Calling Time?

21 Sep 2010 by Paul Rutherford

Warning:  while the following post attempts some cutting edge market analysis and a mind-expanding thought experiment, readers are warned that it also contains serious puns that may cause offence.

It’s a great time to be a watchmaker.

According to the Swatch Group, earnings for the first half of 2010 rose 54% on the previous year. Sales figures topped SFr3bn for the first time ever, exceeding 2008′s previous all-time high.

Although Swatch provides the only published figures available (the watch industry keeps its performance up its collective sleeve), the general message from the industry is upbeat.

At this year’s Baselworld – the major shindig for anyone in the business (2000 exhibitors, 3000 journalists) – there are further signs of 2010 being an ‘exceptional year’.

That’s certainly true for the good folk a Brietling, who know a thing or two about corporate entertainment.

At this year’s event, the company’s guests were collected in a customised tram and taken to a giant warehouse containing a full funfair. An hour later, rear doors were opened to reveal an 80-table beer festival, with oompah band and table top dancers. After a few beers, guests were led back through the funfair to another train, herded into carriages, lifted on hoists to a cemetery (I am not making this up) in which actors and dancers performed Michael Jackson’s Thriller, before being shunted onto another warehouse set up as a Cuban nightclub.

They ran it three nights in a row.

TIME IS MONEY

The watch business can be divided into four segments:

• Investment
• Brand status
• Milestone gifts
• Cheap functional

At the top of the tree, the ‘classic timepiece’ is the preserve of collectors and investors who – when not buying painting they don’t understand – are switching from equities and bonds  into minutes and seconds.

Sales are auction houses are at an all-time high with Sotheby’s and Christie’s reporting sell-through rates (percentage of lots sold) up year-on-year. Prices are scaling new heights. A 1942 Patek Philippe recently sold for twice its $1m reserve. Similarly a modern Patek, estimated at SFr300k, went for SFr1.9 million.

Think those astronomical prices only apply to antiquities? Then consider the Scuderia Ferrari One, a limited-edition watch ‘inspired by the Italian sports cars’ that you can only buy if you’re a Ferrari owner.

Which is just as well: at £250,000 it’s more expensive than the car itself – with all the extras.

It is also spectacularly, world-beatingly ugly, looking like the cash register in a child’s Post Office set.

Of course, this isn’t an investment piece; it’s a brand statement. It states a) “I am so monumentally wealthy that I’d prefer to buy the watch than another car”; and b) ” am so monumentally stupid that I have bought a watch with no resale value.”

Perhaps that’s why they’ve only sold one.

Of course, the question of why spend all that on a watch can extend down the cost pyramid to the Rolex or the Tag Heuer. The Tissot and the Breguet. The Cartier.

A triumph of form over function, they don’t just tell the time; they say something about the wearer. Something about quality, about success, about achievement, about…well,  the fact that it might be a fake.

So ultimately, only the wearer knows if it comes from a reputable source or a street market in Hong Kong. Which isn’t really a statement at all.

At the bottom of the value stack is the £10 quartz. That’s the ‘accurate-within-one-millisecond-every-1000-years’ £10 quartz.

The more one thinks about the real and perceived value of a watch, the more astonishing and bewildering it becomes. It must be ripe for change?

END OF AN ERA?

June this year saw the death of Nicolas Hayek. He was the engineer-design-consultant widely-regarded as the saviour of the Swiss watch industry when he founded Swatch.

His strategies were bold: at the high end (Omega, Longine) one of his first acts was to double prices, to increase the value of the product he sold. While at the other end – with his now famous Swatch brand – he transformed manufacturing practices, reducing parts from 150 to 50. He created brash, cheap and cheerful designs that revelled in their own affordability and disposability – and appealed to the next generation of watch wearers.

Swatch created a brand portfolio that influenced an entire lifestyle – even extending to a joint venture with Mercedes to produce the Smart Car.

Hayek left the Swiss watch industry in good shape – yet it will need a new saviour soon. Consider this as a possible scenario.

iWATCH?

On the next hill, waiting to ride into town, is another business leader and innovator who’s waiting to pounce. The wristwatch has a new challenger – Steve Jobs.

In characteristic style, Jobs has just announced another OMG product. The latest iPod Nano – an After Eight mint that can play music.

While Mr Jobs really doesn’t need me to give him more publicity, I’m drawing your attention to the new announcement from Mount Apple because it could have as big an impact on Baselworld as iTunes had on Tower Records.

One of the functions on this latest touch-sensitive gizmo is – you guessed it – a watch. It tells the time.

Indeed, in his pitch, Jobs actually says that one of this team is going to use it as a watch and clip in to a wrist-band.

That whirring sound you now hear is Mr Hayek spinning in his grave. Because as-eggs-is-eggs, within two years the market will be flooded with multi-function wrist devices that will do everything, including telling the time.

And none of them will come from a watch company.

Slowly Mr Hayek’s strategy will unwind. Demand for the volume products that generate cash will dry up, leaving an investment shortfall in  precision engineering.

We could be approaching the end of time (at least as a single-function device). An entire generation has grown up with it being ubiquitous – on PC screens, microwave ovens, bus shelters and the 3 billion mobile phones in circulation.

So as a thought experiment, as you walk the dog or have a shower or are stuck in traffic later today, think about what you’d do as Marketing Director of a watch company?

And let me leave you with an illustration of the battle ahead.

Every year, Beloit College in the US compiles a  Mindset List giving a snapshot of the world view of its new intake. Here’s a few of the views from people who will graduate in 2014:

• John McEnroe has never played professional tennis;
• They have never seen a projector carousel for Kodak slides;
• Czechoslovakia has never existed;

And they don’t recognise that pointing to your wrist is a request for the time of day.

Marketing Director for the watch industry: up for the challenge?