David Blecken
Apr 17, 2018

Beyond time: How watch brands are adapting to survive

SECTOR STUDY: An industry that prizes tradition is learning that it must innovate to stay alive, but extinction looks near for brands without a clear proposition.

Baselworld has seen attendance shrink dramatically in recent years (photo: AFP)
Baselworld has seen attendance shrink dramatically in recent years (photo: AFP)

For a product category that really doesn’t need to exist at all, there is a good amount of life in watches. Top-end mechanical brands continue to draw the same levels of passion from enthusiasts as ever, and a glance around a room of business executives suggests timepieces are as important to an outfit now as they were 30 years ago.

At the same time, Baselworld, the biggest watch fair in the world, was two days shorter than usual this year, owing to a sharp drop in attendance and participants over the last two years. According to Hodinkee, a website about watch culture, the event’s future is now in question. And while Apple’s smartwatch hasn’t put paid to mechanical ones as many predicted it would, it has prompted some traditional manufacturers to innovate with their own Android versions.

Pressure is even stronger at the mid-range, where brands like Seiko and Citizen have re-examined what they stand for and are trying to reposition themselves for a more affluent consumer base in order to stay in business. According to research into Swiss watches by Deloitte last year, high-end watches (priced at upwards of US$3,000) drove growth in Q2, while exports of low-end watches fell by 11%.

Changes at the top

Aesthetics, history and a sense of fine craftsmanship are still central to the appeal of high-end brands, each to varying degrees depending on the consumer. Tony Poon, a thirty-something Apple enthusiast who works for a major global tech company in Hong Kong, recently bought an Audemars Piguet Royal Oak to complement his Apple Watch. He says he chose it because the brand has a long history of innovation, is independent (i.e. not part of a major luxury group), and has an iconic design.

“I only look at watches that have either a long history of innovation or use technological materials that are in aerospace like carbon fibre,” Poon says. While he does not wear traditional watches often, he derives satisfaction from ownership. Other brands he likes are Patek Philippe, Vacheron Constantin and Richard Mille.

For Poon, comparing mechanical watches to smartwatches “is like comparing a horse to a subway system. Both are modes of transportation, but the spirit is very different… A mechanical timepiece is something akin to a personal piece of artwork rather than a productivity device like an Apple Watch”.

Yet while they might not be directly comparable, they compete for “share of wrist”, as Paul Galesloot, Asia CEO of branding firm Cowan puts it. Deloitte says global smartwatch shipments increased 48% in Q1 last year, and Apple has boasted of overtaking Rolex as the world’s biggest watch brand. In response, Tag Heuer, Ressence and even Louis Vuitton have launched innovative products with both mechanical and smartwatch components. According to Deloitte, 48% of Swiss watch executives see potential in the hybrid model. Ressence, a high-end Belgian brand founded in 2010, stands out as an innovative newcomer taking this approach with the Type 2 e-Crown Concept.

Ressence is a brand finding success by fusing traditional and modern technology (source: Ressence)

Social climbers

Most mid-range brands are not at that stage of innovation yet, even though they arguably face a greater threat from smartwatches and other wearable technology. As Seiko emulates high-end counterparts with its Grand Seiko range, Citizen is looking to luxury acquisitions to compete on a higher level. Meanwhile, Rado has banked on design to set itself apart.

Rado faces the challenge of inconsistent brand perception. It ranks alongside Rolex in terms of popularity in India, but in Japan it is working to regain the status it once had after languishing on the shelves of mom-and-pop stores. The brand collaborates with a wide range of guest designers, from industrial designer Konstantin Grcic to the fashion designer Kunihiko Morinaga.

Michiyo Fukuhara, brand director for Japan, says that while it’s been a struggle, Rado is making headway, with Japan designated as a focus market by headquarters. In moving the brand away not just from its mom-and-pop days but also from its original “futuristic” positioning (which soon became dated), Fukuhara says she is careful not to segment consumers by age but by taste. Design may be a draw for young people, but it’s important to retain older customers since they are still more affluent, she notes. But she sees little point in trying to win over people who prefer smartwatches.

Where Rado once advertised on TV, the emphasis is now on retail and online platforms such as Instagram. In Deloitte’s report, social media has ranked as the most important element of marketing for Swiss watch brands for the past three years. This is particularly true in Japan, where watch brands cited social media as having the biggest influence on purchase decisions, followed by print media and in-store events.

Although Rado is not trying to raise its prices, which average $2,000 to $3,000, Fukuhara says investing in training sales staff has been crucial. She is doubtful about the efforts of brands to move further upmarket because it’s not only the product that has to change, but everything around it. To jump from a 20,000-yen brand to a 500,000-yen brand, the entire purchase experience has to feel in line with that or it won’t persuade people, she says.

Rado works with Lidewij Edelkoort, a renowned trend forecaster, for artistic and editorial direction (source: Rado)

Andreas Moellmann, chief strategy officer and head of digital at Geometry Japan, thinks brands like Grand Seiko appeal to a small segment of the high-end market—“people who really know what they’re buying”. The quality of a Grand Seiko is indisputable, particularly when you consider that much of the mechanical watch movements sold to the mass market are produced in bulk in Chinese factories. But the Seiko name is still tied to the mass market. For the price, many would rather opt for a Rolex, or even a Gucci, Moellmann says, “because it says more about me”.

Galesloot draws a parallel with the automotive industry, where Toyota and Nissan both created entirely separate luxury brands. Being asked to choose a “really expensive Toyota” over something like an Audi, he says, is a “challenging proposition”. Part of the problem is that the Grand Seiko brand still lacks clarity. Its advertising follows the format of more established luxury brands, but with less consistency and without the brand cachet that Swiss rivals have built up over a long period.

Survival strategies

So does a future exist for mid-range brands? Moellmann believes Casio’s G-Shock, for example, is distinct enough to remain relevant. But observers agree that established brands without a clear enough proposition beyond telling the time—essentially most of the mid-range segment—are likely to fall by the wayside, weighed down by infrastructural costs as sales decline.

Moellmann thinks the main hope for the mid-range is to follow high-end brands not in emulating their traditional products but in their partial embrace of the smartwatch model. He suggests looking at the evolution of other industries, such as automotive and music, and learning to create an ecosystem beyond one-off products. To offset flagging car sales, for example, Toyota has positioned itself as a ‘mobility provider’ rather than a carmaker.

“It means stepping up from being a manufacturer to become a service provider, and understanding what needs to change to provide that,” Moellmann says. But while it sounds exciting, in practice such a move would be extremely difficult, requiring a fundamental shift in business. And given the head start Apple and GPS technology companies like Garmin have, it may simply be too late.

New entrants arguably have things much easier than brands with legacies that they are trying to evolve. Brands like Daniel Wellington have been successful with a simple product and an online-focused direct-to-consumer sales and marketing strategy tailored to the Instagram generation.

That generation’s desire for exclusivity and individuality may offer the biggest clue as to the survival of the watch industry at large. Poon thinks young consumers will still want to own formal watches for social occasions, but that watchmakers will nonetheless have to “keep up with the times”. Luxury brands have typically discouraged customisation, which has been the preserve of independent specialists such as the Bamford Watch Department. That is now changing. In March, IWC launched an online tool enabling people to design a chronograph to their own specifications and order it. While it’s early to judge, the move could herald an important change in the way the industry attracts customers.

“All consumers are fundamentally looking for something that’s a surprise, that goes beyond what they expect, awes them and makes them excited,” Moellmann says. “No one needs a watch. You have to want it, and if you want it, it really doesn’t matter how much it costs. Creating those surprises for any target group is the way forward.”

A brief look at the state of the Swiss watch industry (source: Deloitte)

  • 60% of watch buyers research products and prices online, even though most still make purchases in-store
  • 55% of Swiss watch executives say developing ecommerce/digital channels is a strong priority
  • 34% see online authorised dealers becoming the most important sales channel over the next five years
  • Mechanical watches saw a 1.9% rise in exports in 2017, while quartz watches saw a decline of 5.7%
  • 71% of Swiss watch executives said in 2017 that they anticipate growth in Asia, compared to 35% the previous year
  • Just 23% see smartwatches as a major threat to their business
  • 49% of Chinese consumers say they are most likely to choose a smartwatch over others in the next two years, compared to 28% in Japan
  • 78% of Chinese millennials say they would opt for a single mechanical watch if they were given $5,000 to spend
Source:
Campaign Japan

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