Signs of Recovery for Japanese Watchmakers
Originally published by Joe Thompson on Hodinkee.
A weaker yen and stronger watch sales in Asia are bringing some relief to Japanese watch producers. Japan’s Citizen and Seiko reported a surge in profits for the first six months of fiscal 2017, ended September 30.
Citizen Watch Co. Ltd. reported flat watch sales of ¥77.4 billion ($697.3 million) and a 32% jump in operating profit in the watch division to ¥8.5 billion ($76.6 million). Watch sales at Seiko Holdings Corp. jumped 5% to ¥67.9 billion ($611.7 million). Operating profit rose 21% to ¥4.3 billion ($38.7 million. (Casio, Japan’s third major watch producer, reports its watch data differently. Its six-month watch sales were up 1.8% to ¥80.5 billion ($725 million). More on that later.)
The results are in line with Swiss export data, which indicated a pickup in sales midway through this year after a 2016 that pummeled watch producers everywhere. In Japan, the culprits were what Citizen called “a slump in the entire watch market” combined with a strong yen. Watch sales at Citizen fell 9.7% for fiscal 2016, which ended March 31 of this year. Seiko’s watch sales fell 18.2% for the same period.
Citizen and Seiko are giant diversified industrial groups that have expanded beyond their historical roots in watchmaking.
For fiscal 2016, Citizen’s consolidated sales totaled ¥312.6 billion ($2.81 billion); Seiko’s were ¥257.1 billion ($2.32 billion). Still, watches remain the most important product for both. Watches and clocks account for slightly more than half of their total revenue. Both are vertically integrated watch manufacturers, producing virtually all their movements (quartz and mechanical) and components in house.
Both produce branded products that span the price spectrum, from mass-market watches to luxury goods. The bulk of their business, however, comes from the mid-range of the watch market, their traditional base. That is a particularly difficult segment these days. Citizen summarized the situation succinctly in its review of fiscal 2016, issued in May. “Competition in the watch market is intensifying,” it said, “not only from Japanese brands, but also from high-end Swiss brands, low-end Chinese manufacturers and smartwatch manufacturers, along with alternative products such as mobile phones with watch functions.”
For Citizen, the April through September period was marked by a weak first quarter and a strong second quarter. “Market conditions are improving,” Citizen said. Japan and China are leading the recovery. An increase of Chinese tourists is helping the Japanese market. “Since July, demand from the wealthy for luxury items increased noticeably and resulted in strong sales of high-end products such as the limited-editions of Eco-Drive One and Campanola,” Citizen said. The Citizen Eco-Drive One is the world’s thinnest light-powered watch. Campanola is the company’s brand of artisanal mechanical and quartz watches.
Hampering the recovery are the United States and Europe, which remained soft through September, Citizen said. The closing of brick-and-mortar retailers in the United States, particularly department stores, is hurting sales of the Citizen and Bulova brand in the U.S. (The Citizen Group bought Bulova, its mid-priced rival, in 2008.) Going great guns here, however, is Q&Q, the company’s entry-level quartz watch.
Frederique Constant, the Swiss brand that Citizen acquired in July 2016, is doing well, Citizen said. Last year, it had “stable sales, mainly in Europe,” holding its own better than most Swiss watch brands, Citizen said. Through the first half of this fiscal year, “revenues remained strong, particularly in Asia.” Citizen also owns three other Swiss brands: Arnold & Son, the small-batch producer of high-complication watches, which it acquired with the movement manufacturer La-Joux-Perret in 2012; and Alpina and Ateliers DeMonaco, both of which came in the Frederique Constant Group takeover.
Seiko’s six-month briefing was, well, brief. “In Japan, the independently branded Grand Seiko performed strongly, and sales of Presage and Prospex were also up…,” the company said. “On the overseas front, sales were strong for Asia and Europe, with the effects of foreign exchange rates being one of the factors.” Seiko did not mention the U.S. market. However, in its review of fiscal 2016 in May, it noted that sales shrank in the U.S. due to “a falling off in department store distribution channels.” Seiko is currently engaged in what it said in May were “efforts aimed at revitalization in the U.S.”
As for Casio, for financial reporting purposes, it includes watch sales in a category it calls “Consumer,” along with other products. Casio gives timepiece sales data on a quarterly basis only. Watch sales for the first quarter totaled ¥36.0 billion ($324.3 million), down 9% from the previous year. Second-quarter timepiece sales were ¥44.5 billion ($400.9 million), an increase of 4%. Sales were led by the new G-Shock 3-Way watch with three time-link systems and the G-Steel that links to a smartphone. The six-month total of ¥80.5 billion ($752.2 million) amounts to a 1.8% increase over the previous year. It represents 52% of Casio’s total consolidated six-month sales of ¥153.5 billion ($1.38 billion).
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