In The Swiss Watch Downturn, Correlation Doesn’t Imply Causation (Unless It Does)

There’s much being made about the seemingly swift decline in Swiss watch sales. CultOfMac, as is their wont, is pointing to Apple Watch sales while still others are moaning about millennials who refuse to buy a $6,000 James Bond watch. So what’s really happening?

Watch exports fell 8.5 percent in the last three months, partially due to a slowdown in Asian luxury sales as well as a surge in the price of the Swiss franc. But the primary slowdown seems to be in the low end – meaning the $200-$500 mark – even as Switzerland is trying desperately to convince younger people that a $6,000 watch is a great deal.

So what’s happening? Smartwatches are killing the low end. I predicted this almost a year ago when I wrote about how the watch industry could save itself. In short, cheap watches are uninteresting in the face of cheap consumer electronics and just as the phone has replaced the watch for many older folks, the smartwatch will replace the phone for millennials.

What’s next for the industry? Massive consolidation and a downturn as bad as the quartz crisis. This is the end for many smaller manufacturers, including the OEMs who provide garbage watches for Calvin Klein, Fossil and Burberry. Cheaper manufacturers with a history – Timex, Citizen and Seiko primarily – will survive because there will always be a market for an inexpensive timepiece that gets the job done. But everyone else is toast. The smartwatch – not just the Apple Watch – is eating most of the low end pie.

What can the Swiss watch groups do? Not much, sadly. Generally, they need to offer a value proposition beyond the original watch proposition which was, in short, “This watch will tell the time well.” While many of us don’t remember the heady days when Timex was actually competing with Rolex in the 1950s, once upon a time all watch brands were approximately equal. The vision of the superior Swiss watch is as artificial as Santa Claus and Mother’s Day but it is a powerful message. However, years ago, all watch companies were in deep competition with each other over timekeeping.

Now, 60 years later, watch companies have little else to offer in terms of marketing message. Swiss watches, we’re told, are intrinsically better. They aren’t, really, simply because many aren’t made with the care that goes into even the lowest end electronic device. In fact, at this point most affordable watches are mass-produced junk. These are the watches that will disappear.

But a subset of the high-end watches – mostly still made by Swiss and German makers – are still intrinsically important as works of art and science and well worth the investment. But how do you tell that to someone who wants an Apple Watch in aluminum with an orange band but will settle for no watch at all?

Anecdotally many of us still say that the Apple Watch is rarely seen in the wild but this doesn’t mean they aren’t selling. There aren’t many watches in the wild at all these days and most of us aren’t watch hounds who notice exactly what people are wearing from across the room. But the smartwatches are out there. Apple has probably sold about 6 million of these things and they will sell more. Android devices are floating around and I’ve seen more Samsung watches in New York than Omegas. Things are changing.

Ultimately the Swiss watch industry is in a downturn because it has long been full of benighted rich people with no vision for the future. The great manufacturers sat on their hands for the past decade, raising prices and aiming their unattainable marketing message at the fashion world. Now they’re screwed.

Years later they have to convince an entire generation that they alienated with resolute intensity to buy their wares. It’s going to suck for them, and that’s really what’s causing this messy downturn but at least now they can try to understand the problem and fix the cause.