1990s and the first decade of 2000s, after the Democratization of luxury goods and Chinese expansion, the following years seem to be dominated by a new normal: Slow growth. In this ecosystem, Swiss watchmakers seem to suffer from declining growth: suffering from decrease in tourism (prime consumer target), strong Swiss Franc, anti-bribery laws in China and, dangerously in the long term Apple inc. as new opponent.
The Apple and Hermés watch
Apple proved that the disruption of technology can revert any existing equilibrium in sectors not apparently in direct in competition with them. It was the well known industry of mobile phones, music or photography.
Now, while the Apple Watch in this stage of evolution hasn’t (yet) reached its full potential in terms of sales, there are signals that the Swiss watch manufacturing industry is under threat: while the price range of the product offered span from thousand to hundreds of thousand of Euros in price, our analysis shows that the actual revenues come from 43% from watches sold at under 12.000 Eur, 25% in the 3.500-8.000 Eur price range. This range is explicitly threatened by the Apple Watch, which enters with a renewed image of the wristwatch together with Hermés, and placing the products at the door of this price point: 1.800 Eur.
Where is the Rolex costumer base
The threat is tangible. As you can see in this report, there are two main customer segments addressed by Rolex: The first is buying watches in a price range of 3.500 to 12.000 Eur, an entry-level luxury watch, which accounts for 45% of the business of Rolex watches.
The second group of customers, approx. 38% of the consumer base, buys watches from 20.000 to 35.000 Eur. The price of a mid class car. Compound these two clusters represent more than 80% of the business at Rolex.
Please see our Rolex report for more detailed info.