It has been more than two years since the start of the pandemic, and the extraordinarily illiberal response of officials worldwide.
Since the harshest lock downs ended, we have seen an unprecedented sales for hard luxury goods as hoarded cash and pent up demand unleashed a tsunami of spending.
The vast majority of watch brands and retailers are trading above 2019 levels, despite the ongoing restrictions caused by China’s zero covid policy, and its tightening grip on all decision-making in Hong Kong.
The American market has exploded, importing watches worth over CHF 3 billion in 2021, CHF 671 million higher than its 2019 total.
For the first six months of this year, Swiss watch exports have exceeded CHF 1.9 billion, up 31.4% over the same period in the previously record-breaking 2021.
It is not impossible the United States will import Swiss watches with a wholesale value of CHF 4 billion this year, which would be close to a quarter of the global total.
Much has been made of China and Hong Kong’s economic challenges, but the situation there is not as bleak as you might thing.
In 2019, the motherland and its province imported Swiss watches worth CHF 4.7 billion between them.
Last year that increased to CHF 5 billion, partly boosted by their populations being unable to shop abroad, but also bolstered by reasonably strong economies. They cannot travel, but the impact of rolling lock downs to keep the zero covid policy on track has been overblown. Life is pretty much normal.
China and Hong Kong were the only markets for Swiss watches that shrank in the first six months’ of this year, but they still imported products worth CHF 2 billion over the period.
These benign, and in some cases over-heated market conditions have led to the best financial results in years for the publicly traded conglomerates and, no doubt, privateers like Rolex, Tudor, Breitling, Patek Philippe, Richard Mille and Audemars Piguet.
And don’t forget the independents. Demand for the likes of F. P. Journe, H. Moser & Cie, MB&F, Gronefeld, De Bethune, Laurent Ferrier and many more is off the scale.
Which leads me to the question in my headline: are watch brands battle-hardened and hungry or flabby and complacent?
The answer is somewhere in the middle for most, but I am growing increasingly concerned that the end consumers of watches (genuine lovers rather than speculators and flippers) are being treated like mugs by an industry that is failing to adapt to their desires.
The most significant strategic shift in recent years for Rolex, Tudor, Breitling, Omega and TAG Heuer has been to expand its real estate network, either directly or with retail partners.
This looks preposterous to watch lovers, who wonder whether commensurate investment in making more of the products they are unable to buy would be a better use of time and money.
Rolex is building a gleaming new headquarters in New York, and is rolling out flagships in capital cities around the world in AAA retail locations.
These are being populated with ‘exhibition only’ watches whose purpose is to sucker customers into giving up personal information in return for a place on a waiting list. The majority of these customers will never get the watch of their dreams.
Breitling doesn’t face the same imbalance between supply and demand, so its aggressive boutique roll-out looks easier to justify.
And it is working. According to Morgan Stanley, Breitling was neck and neck with TAG Heuer for global sales last year. Just five years’ ago, Breitling was dwarfed by the LVMH brand with sales of CHF 360 million for the former compared to CHF 985 for the latter.
Omega was overtaken by Cartier watch sales last year, and Audemars Piguet was closing in thanks to rapidly rising average prices.
The reality is that, shifts in market share aside, all these brands were happy with their performance last year and in the first half of this.
But economic headwinds are starting to bite, and we are about to find out how well-prepared and how well-run these watch businesses are in leader times.
Great companies make money in good times and bad — you only have to look at the performance of America’s best retailers over the past two years for evidence of that — but we are now going to find out which watch brands have become more responsive and alive to both threats and opportunities, and which will simply breath a sigh of relief that the choppiness is behind them and they can go back to a slower pace of life and work.