GENEVA, Switzerland — Over the last 30 years, high-end fashion houses like Chanel, Dior, Hermès and Louis Vuitton have sunk billions into developing luxury watch strategies. Chanel’s first watch, the Première, came in 1987. Others followed suit. Louis Vuitton, for one, opened a watch division in 2002. Ralph Lauren launched its debut watch collection in 2009. Many of these brands have since opened state-of-the-art manufacturing temples in Switzerland’s watchmaking heartland, built to convince consumers of their horological orthodoxy.
Initially, despite skepticism from purists, these luxury watch divisions began to steal a march on the industry, harnessing long-established brand power to tap the watchmaking boom of the last decade, particularly in emerging markets. By the mid-2000s, Chanel’s J12, for example, was credibly competing with the established giants of watchmaking. Chanel even felt confident enough to make a version of its all-ceramic watch with a tourbillon, a mechanism formerly the preserve of old-school brands. Jacques Helleu’s design, unveiled in 2000 and the inspiration behind a thousand lookalikes, has become a veritable icon.
But today, the luxury watch industry is in trouble, throwing these investments into question. The Federation of the Swiss Watch Industry (FHS), an independent body that represents 500 industry members, reports that in 2015, the value of the Swiss watch industry fell by 3.6 percent year-on-year and that 460,000 fewer watches left the country than in 2014. The downward trend has continued in 2016. The latest figures show that the value of exports was down 11.1 percent in April, and 9.5 percent down in the first four months of the year.
The impact on the watch divisions of high-end fashion brands isn’t entirely clear. The FHS doesn’t break down its statistics, but industry analysts suggest one of two outcomes is likely. Either the halo effect of high-end fashion brands selling handbags, clothing, accessories and fragrance will protect their watchmaking concerns; or in a globally uneasy economic climate, consumers will turn their backs on nouveau models in favour of classics. So, which will it be?
Caroline Paillusseau, head of strategy and intelligence at the Geneva-based Digital Luxury Group (DLG), which monitors the luxury watch industry, expects consumers to act conservatively. “Watch buyers today are more discerning than ever,” she says. “They want the best of the best in watchmaking — ideally a classic Swiss-made mechanical watch, seen as a reliable, ‘smart’ investment without the risk, be it legitimate or not, of a fashion brand’s watch falling out of style.”
Many high-end fashion brands with watchmaking divisions have placed great emphasis on finding iconic models that capture the essence of their brands.
She continues: “That’s particularly the case for women, whom high-end luxury brands have had much success with. Women are finding well-designed pieces from the traditional watchmakers as well, and may prefer a diamond-set Omega on a red strap to a Dior VIII, for example.”
Nicolas Beau, Chanel’s international watch director sees it the other way. He reports that the downturn has not affected his high-end watch sales unduly and that sales of the J12 White remain strong. Is this explained by the brand value created by Chanel’s broader activities? “Totally. The dynamic created by other product activities helps,” he says. “There is immense benefit [to the watch division] in being part of such a creative company, and that could be the reason why we’re in a better position.”
Many high-end fashion brands with watchmaking divisions have placed great emphasis on finding iconic models that, like the J12, capture the essence of their brands — but with mixed success.
Hermès has upped its watchmaking game with playful complications such as the Arceau Le Temps Suspendu (which picked up the award for the best men’s watch at the prestigious Grand Prix d’Horlogerie de Genève in 2011) and, most recently, the Slim d’Hermès, a watch with an in-house movement and a dial featuring bespoke numerals designed by Philippe Apeloig, one-time art director of the Louvre. The latter in particular has been welcomed by critics for giving Hermès new relevance in the luxury watch market.
Louis Vuitton has built much of its current watchmaking strategy around the acquisition of movement specialists La Fabrique du Temps, which it bought in 2011. Three years later and, at a reported cost in excess of SFr20 million ($20.76 million), it opened a new facility under the same name in the Genevan suburb of Meyrin, where it’s now making watches such as the Escale Time Zone, a watch it’s pitching in the highly competitive segment between $5,000 and $10,000 (the Escale Time Zone 39 retails from $8,200). With its unconventional design, however, it’s unlikely to have more than a fleeting impact on the wider watchmaking community. Louis Vuitton hopes this year’s LV Fifty-Five collection, which includes a steel model that retails from $5,650, will capture the zeitgeist in a way that its flagship line, the Tambour, has never managed.
But these efforts aren’t enough, say experts. “Clients that have already purchased a luxury watch in the past 10 to 15 years, particularly women, have already considered or purchased Chanel’s classic J12 or the Hermès Heure H,” says DLG’s Paillusseau. “The new models on offer from these brands do not always convey the brand DNA in the same strong and recognisable way [as other products]. These customers will be looking for something new, and the fashion brands just aren’t answering their needs for a fashionable yet iconic statement.”
Results would appear to back this up. In its quarterly report to the end of March, Hermès recorded 6 percent growth in revenues across all divisions to €1.19 billion ($1.33 billion), but a fall in watch sales of 3 percent. The report said sales “continued to be penalised by a still challenging market, particularly in Asia.”
Good news seems hard to come by. Last year, Italian luxury giant Bulgari closed one of its two sites in the Swiss watchmaking town of La Chaux-de-Fonds. Some 20 jobs were affected. Rumours that Dior is winding down its men’s watch activities to focus instead on high-jewellery women’s pieces were lent credence at this year’s Baselworld watch fair, where the company failed to present any men’s watches.
The slowdown mirrors what’s happening at traditional luxury watches brands. Richemont Group, parent company of Cartier, IWC and Jaeger-LeCoultre, laid off 250 employees last year as turnover tumbled. Ulysse Nardin, bought by Kering in 2014, made 26 staff redundant in 2016, 8 percent of its Le Locle workforce.
But some analysts are predicting a stronger future for high-end fashion brands building luxury watch divisions. A report published this June by consultancy firm Millward Brown indicated that the global brand value of Hermès, Louis Vuitton and Chanel is rising. The report, entitled “2016 BrandZ Top 100 Global Brands,” judged Louis Vuitton to be the world’s most valuable luxury brand, with a value of $28.5 billion, up 4 percent from a year ago. Chanel posted the highest growth figure, rising 15 percent last year to $10.3 billion. Brand value, according to the report, is the combination of revenues and global consumer perception.
Elspeth Cheung, Global BrandZ Valuations Director at Millward Brown, believes that because these powerful high-end fashion brands can combine a design-led strategy with a consistent global customer experience, their watch offerings will prosper while watch-only brands suffer.
“Hermès, Louis Vuitton and Chanel are doing well because they are design-led,” she says. “In the mass market, people tell the time without wearing a watch, via a device, such as a smartphone or wearables. Watches are a piece of jewellery and not just about telling the time. This is what these brands can deliver to the luxury watch market.”
“Brands are creating platforms that can satisfy more than one consumer need at the same time,” Cheung continues. “It’s about making sure that whatever your customer wants or desires, you can satisfy them with the platform.”
Beau is confident the rub-off created by multiple offerings under one umbrella will be good for Chanel long-term. “Those with watches and jewellery have a brighter future than those without,” he says. “There is a synergy and a complementarity when you make watches and jewellery. If you just make men’s and women’s watches, it’s going to be more difficult, because the men’s watch market is saturated, and the women’s market is so affected by jewellery.”
But as the decline in Swiss luxury watch exports continues, the battle for supremacy between high-end fashion brands and established watchmakers looks set to intensify.