COVID-19 Has Put Luxury Wristwatch Business In Troubled Waters
The coronavirus is hurting numerous industries, along with the luxury division
Luxury watches are completely redundant. They offer no practical value other than telling you the time, an ordinary function that your car and least of all your smartphones do well. Outside the collector’s community, luxury watches purchases are driven mainly by emotional significance, a promotion, a marriage, anniversaries, and birthdays.
COVID-19 has brought a hammer down the luxury industry; Boston Consulting Group estimates a $600 billion decline in sales for 2020 worldwide. For most people, a luxury wristwatch purchase has to wait, while for some, this may be the best time to buy one.
Challenging times for the global wristwatch industry began much before the pandemic hit most countries. Swiss watch brands have a complicated relationship with China. While China is the largest consumer market for most Swiss luxury watch brands, the might of Chinese manufacturing is a critical part of the Swiss luxury watch industry's supply chain. And with the virus hurting China with nationwide lockdowns, the trade prepared for a challenging year.
Businesses in large volumes are transacted in two annual fares - the Baselworld, and SIHH. Both these trade-fairs remain canceled for the year. Brands announced (in February) that they will host smaller but localized events around the world to launch new products and meet with their distributors, those events now appear to be highly volatile and there is no line of sight to the coronavirus’ dark clouds clearing out until after the summer season (July/August).
What's On Your Wrist?
The wristwatch industry in India is extremely packed and is mostly a retail affair. Estimated to be an INR 10,000 crore market, you'll find utility brands such as Timex and Casio on one end of the line, to luxury brands such as Rolex and Omega on the other end of the line. Your choice as a watch buyer is limitless, only to be contained by your budget.
Utility watch brands have seen a sharp decline in sales in the past couple of years. There are many ways to know what time it is today; you do not need a value wristwatch. A smartwatch or a fitness tracker takes as much real-estate on your wrist (sometimes much less) but tells you a lot more than just time.
While declining toplines may be the case for utility watch brands, contemporary fashion brands have made a steadfast move to smartwatches and have prevented a fall of their top line graphs.
Luxury watches though have their stories, their heritage, their craftsmanship and sometimes the celebrity endorsements that hand-hold them to cross the finish line.
This epidemic’s impact will be seen across the spectrum. Utility and fashion watch buyers will have less(er) disposable income to buy a watch, luxury-watch buyers will likely postpone all discretionary purchases.
Fashion watch brands launch new collections every season - this means that the Spring/Summer 2020 collections were waiting to go on shop-shelves when the lockdowns hit most countries. This also creates a compounding effect while over-stock from the Spring/Summer 2020 season will need steep discounting to sell-out, Autumn/Winter 2020 collections will have to wait. This situation creates a lot of pressure across functions to reschedule their marketing and launch calendars, communication plans, and production.
Swiss luxury brands focus on timeless classic designs. Barring product upgrades and feature upgrades, most collections stay in the catalog for several years. While coronavirus creates pressure in sell-outs and overstock situations, there's never a risk of "off-season" inventory like in the case of fashion brands.
Some of the most influential brands that will resist discounting to create sell-outs will be short-changed for the year but will come out as clear winners in the long-term by not diluting the brand value.
Uncle Sam Smiles:
While all indicators point to discount sales in the latter half of the year, the macroeconomic effect of COVID-19 is that investors are fleeing emerging and volatile markets (like India) and parking their investments in safe assets like US Dollar and US Dollar bonds. This fleet of funds hurts the Indian Currency with the Rupee trading at 76 a dollar and signs pointing to an 80 per dollar in late 2020.
With the dollar shooting through the roof, the import value of Swiss watches and watch components will be dearer, leading to price increases. Ethos Watches, India's largest retailer of Swiss luxury watches, has already indicated a price increase in the coming month owing to this trend.
Brick Or Click:
Ecommerce forms only a small portion of overall wristwatch sales in India. Titan, the largest seller of wristwatches in the country with an estimate of 15 million pieces per year, quotes e-commerce sales in the ballpark of 10-12 per cent of their overall sales with continuous growth.
Luxury e-commerce companies like TataCliq and Elitify have all added numerous amounts of wristwatch brands to their catalogs, indicating a strong segment growth.
Most luxury retail destinations are in big cities. Data shows consumers from Tier II and Tier III cities are equally aspirational. They are quenching their thirst for luxury purchases through luxury e-commerce websites.
So, will people postpone all discretionary purchases leading to a dip in wristwatch sales for the year, or are they happy clicking away in the confines of their living rooms with work-from-home becoming this season’s trend? Only time will tell.