Watch Industry Consolidation Threatens Independents’ Survival

Watch industry consolidation is crimping creativity and making it harder for independent watchmakers to compete, said Pascal Ravessoud, marketing and development director of the Fondation de la Haute Horlogerie.

Large luxury companies have more bargaining power with subcontractors and retailers as they buy brands and component makers, Ravessoud said in an interview last week. As demand slows, independent watchmakers’ survival is threatened as they face higher costs, he said.

“If you don’t today have an established brand for key collectors, opinion leaders and geeks, and you don’t have certain points of sale that trust you already, then you’re really in trouble,” Ravessoud said. “It’s a big worry.”

LVMH Moet Hennessy Louis Vuitton SA, Hermes International SCA and PPR SA have strengthened their Swiss timepiece units in the last two years to meet demand as Swatch Group AG, the biggest watchmaker, reduced shipments of components to rivals. Swatch, which bought up component makers after an industry crisis in the 1970s and 1980s, produced almost two-thirds of the innards of mechanical Swiss watches in 2012, according to Jon Cox, an analyst at Kepler Cheuvreux.

FHH was founded in Geneva in 2005 by Richemont, Audemars Piguet and Girard-Perregaux to promote fine watchmaking internationally. It aims to inform, train professionals and act as a think tank for the industry, according to its website.

Watch Giants

Of the top 10 brands ranked by Cox, seven belonged to three companies: Rolex, Swatch and Richemont. Closely held Rolex is the biggest Swiss watch brand with annual sales Kepler estimated at 4.5 billion Swiss francs ($4.7 billion). Still, it’s smaller than the two biggest Swiss watchmakers: Swatch, which sells timepieces under 19 labels including Omega, and Richemont, which has about a dozen brands for watches such as IWC.

Swiss watchmakers are bracing for a slowdown this year as Kepler forecasts the industry’s exports may increase 5 percent, which would be the worst performance since the 22 percent decline in 2009. The Chinese market has been shrinking as the administration cracks down on extravagant spending by government officials.

LVMH acquired Italian watch and jewelry maker Bulgari SpA as well as component makers La Fabrique du Temps and ArteCad in

2011. PPR increased its stake in Sowind, owner of the Girard-Perregaux and JeanRichard brands the same year. Hermes bought control of case maker Joseph Erard Holding in April.

Fewer Risks

Production and distribution constraints amid slowing demand mean independent watchmakers are taking fewer risks creatively and are having to charge more, Ravessoud said before a May 15 conference on ultra-high net worth consumers organized by Luxury Society at Bloomberg’s office in London.

“The whole purpose of the independent is to propose an alternative, something different,” Ravessoud said. As the big groups get bigger and open a surfeit of stores, “don’t you lose the spirit of luxury in the end?”

Timepieces priced between $5,000 and $10,000 are likely to be most affected by slowing demand in China, Ravessoud said. Some consumers will shift to lower priced watches, while the wealthiest will keep spending on expensive timepieces, he said. Sales will grow at least 10 percent this year in China, Ravessoud said.