Swatch Group 2016 Profit Drop & Market Debate

Ornatus-Mundi · 2016-07-15T01:28:46Z

Explore the 2016 Swatch Group profit decline, market reactions, and collector debates on pricing, quality, and industry practices. A historical look at luxury watch market dynamics.

In an earnings call today, Swatch Group's President Nick Hayek had to announce really bad news: The watch conglomerate's profits drop by 60% for the first 6 months of 2016 (y-o-y), mainly attributable to dwindling sales in Hong Kong and Europe, particularly France and Switzerland. Furthermore, the profit margin halved from 18% to 9%, which analysts consider an alarming sign.

Swatch Group thus follows a general pessimistic trend in the industry. Sales in the watch industry as a whole dropped by almost 10% alone this year across the three large conglomerates Richemont, LVMH and Swatch Group.

Swatch Group will comment in detail on the situation and elaborate which measures it intends to enact on 21 July.

We will stay tuned and report!

Cheers,

Magnus

Key Points from the Discussion

The industry's focus on new purchasing power over loyal collectors contributed to market instability, as these new buyers quickly lost interest in watches.
While prices are high, comparing watches to cars or apartments is flawed because watch value is driven by demand/offer, not inherent utility, similar to art.
The current market situation, characterized by increasing prices, declining quality, and over-investment in capacity, is a predictable cycle leading to a crash, which is necessary for a return to sensible pricing and better quality.
Consumers and enthusiasts feel exploited by the industry due to ever-increasing prices without commensurate quality, abysmal service times, poor quality assurance, and excessive marketing spend that doesn't benefit the end product.
The expansion of emerging markets and global central bank money printing have created price bubbles, making it unclear if the watch industry faces a general bust or if it will only impact specific market sectors.
Recent watch collections lack innovation, with brands playing it safe by offering minor variations instead of audacious or truly innovative products to face the crisis.

The Discussion

dr.kol

Jul 15, 2016

Thank you for reporting.

For a longer time I have been expecting this and I'm afraid that the slide has just started. I have seen the same to happen again and again in other industries: Strengthening mart leading to increasing prices leading to increasing profits leading to increasing investments to additional capacity leading to lowering quality but always increasing prices. Leading to market Crash. The good news is that such a market collapse is needed. We need better quality and more sensible prices which are related

MTR

Jul 15, 2016

IMHO (non-exhaustive list): Managers have to be watch lovers who understand what they do and do it with enthusiasm and focus on a sustainable development. Reasonable prices (in Austria i.e. a Rolex DD40 Platinum costs K€ 22 more than the WG version...). Greed leads to nowhere. Quality of product and service on one hand and prices for them on the other have to be in a certain relation (I don\'t want to wait months of months for a service just to have the watch sent back again) Attractive offers a

Mark in Paris

Jul 15, 2016

I will defend quite a different position Kari, just for the exercize

Quality: I'm not sure watches today are inferior in quality than the watches from the 1980's for instance. Steel quality is better, finishing is better in our movements than in former versions (324 from 315 or actual other movements compared the 27-460 etc...). It is a bit like cars: vintage is beautiful but plastic, leather and steel were poor quality compared to today's. Real new competition: knowing the huge number of watch brands, at every level of price, there is a lot of competition. Furth

dr.kol

Jul 15, 2016

Like always Mark, I agree with you at least partly.

Being greedy in business is normal - it's the name of the game. In watches we reached a level where the prices just like the profit margins are totally insane. Now we will come to a situation that the manufacturers need to cope with that situation. As we speak about Patek, I hope that they will cut the production and shift those resources to servicing the old watches. As a second step introduce some more affordable crisis watches like 5170A - but limited production. I believe that Patek can surv

Mark in Paris

Jul 15, 2016

I totally agree with this analysis [nt]

dr.kol

Jul 15, 2016

Wow Mark. You agree... Thanks! [nt]

Swatch Group 2016 Profit Drop & Market Debate

Key Points from the Discussion

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