The “K” recovery favors stronger watch brands

As the coronavirus pandemic swept the world, it took watch factories and watch retailers with it – but not luxury watch consumers. Factories and stores may have been closed for several months, but the appetite for high-end watches has not waned.

For this reason, UK retailers remain optimistic despite a second lockdown in England. “All stores in England closed on Wednesday evening and are expected to remain closed until December 2,” said Brian Duffy, Group Managing Director of Watches of Switzerland. “But there is still strong demand for the products we sell and we expect December to be very strong.”

In previous economic downturns, the luxury market had been hit hard. But this time so far has been different. “After 9/11 there was a guilt factor and buying luxury was seen as vulgar,” says Erwan Rambourg, luxury analyst at HSBC. ” Now, that is no longer the case. You have people who buy a lot of luxury products, who spend on big logo products.

Some analysts call it a K-shaped recovery. “Those who were well off before the Covid are better off now,” said Mr. Rambourg. “Those who weren’t so well off are suffering even more after Covid.”

Brands, retailers and analysts agree that consumer spending habits are shaped by the same factors. “Consumers can’t travel and don’t want to go to public places to eat or drink and so they seem to be spending on discretionary items and luxury goods again,” says Jon Cox, head of the company’s Swiss equities. of financial services. Kepler Cheuvreux. Many cited the so-called “revenge buying,” the phenomenon of consumers satisfying pent-up demand, and frustrations over restrictions imposed because of the Covid-19 virus.

In the UK, sales of luxury watches have been on the rise since non-essential stores were allowed to reopen on June 15, following the first lockdown. According to analysis by market intelligence firm GfK, in September annual sales of luxury watches priced over £1,000 increased by 10.3%.

Last month, the Watches of Switzerland group, which has 135 stores in the UK and US, reported higher-than-expected revenue of £202.7 million for the first 10 weeks of its second quarter to from the end of July, an increase compared to 2019 of 20.2 percent. hundred. The group said sales rose 12.6% in the UK and 43.4% in the US over the same period.

“We prove that people care about watches,” says Duffy. “In the UK the numbers have increased despite the fact that there is no international activity. The relay was taken over by national companies. We were pleasantly surprised. »

For the brands themselves, the picture is less clear. “There is still money in the market,” says Georges Kern, Breitling’s chief executive. “Stronger brands will be even stronger after corona, and others that were weak are suffering tremendously.” A report from Morgan Stanley published on October 26 indicates that Breitling sales “are only expected to decline by about 10% this year”, but that “it seems that [it] will emerge as one of the market share winners of 2020.”

E-commerce has taken on its full meaning during the crisis. In its business update, the Watches of Switzerland group said its online sales in the UK were up 49.9% year-on-year. Breitling UK says its e-commerce business grew by more than 300% in the last quarter of 2019.

“Seventy percent of your [watch-buying] the decision-making process is done online,” says Kern. “That’s why we invest 60% of our media budget in online channels which are becoming, especially in times of Covid, more important.”

The Phillips Perpetual showroom in London

Phillips Perpetual, which launched its e-commerce platform just before several European cities went into lockdown, says it has already sold more than £5million worth of watches online.

“Since we reopened our business has increased by 7%,” says Anna Blackburn, chief executive of Beaverbrooks, which will offer click and collect in some of its English stores during the second lockdown. “Our e-commerce business has seen significant growth over the past few months, up 40%. We expect this to accelerate due to the new restrictions. We have seen a 138% increase of a year-over-year in the number of customers shopping for Christmas gifts online in October alone.”

Chrono24, the Germany-based online watch marketplace, says its sales have never been higher. “May, June and July were the best months we’ve ever had and transaction volumes were better than pre-Corona times,” Chief Executive Tim Stracke said.

Mr Stracke says he expects transaction volumes of 2 billion euros this year, up from 1.5 billion euros in 2019. “The pandemic has pushed online sales penetration forward by three years,” says -he. The company says it hit a new record high of more than half a million watch listings on its site this fall.

It’s not just the primary market that’s rebounding. In a report released last month, Kepler Cheuvreux estimated that the secondary market was now worth 20 billion Swiss francs ($21.9 billion), or one-third of the total global market for luxury watches. “The secondary value of watches continues,” says Cox.

As in the primary market, growth comes from sales of high-value watches. WatchBox, an online platform for buying, selling and trading second-hand luxury watches, says its global sales rose more than 20% in the first nine months of the year, driven by sales of watches at $50,000 or more.

“We see the top three – Rolex, Patek Philippe and Audemars Piguet – continuing to do well,” says WatchBox CEO Justin Reis. “But independents are now taking a lot more real estate too, brands such as FP Journe, H Moser & Cie, de Bethune and Grand Seiko.”

Mr Reis said the company reduced its inventory to around $60 million during the initial global lockdown, but its performance since then gave him confidence to push it back up to $75 million. “Customers are stuck at home and want high-quality watches and high-quality content,” he says.

However, a rebound is unlikely to recoup the lockdown losses, and with the lion’s share of UK sales remaining in store, the second lockdown should put the brakes back on. GfK data indicates that total UK watch sales from the start of the year to the end of September were more than 20% behind the same period last year. “I think it will be very similar to the first lockdown, when year-on-year sales in value fell 83% in April and 79% in May,” says GfK analyst Paul Mitchell.

Similarly, Swiss manufacturers will not come close to closing the gap. According to the Federation of the Swiss Watch Industry (FHS), exports of Swiss watches in the first nine months of the year fell by 28.3% to 11.4 billion francs. Without the rapid rise in exports to China, up 78.7% in September, the situation would be much worse. The FHS said exports to the UK were down 32.3% year-on-year.

But what is clear is that at the peak of the K-shaped recovery, sales of more expensive watches rise sharply. According to GfK, the average sale price of a watch in the UK rose by 37% in September. “We need to make hay while we can,” Ms Blackburn said. “My hunch is that it’s going to get harder.”

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