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Marketcheck

Less Is More: How Scarcity is Driving Growth for Swiss Watch Industry

By Neha S. Bajpai
9 Mar 2022
10 min read

With the demand for a handful of top brands at an all-time high, seven of them recorded more than 1 billion CHF in sales in 2021

 

It seems the worst is finally over for the Swiss luxury watch industry, which recorded a historic rebound with the “best-ever annual result” for global exports in 2021. According to a report published by the Federation Of The Swiss Watch Industry (FH), the total export value of Swiss watches for 2021 touched CHF 22.3 billion – a golden figure, which is not only 2.7%25 higher than 2019 but also a record number since 2014.

What’s most interesting in this annual analysis of Swiss watch shipments around the globe (essentially to watch company subsidiaries and agents) is that the export numbers haven’t gone up drastically over the last two years and yet the industry has managed to to scale up revenues in an exceptionally challenging environment.

Racing towards pre-pandemic profits, most watch brands started to revive in October 2021 on a surge in orders from the United States of America and China. These markets represented 27%25 of total value of the exports and accounted for most of the growth for the industry. However, had there not been an increase in demand for watches priced above CHF 3000 (the numbers went up from 1.688 million watches exported in 2019 to 1.787 million in 2021), the situation wouldn’t have been as rosy right now. 

 

Top 7 brands
Image ©Watchanalytics

 

As per the latest report on the Swiss watch market brought out by Morgan Stanley in collaboration with LuxeConsult, watches priced above CHF 3,000 accounted for 73%25 of sales but just 11%25 of exports by unit. Largely dominated by the top privately owned brands — Rolex, Patek Philippe, Audemars Piguet and Richard Mille – the desirability for rare, exclusive and supremely expensive watches has been at an all time high through the pandemic. “Rolex, Patek Philippe, Audemars Piguet and Richard Mille had combined sales of CHF 12.8bn in 2021, on our estimates, and a combined market share of 43%25. However, they captured 61%25 of the industry profit pool, with an aggregate operating margin of around 40%25,” states the report. 

 

The Movers & Shakers

Though Rolex has been the most sold Swiss watch brand in terms of value for a number of years now, it became the largest watch group in Switzerland for the first time ever in 2020. Last year, despite a slight increase in prices, Rolex recorded a turnover of CHF 8 billion, almost 30%25 up from 2020.  According to the Morgan Stanley report, the brand did not increase volumes as much as it could have and sold 1,050,000 watches in all. With a reported market share of 28.8 %25, Rolex continues to be the undisputed king of luxury watches. “Rolex's strategy since 2014 has translated to the brand's desirability reaching an all-time high as evidenced by the waiting list for its iconic watches, its resilience during a crisis such as the one in 2020, and the increase in the premium of second hand watches vs. new watches,” says the report. 

 

Top 7 brands
With a reported market share of 28.8 %25, Rolex continues to be the undisputed king of luxury watches

 

While Rolex expanded its reach in the market by almost 4%25 as compared to the previous year, its sister brand, Tudor, too secured a strong position with a 31%25 growth in sales last year. According to the report, while Tudor's rejuvenation began around a decade ago, it seems clear that both brands’ strategies are being managed adeptly. “Tudor benefited from, among other things, the scarcity in stores of a large number of Rolex Oyster Professional models,” it says.

One of the most outstanding performances last year came from Audemars Piguet, which has climbed two positions to be the fourth most successful watch brand in terms of annual turnover. Despite all the buzz around the Tiffany-Blue Patek Philippe Nautilus 5711, Audemars Piguet edged out its historical competitor to record a glorious year. 

The brand’s success can be explained by its coherent product and branding strategy. Led by its dynamic CEO, François-Henry Bennahmias, Audemars Piguet has been reducing  the number of doors selling AP watches and is now focussing on either brand owned mono-brand boutiques or joint-ventures with leading retailers. The company has also improved the customer experience with the introduction of around dozen AP Houses across the globe. 

 

Top 7 brands
With a turnover of  CHF 1.58 million, Audemars Piguet has been the best performing watch brand from a top line standpoint
top 7 brands
Though 90 percent of AP's overall sales have been coming from the Royal Oak collection, the Code 11.59 too has picked up momentum over the last couple of years

 

According to Morgan Stanley, though 90 percent of the brand’s overall sales have been coming from the Royal Oak collection, the Code 11.59 too has picked up momentum over the last couple of years. “We estimate that it generates 5%25 of the brand’s total sales. Even if this seems marginal, with sales of ca. 2,500 watches out of 45,000 pieces, it can be seen as a sign of growing acceptance of the product line, which was launched in 2019,” states the report.

With a turnover of  CHF 1.58 million (40%25 up from 2020), Audemars Piguet has been the best performing watch brand from a top line standpoint, says Morgan Stanley. “It benefited from the launch of new products (e.g. the Royal Oak Selfwinding Flying Tourbillon or the re-launch of the Code 11.59 with a new dial, and, importantly, a new collaboration with Marvel, starting with a limited series of 250 pieces retailing at CHF 160,000, which were immediately sold through),” quotes the report.

Last January, when François-Henry Bennahmias announced the closure of the legendary Royal Oak ref.15202, it gave wings to the watch’s prices that soared nearly 70%25 by April and was ultimately selling at 80,000 Euros in the secondary market. “We could sell 2,500, maybe 3,000 of our Royal Oak ‘Jumbo’ Extra-Thin models a year. But we only make 900. If we made 3,000 pieces tomorrow, no one would want it. That’s just how it works,” said Bennahmias in an interview to McKinsey. Though the brand plans to gradually increase its production numbers from 45,000 to 60,000 over the next five years, there would always be more demand for its most popular watches like the Royal Oak ref.16202 than the actual pieces available in the primary market. 

 

top 7 brands
top 7 brands

 

Interestingly, there are over 300 brands that make-up the overall market for luxury watches – of which the five most important brands represent more than half of the share and 53%25 of the industry’s revenue. Patek Philippe, which commands 4.8%25 of the market, reported a turnover of CHF 1.5 billion in 2021. “While we estimate that Patek Philippe sold 'only' 68,000 watches last year, the brand has one of the highest average selling prices (CHF ~29,853), which explains the importance of its turnover and its 5%25 share of industry sales,” reports Morgan Stanley. In 2021, Patek Philippe’s growth was likely driven by volume – we estimate that the total number of units went from 4,300 in 2020 to 5,000 in 2021 (up +16%25) – as well as by a significant increase in the average selling price, to CHF 226,000,” it states. 

Though the performance of the Swatch Group has been slightly disappointing as compared to the industry as a whole, Omega managed to secure the third place from top in terms of the highest turnover within the Swiss watch industry. Thanks to an expanding e-commerce strategy, the brand was able to push its high segment watches to a larger audience over the last two years. However, as compared to its biggest competitor, Rolex, Omega sold around 570,000 watches in 2021 (almost 46%25 lower than Rolex). 

 

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The other big savior for the Swatch Group was Longines, which is now the fifth largest brand with a turnover of CHF 1.5 million in 2021 (around 34%25 up from 2020) “The brand is still dependent on the Chinese market, which provides an avenue of growth for a brand targeting the middle class, but also potential risks. On our estimates, Omega was the most sold Swiss watch brand in Mainland China in value terms in 2021, followed by Longines and Rolex,” says Morgan Stanley.

 

The Game Changers 

Besides the obvious frontrunners, a power-packed performance by brands like Cartier, Breitling, Richard Mille and Hermes gave a big boost to the industry’s growth over the last two years. 

With Cyrille Vigneron at its helm, Cartier has chartered one of the most amazing success stories in recent years. Vigneron’s focus on introducing modern interpretations of the brand’s most popular icons like the Tank Cintrée, the Asymétrique, Santos de Cartier, Crash and the Santos-Dumont has worked wonders for the company. In 2021, Cartier registered a neat turnover of CHF 2.39 billion and overtook Omega for the first time in years.

 

top 7 brands
In 2021, Cartier registered a neat turnover of CHF 2.39 billion and overtook Omega for the first time in years

 

The newest member of the ‘Billion Franc Watch Club’ this year is Richard Mille, which sold 5000 watches, reporting a consolidated turnover of CHF1.3 billion in 2021. Largely known for its robust, high-tech watches seen on the wrists of sporting legends like Rafa Nadal and Felipe Massa, Richard Mille has been upping its game in haute horology with powerful partnerships and cutting-edge technology in watchmaking. “Having fostered a strong brand equity, the brand has strong pricing power, which should allow it to generate an operating margin of around 45%25, as per our estimates, comparable to only a few other leading brands in the luxury goods sector (e.g. Vuitton and Hermes), substantially higher than most of the industry’s players, with the exception of Audemars Piguet and Rolex,” states the report. 

The proverbial dark horse, Hermès, has finally proved that its watchmaking skills are as legit as its proficiency in leather goods and accessories. With a strong focus on high-end complicated watches , the brand moved over its entry priced products to mark a “dramatic acceleration” in sales last year. “Hermès' watch sales had been rather pedestrian between 2000 and 2018, growing at about +3%25 CAGR, vs. +9.5%25 CAGR for the Group as a whole over the same period. However, over the past two years, sales momentum has picked up: sales in CHF were up +14.7%25, up +1.3%25 and up +71%25 in 2019, 2020 and 2021 respectively. This marks a clear outperformance vs. the Swiss watch industry over this period,” says Morgan Stanley.


 

top 7 brands
top 7 brands

 

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Going by Morgan Stanley’s analysis, it seems the high demand for fine watches will continue to grow in the coming years, however, not much change will be seen on the production side of the story. This phenomenon is best illustrated in the way the secondary market is expanding. Given the soaring prices of the Daytonas, Nautiluses, Royal Oaks and even some Indies, pre-owned watch sales could cross $30 billion by 2025

Partly driven by young, cryptocurrency investors and social media frenzy, the post-pandemic watch market promises to be much more exciting than ever. Stay tuned!