Edouard Meylan, the CEO of H. Moser et Cie, has a rule of thumb for instantly gauging how any SIHH show will go.*
His barometer is whether the chief executives of top Hong Kong retailers attend the show. Hong Kong is Switzerland's top watch market. "When the big bosses from Hong Kong retailers come to the show, that's a good sign," Meylan says. "When the big boss comes, they order. When the big boss doesn't come, it means they are not going to order." **
So how did the 2019 SIHH, held last week in Geneva, go? "A few came, but overall they are careful," Meylan told me after the show. "There is a lot of uncertainty. And uncertainty makes people put on the brakes."
Meylan's big-boss barometer was spot-on.*
H. Moser's attention-getting new tourbillon minute repeater with no hands.
SIHH (Salon International de la Haute Horlogèrie), where 35 luxury watch brands showed their wares, was held during a period of unusual global geopolitical and economic uncertainty that dampened spirits there.*
The show opened on Monday, January 14. In the United States, the Swiss watch industry's second largest market, a partial shutdown of the U.S. government was in its fourth week, with no end in sight.
That day, a headline in the Financial Times blared "STORM CLOUDS GATHER FOR GLOBAL BRANDS AS CHINA DEMAND FALTERS." China is the Swiss watch industry's third largest market.
The weekend before, in France (Swiss watch market #8), the yellow vest demonstrations, which ruined the holiday season for many French retailers, continued for the ninth consecutive week.
Many brands at this year's SIHH focused on more consumer-friendly products that are priced at the entry-level end of the spectrum.
On the Tuesday of SIHH, in Great Britain, (market #5 for Swiss watches) Parliament rejected the government's Brexit plan for the country to leave the European Union. On Wednesday, the government survived a vote of no-confidence by 19 votes.
Add to the mix the ongoing trade war between China and the U.S. and reports of a slowing global economy. Most worrisome to watch executives were the slowdowns in the Chinese and German (market #6) economies.*
"There are plenty of [global] issues," said Geoffroy LeFebvre, CEO of Baume & Mercier. "We see the effects of that."
A Cloudy Crystal Ball

Montblanc CEO Nicolas Baretzki
It wasn't just the Hong Kong retailers who were cautious. HODINKEE talked to three dozen watch industry professionals at SIHH and the overwhelming consensus was that the state of the Swiss luxury watch market in 2019 is uncertain. They agreed that the stormy geopolitical and economic climate was bad for the watch business and made forecasting for 2019 difficult or impossible.*
"Uncertainty is just what you don't want," said Davide Traxler, CEO of Parmigiani Fleurier. "That's what any entrepreneur hates. And that's where we are. It's uncertain. At the end, I think it is going to be a decent year. I don't think it's going to be a disaster. I expect it to be more up and down, a rocky road. It's going to be much more difficult for retailers to plan purchases and handle inventory."
"I'll be honest. I have no clue about what's going to happen in 2019," said Nicolas Baretzki, CEO of Montblanc. "Because we are in a world where one decision of one person can make your forecast look completely ridiculous the day after you make it."*
Parmigiani Fleurier CEO Davide Traxler
"The crystal ball is cloudy," said Rudy Albers, president of Wempe Jewelers in New York City.
Asked how they felt about the year ahead, U.S. retailers - many of whom had weak holiday seasons due to turmoil in the U.S. stock market - used words like "challenging," "uncertain, "bearish" and "cautious." One said he was "cautiously optimistic."
One person at SIHH who dared to make a specific forecast for 2019 was Frank Müller, founder of the Dresden-based consultancy A Bridge To Luxury. He predicts that Swiss watch sales will grow between 1.5% and 3.5% in value in 2019.*
If so, that will be a drop from 2018. Official data for Swiss global watch exports for the 12 months of 2018 will be released on Jan. 29. Through November 2018, however, exports were up 7.1%. (The data reflects watch sell-in to retailers, not sell-out to consumers.)
Second-Half Slowdown

Baume & Mercier CEO Geoffroy LeFebvre
In fact, as LeFebvre put it, "At the end of the day, 2018 was not such a bad year." It marked a second consecutive growth year for the industry and a big improvement on 2017's 2.7% jump over 2016. The value of Swiss watch exports to Greater China soared last year, according to the Federation of the Swiss Watch Industry. Exports to Hong Kong were up 21% through November; China was up 14%,). Exports to the U.S. were up 8% through November, assuring that market would have its first full-year increase in three years.
But that was sell-in. Swiss executives say sell-out fell off in Greater China in the second half of the year. "In July I was in Hong Kong for a week, then a week in China and a week in Japan, and it was clear the market was slowing," Traxler said. "Sell-out has been down since the end of July in Hong Kong."*
The Baume & Mercier Baumatic.
The trade war between China and the U.S. was a factor. "That has an impact," Meylan said. "We all felt Hong Kong, Macao, and China slowing down. It's not that people had less money. It's just that they were more cautious. They see the stock exchange and real estate prices going down, so they don't want to buy more watches."*
Meanwhile, in the U.S., after a strong first half in 2018 (sales of watches priced over $1,000 were up 13.5% through June, according to NPD, which tracks retail sales), many retailers at SIHH - who are the cream of America's watch retailer crop - suffered a difficult fourth quarter.*
The slowdowns in retail sales in the top three markets set the stage for the subdued mood at SIHH.*
Steel Rolex Mania

The new Rolex GMT-Master II in steel with "Pepsi" bezel is undoubtedly one of the hottest watches on the planet right now.
U.S. retailers at SIHH reported a mixed picture for 2018. Results varied depending upon what region a retailer was in, and what brands he or she had - or didn't have. Some said they set sales records in 2018, thanks to the strong U.S. economy, although they had to work harder to beat their 2017 numbers. Most, though, said sales slowed down in the second half of the year.*
Rolex and Patek Philippe remained red hot in the U.S. Also strong were Cartier, Audemars Piguet and Richard Mille, retailers said. (The latter three exhibited at SIHH. The first two will be in Baselworld in March.)
The ref. 5740 is just one of the many Nautilus models that currently has a mile-long waitlist at most retailers.
The frenzy for steel Rolex sports watches and the Patek Philippe Nautilus led to shortages of those pieces. "Eight of 10 Rolexes that came in were pre-sold," one jeweler said. "They never hit the case." This was common, leading to the eerie phenomenon of near-empty Rolex watch cases in stores around the country. "The only prediction I can make about 2019," he said sardonically, "is that there will be more shortages of steel Rolexes and Nautiluses."
The Rolex "mania," as one Richemont executive who competes with Rolex in the U.S. called it, distorts the Swiss watch export figures. Rolex's sales were up far more than 7%, he said. Therefore, other brands were down. "The strong are getting stronger. This applies to the brands and the retailers," he said. "Second tier brands in the U.S. are hurting."*
"If a retailer has Rolex and Patek, he had a good year," one U.S. retailer said. "If you don't, it was a lot harder."*
Stock Market Turmoil

Even sales of high-end pieces are now being affected by forces like online grey market sellers, strong vintage interest, and the availability of pre-owned watches.
Making things tougher for some retailers was that buying by Chinese tourists in the U.S. was down dramatically. They either stayed home or went to markets with weaker currencies offering better bargains. Retailers say they continue to face competition from grey-market dealers on the internet, even for high-ticket items, and from strong sales of vintage and certified pre-owned watches. *
When the stock market drops 20% in 45 days, people don't feel like spending extravagantly.
Jared Silver, president of Stephen Singer Fine Jewelry, Redwood City, CA
Audemars Piguet's decision, announced last year, to go direct to consumers through its own boutiques hurt AP dealers. AP cut or curtailed supplies to its dealer network as it began its transition.
Nothing hurt, however, like the stock market plunge in the final two months of the year. "When the stock market drops 20% in 45 days, people don't feel like spending extravagantly on things that are wants, not needs," said Jared Silver, president of Stephen Singer, in Redwood City, CA, which specializes in independent watch brands (it has 11).*
Retailers are concerned about customers' willingness to spend on large pieces like tourbillons and other complications.
An executive with one of the independent brands at SIHH concurred. "My hedge funds guys are holding back," he said.
"November wasn't so bad, but December was a disaster," one Northeast jeweler complained. "It was like the holiday didn't happen."*
"I had a customer order a tourbillon one morning," said another Northeast jeweler. "Then the market dropped 500 points and he cancelled the order in the afternoon."
Omni-Channel Tensions

Audemars Piguet is shifting to a direct-to-consumer distribution strategy and will not be at next year's SIHH.
The difficult December contributed to another feature of this SIHH: a palpable sense of growing tension between watch companies and their authorized dealers in the U.S. A number of jewelers complained that the partnership that they used to feel with the brands has eroded. "We used to cooperate with each other," one jeweler said. "You felt the brands had your back. Now we compete with each other."
He was referring to the Richemont Group's new omni-channel distribution strategy for watches, selling them through all available retail outlets. That includes brick-and-mortar jewelers in Richemont's wholesale network and its own brick-and-mortar boutiques. It also includes e-commerce sales through Richemont brand platforms; the e-tailer Yoox/Net-a-Porter, which Richemont took full control of last year; and its authorized jewelers' e-commerce platforms.*
He was also referring to Audemars Piguet and Richard Mille, who, like Audemars, is eliminating its wholesale network.
We're in a disruptive time in the watch business...Nobody knows what's going to happen in the future.
An american jeweler
The partnership issue was top of mind for retailers at SIHH, where the Richemont Group, AP and RM accounted for 12 of the 18 brands in the show's main hall. Wherever retailers looked, they saw brands that more and more are pursuing direct-to-consumer distribution strategies by becoming retailers themselves. (Both AP and Richard Mille are pulling out of SIHH next year because they will have no need to meet with retailers. Richemont's Van Cleef & Arpels, which has no wholesale network, pulled out this year.)
Richard Mille is one of a few brands working to eliminate their wholesale network over the next few years.
Tensions between retailers and Richemont brands are nothing new. They have been rising since Richemont began its boutique-building binge in the last decade. (As of September 2018, the Richemont Group owned and operated 1,090 boutiques; another 748 boutiques were franchises with retail partners.)*
Now, though, the pace of change in retailing is speeding up. Last year's developments at Richemont, AP and RM are painful signs of that for retailers. They realize that within the Richemont Group, the wholesale network's importance has diminished; it routinely underperforms compared to Richemont's own retail network. And the loss of Audemars Piguet and Richard Mille business for jewelers that sold those brands is a blow. "That cost me $5 million in sales last year," one frustrated jeweler told me. "How do you replace that? You don't."*
Hence the increased tensions. "We're in a disruptive time in the watch business," one jeweler said. "Nobody knows what's going to happen in the future."*
Meanwhile, in the Carré…

Jaeger-LeCoultre CEO Catherine Renier speaking with the author at SIHH.
The few independent brands in SIHH's main hall and the 17 in the smaller Carré des Horlogers section sense an opportunity, as retailers look to replace the AP and RM business. Alexis Sarkissian, whose Totally Worth It LLC company distributes Laurent Ferrier and Ressence watches in the U.S., said he had more inquiries from retailers at SIHH than ever. *
"Retailers need alternatives," said Moser's Meylan. "We can be one."
"For us, it's an opportunity, said Parmigiani's Traxler of the disgruntlement of some American jewelers. "When you are talking about high watchmaking, digital is an opportunity, but digital is not the answer. I think that the trusted retailer makes a huge difference. Huge!"*
We've learned to live with volatility in our business life. The world is unpredictable today."
Catherine Renier, CEO of Jaeger-LeCoultre
Traxler points out that the two top luxury watch brands in the U.S. market (Rolex and Patek Philippe) rely almost completely on a wholesale network of jewelers that they support. That distribution system still seems to work very well, he said.*
Disruptions in watch distribution are a small part of 2019's challenges. Brand CEOs whom HODINKEE spoke to say all they can do is try to navigate turbulent times as best they can. "The industry more than once has been able to adapt itself to these kinds of changes," LeFebvre said. "That's why I am not relaxed, but I am not terrified either."
"We've learned to live with volatility in our business life," said Catherine Renier, CEO of Jaeger-LeCoultre, who witnessed the collapse of the luxury watch market in Hong Kong in 2015 and 2016 as head of Van Cleef & Arpels's subsidiary there. "The world is unpredictable today."*


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