The world of watches or watch on the world

Original BDWF archived information from James
Post Reply
James Elsener
Posts: 20
Joined: Tue Oct 02, 2018 8:27 pm

The world of watches or watch on the world

Post by James Elsener » Wed Apr 17, 2019 3:59 pm

At the close of Baselworld one of my clients in the consulting part of my business has asked me to dive into today’s state of the various groups active in the watch industry.

Some of my insights and opinions might be of interest to a larger audience as well and my client has given me permission to share my findings with a larger audience, too. Albeit in a shortened version.

General Remark
The economic downturn has been particularly savage in the watch industry. For years prior to the crisis the output has declined and the concentration had been steadily progressing already. However, the recession has brought dire straits for some of the groups as the output in the watch industry has been falling by up to 40% over the course of 2009.

As in any event there are winners and there are those doing less well. I am therefore inclined to start with those groups loosing out and having or being in the process of finding new ways.

The Groups Stumbling (in alphabetical order)

The Italian group Gruppo Binda has been through a remarkable watershed. Binda is family owned and run by Marcello and Simone Binda. They had acquired the GenevaWatch-Group which was heavily focused on the US market, tried to push their Breil brand upmarket and gained a foothold in the Swiss Made part of the industry by having bought Wyler from Geneva. The latter brand proved Binda’s stumbling block and went bankrupt in late 2009 respectively early 2010. The stalling of the all important US market wrought havoc on the group’s results and brought a volte-face about at Breils as well. Binda is but a shadow of its former self and is in the process of regrouping.

Another Italian group badly hit is the luxury goods company Bvlgari (Bulgari). They had in vain tried to take their watches up-market by buying additional know-how through the acquisition of the Swiss brands Daniel Roth and Gérald Genta by Bulgari Time from Neuchâtel. All three brands are but a former shadow of themselves and the frequent changes of management did the rest to the company. What started out as a modest venture in 1980 is a kind of back to square one.

The Japanese group Citizen had wisely resisted the urge to go too much upmarket. Nonetheless their Miyota manufacturing arm is steadily loosing market share to Chinese components manufacturers. This proved to be a stumbling block on their economies of scale and will continue to remain so.

The various Chinese Groups have been particularly hard hit by the recession. In 2007 the group Egana-Goldpfeil imploded and the largest group the famous Peace Mark Holdings collapsed in 2008. Most of their companies were export oriented and geared to the USA and other Western market. When these market went into hibernation the Chinese manufacturing base shrunk by up to 50%. Much of it will be lost for a long time to come.

Some companies like the independently owned Longio Watch Co or the former Peace Mark daughter Tianjin Seagull started to focus on the growing home-market and got through the recession in better shape than many others. Once the Chinese market has been more cured by the Chinese manufacturers they will become again a hurricane in the export markets.

The Spanish group Festina which is heavily dependent on the Spanish and Latin American markets had a difficult time, too, when these markets went south from one day to the next. However, its patient owner, Mr. Miguel Rodriguez, profited from the times and acquired the Swiss movement specialist Soprod out of the remnants of Peace Mark Holdings. What proved to be one of the stumbling blocks of Peace Mark will become the stepping stone of Festina in the re-launch of the group.

Franck Muller Group was brought to its knees very rapidly. They were forced to let go of some 50% of their highly qualified workforce. The expansion into other markets had to be shelved and today Franck Muller is again focussing on Asia where it is highly sought after and commands premium prices.

Movado Group from the USA stumbled over its reliance on the large US market. The Movado brand lost an inordinate amount of windows in the USA as many independent watch retailers went out of business. The Swiss brands Ebel and Concorde suffered accordingly and the group did well only out of its fashion brands Hugo Boss, Lacoste, Tommy Hilfiger and Coach. It is these brands forming the backbone of the re-launch of the group.

The French luxury group PPR controlled to a large extent by the French investor François-Henri Pinault has a rather modest watch branch. It consists of the brands Bucheron and Gucci. Both brands started to be taken up-market in 2005 and stumbled over the crisis. The success of the brands is less a commercial than a personal issue with the Chairman.

The Italian Sector Group is another group that had a difficult time. None of their many brands hit a home-run and their climb out of the mass-market was brutally aborted. They will survive eventually but I consider them to be mere followers not the pace setters they used to be.

The Japanese SEIKO group went through a difficult time too. The portfolio of affordable quartz watches to high priced mechanical watches (Ananta) proved too wide to be run under one brand. The loss in volume damaged the industrial capabilities and economies of scale of the group. However, they will find their way as the family controlling it is very patient and has been in the industry for more than 100 years.

The Swiss SOWIND Group controlling Girard-Perregaux and JeanRichard which supplies part of the industrial base to PPR’s brands lost its economies of scale due to Gucci’s and Bucheron’s shrinking volume. What started out as a blessing in the good times proved a stumbling block to the Macaluso family controlling the group in tougher times.

This brings me to those companies I labelled

Those Outsmarting the Economy (in alphabetical order)

Ambre Group from France was clearly outsmarting the economy. What started out as fashion brand Younger Bresson proved a nimble yacht outsailing many more experienced captains of the industry by rapidly acquiring the fashion brands Zadig and Voltaire but above all the well-known French brand Yema (formerly owned by Peace Mark). Ambre has not only built up a solid industrial base but controls the value chain of distribution at least in France since it is also one of the largest French watch retailers. A company and brands to watch out for.

The American Fossil Group profited handsomely from the crisis as well. Since it controlled a large part of its retail distribution through company owned stores it was able to partially offset the losses in economies of scale by added margins from its distribution arm. I am convinced that Fossil as a brand will grow into a world-wide brand standing for fashionable watches, handbags and glasses alike. It will be interesting to see how Fossil’s management shall be nurturing Zodiac and in the fashion area brands like Burberry, Armani, DKNY, Michèle or the ultra-fashion brand Marc by Marc Jacobs in the not too distant future without diverting too much investment away from Fossil.

LVMH the French luxury group has handsomely profited from the crisis and acquired the money spinner number one the Swiss brand Hublot in late 2009. The refocusing of Zénith made gains as well as the taking up-market of TAG-Heuer. The luxury brands Dior and Chaumet had some set-backs in the USA and were able to compensate these with growth in Asia. Especially the large new factory of Hublot in Nyon beefed-up with the movement know-how of Matthias Buttet’s former company BNB will bring a lot of added credibility to
the group’s watch part.

The Swiss Mondaine Group is another group having outsmarted the economy. A very low key operation manufacturing the famous Swiss Railway Watches and being solidly entrenched in the assembly industry for third parties the Bernheim brother’s leaped in bounds when they had the knack to acquire the fashion brands Puma, Esprit and Luminox out of the remnants of the bankrupted Egana-Goldpfeil Group from Hong Kong in 2009. Ingeniously, they bought not only the brands but their Far Eastern manufacturing base as well. On top they brought the chairman of the Swiss trading group DiethelmKellerSibnerHegner on board to this venture as a large shareholder. DKSH is controlling the distribution of many Swiss Made brands in Asia and will afford Mondaine an even wider reach. Mondaine has recently announced that the logistics operations will be brought over to Switzerland and they invest more than US$ 15 millions in the logistics and warehousing part of their group.

Compagnie Financière Richemont S.A. is for sure one of the big winners of the crisis. Its chairman had understood the importance of verticalization early on and Richemont had started to buy out many of its distributors and retailers already prior to the crisis. By acquiring the Roger Dubuis Group Richemont had solidly bolstered its industrial capabilities. Even though a brand like A. Lange & Söhne did not do well lately the group’s results were bolstered by the solid reputation of Cartier, Vacheron-Constantin and above all by the revitalised Jaeger-LeCoultre brand. At the outset of the crisis is was not very optimistic for them but fortunately for our industry I have been proved totally wrong so far.

The true and overall winner of the shakeout is the Swiss group Swatch controlled by the family of the saviour of the Swiss watch industry, Nicolas Hayek. Not only did their industrial capabilities survive the maelstrom intact but they rose to the occasion by buying out their long-time distributors in the Middle East and in China. The newly invigorated brands Certina and Jaquet Droz bring even more fire-power to the group than they already had. The group’s private label arm Endura was put out of operation quietly and the family consolidated its grip on the group by bringing Nicolas Hayek’s grandson of the same name into the fore at the group.

Another group outsmarting the economy comes from the USA. The venerable Timex Group with its brands Guess, GC, Nautica, Versace, Ferragamo and Opex amongst others in the fashion part of the business and the recently bought highest-end Swiss Made brand Vincent Bérard make up a very interesting and well-balanced portfolio. The strong foothold of the group in India adds to the winning streak of Timex.

Last but not least there is my personal favourite of the large groups, the Indian owned Titan Industries. Solidly rooted in its Indian home market and in many Asian and Middle Eastern markets the group matches Swatch Group’s industrial base. In 2010 the Bangalore company is on its way to manufacture more watches than the entire Swiss watch industry does combined! India is by far the world’s largest watch market and will remain so for the foreseeable future.

Why did I not cover companies like Rolex or Louis Erard, etc.? Simply because we are talking groups and industrial power. Of the companies we in the industry call independents only Rolex musters a genuine industrial ability. And Rolex is a force of its own.
Post Reply