Sneak Peak into the Luxury- and Watch Market

Overview of the Global Luxury Market

In the past year, the value of the US dollar has risen against most major currencies, driven by the relative strength of the US economy, the expectations of tighter US monetary policy and other known factors.

The global luxury goods sector is expected to grow more slowly in 2022, at a rate many retailers may find disappointing. The growth rate is slowing in important markets such as China and Russia, although some markets continue to perform well, and there are pockets of opportunities across the globe. India and Mexico for example, are proliferating, and the Middle East offers further growth potential. The European luxury goods market has bounced back since the difficult days of the middle of 2010-2020, but national economies are growing at different rates. Overall, market growth is slow but steady, with both domestic shoppers and wealthy tourists cautious about spending.

The global luxury market exceeded €1.1 trillion in 2021 – a strong growth of more than 15% following the contract in 2020 due to the pandemic.

• Growth in the luxury car market was solid, up 8% from 2020, driven by positive trends in both the US and Europe. Luxury hotel sales, up 7%, benefited from steadily growing demand, particularly in Europe.
• Personal luxury goods — the “core of the core” of luxury and the focus of the Bain Luxury Study — ballooned to more than € 280 billion in 2021, more than tripling over the past 20 years. This represents 29% growth over 2020 at current exchange rates.

Trends shaping the luxury market:

• Luxury cars, luxury hospitality, and personal luxury goods together account for 80% of the total market. According to Bain’s forecasts, the overall luxury market grew back by 13% to 15% in 2021, to €1.14 trillion, 9% to 11% below 2019 levels. All segments except luxury cruises resumed growth, but only luxury cars, personal luxury goods, fine wines and spirits, and high-end design furniture were able to grow enough to exceed their 2019 levels.

• Overall, spending shifted from intangible experiences to tangible products in 2021. That’s visible in the different recovery trajectories of luxury goods vs. luxury experiences. The steepest recovery in 2021 belonged to personal luxury goods and furniture/housewares, now marginally ahead of 2019 levels. Experience-based goods are not far behind. Experiences should be the last to regain their 2019 peak.

• The market for personal luxury goods—the heart of the whole luxury industry—enjoyed a V-shaped recovery after its worst dip in history in 2020. Sales were set to beat their pre-Covid record in 2021, with the market forecast to grow by 29% at current exchange rates to €283 billion, up 1% from its 2019 record.

• The main challenge facing most luxury brands is establishing a suitable pricing model. The rise of e-commerce and global tourism growth create greater transparency around international price differentials. In addition, price-conscious luxury shoppers are struggling to reconcile the price of luxury products with their real value. As a result, luxury brands must assess how to mitigate volatility and how best to deliver at local and global levels. This includes managing inventory to accommodate fluctuations in tourist spending and coordinating pricing and markdowns across markets and channels.

Overview of the Watch Market

The Global Watch Market was valued at $ 93 billion in 2021 and is projected to register a CAGR of 5.02 % during the forecast period (2022-2027).

• The watch market is segmented by product types into quartz watches and digital watches. The digital watch is further segmented into smart and others.
• By price range, the market is segmented into low-range, mid-range, and luxury.
• By end-user, the market is segmented into women, men, and unisex.
• In terms of the distribution channel, the market is segmented into offline retail stores and online retail stores.

China, Japan, and India significantly contribute to the sheer market value of the watch in the Asia-Pacific region. China is one of the most competitive markets in the world, as it offers enormous potential for manufacturers of luxury watches to acquire and compete. China accounts for over half of watches exports in the world in 2020 as per ITC Trademap. Rolex, Omega, Patek Philippe, Cartier, Channel, Longines, Tissot, Rado, Blancpain, and Piaget are some of the prominent luxury watch manufacturers having presence in the region. These Swiss watches are loved across the globe; in 2021, it witnessed a growth of 3.5 % in watches exports when compared to 2019.

There is no official data on the world’s production of watches. If it can be estimated at about 1.3 billion pieces, export and import results are higher because a product may be re-exported and thus be counted twice. However, these data reflect the forces involved very well and help identify trends facing the industry worldwide.

Only a handful of countries dominate the global watch industry. Ten countries – Switzerland, Hong Kong, China, Germany, France, Singapore, Italy,  Japan, the US, and the UK – account for more than 90% of global exports of watches and watch parts, the first three being way ahead of the others. The fact that these 10 countries are simultaneously the most significant importing countries is evidence of the high degree of interdependence between their watch industries. The individual countries are, to some extent, specialized in different watchmaking products and steps in the production process.

Leading watch-exporting countries worldwide in 2019 & 2020, based on the number of units

Between them, the Swatch Group, Richemont and Rolex constitute about 50% of the global watch market and are considered key players in the industry. Fossil (USA) is in the fourth position; it overtook the place of LVMH. The three largest Japanese watchmaker players (Citizen, Seiko and Casio) have 10% of the market share, having still fewer shares than Rolex alone.

Estimated market share of the leading watch brands worldwide in 2020

The Value-chain of the sector:

Watch-making is divided into two distinct branches: luxury watches (Haute-Horlogerie) and the fashion segment (low-end).

• The first includes all works whose complete perfection is the main merit. It is necessary that the machine, handled by a workman, is accurate in all its parts. In contrast, the fashion segment focuses on the exterior forms of the watch.
• The idea of Haute Horlogerie is thus associated with its origin in excellence and product complications. But if we want to be more precise on the segmentation of the industry, it can be divided into four price categories: mass (Under USD $600), middle ($600 – $1,500), upper ($1,500 – $10,000), and luxury ($10,000 and higher) watches.
• Watches in the low-end segment consist in most cases of radio-controlled and digital watches, whereas the high-end watches are mechanical.
• The key players and the most important countries that are concerned by the global clock & watch industry are Switzerland, Japan, Hong Kong, and Mainland China. Switzerland has a reputation and almost monopoly in the luxury segment, whereas Japan, Hong Kong, and China are very efficient and influential in the low-end segment.

In order to understand the strategic choice of watch companies of where to produce and what key factors should be analyzed, the process of making a watch needs to be defined. When a company decides to delocalize or change its centre of production, there is always a reason why it is done. First of all, every watch needs to be elaborated on computer design. Major brands, including Rolex, Swatch, and Patek Philippe, have their own design offices within their company, but small independent design companies exist for brands that decide to outsource their design phase. Raw materials that can be used vary from the quality and price of the watches. Basic and low-end watches are made of plastic, titanium, or stainless steel, whereas luxurious watches are made of silver, gold, carbon, diamond, platinum, or ceramic. Thus, raw materials need to be accessible on the production/manufacture site. The manufacturing process is one of the most important steps and is divided into two phases. The first one is about shaping and tailoring the components of the watch. It can be hand-made or machine-made. The second one, which is the most noteworthy because it requires excellent knowledge and skills, is the process of manufacturing and assembling the watch components. Labour must be qualified to operate on specific machinery to shape particular parts. Thus, the location of this manufacture must be studied very cautiously because of the need for skilled labour and the availability of adequate machinery.

Quality control is the last step before the watch is shipped to retailers. It consists of checking possible defects to ensure high quality. This control can be made at the end of the production line for small and low-end watches, but the most luxurious and essential brands set the control at the earliest point of the manufacturing process.

The Great Hong Kong region clock & watch industry is the most crucial key player in the industry together with the Swiss one. Yet, a difference lies between production and sales. If the Great Hong Kong region is perceived as a competitor in terms of brand production in Switzerland, it is not the case in the retail sector as it is the largest market for Swiss brands, which realize the majority of their sales there (in Hong Kong only). Chinese domestic firms aiming to compete in the low-end segment want to upgrade their production to move to the middle and high-end verticals.