According to a new report by US investment bank Morgan Stanley and Swiss consulting firm LuxeConsult, the Swiss watchmaking industry is fragmenting at an accelerated pace. The major players are gaining market share while growing at significantly above-average rates.
The figures are impressive, and they speak for themselves: 350 Swiss watchmaking brands compete for the market, with Swatch, Rolex,
Replica rolex Cellini watches Richemont and LVMH holding a dominant 75% share. The continued high level of consolidation in the Swiss watchmaking industry is one of the key findings of the 2019 report on the Swiss watchmaking market, published by US investment bank Morgan Stanley in association with Swiss consultancy LuxeConsult.
The report estimates Swiss watch retail sales at 51.9 billion Swiss francs (excluding VAT) in 2018. In comparison, according to the Federation of the Swiss Watch Industry (FH), Swiss watch exports reached 21.2 billion Swiss francs in 2018. As per the reported data, the composition of about 52 billion Swiss francs is as follows: 28.6% for Swatch Group, 23.5% for Rolex (including Tudor), 18.4% for Richemont, 7.9% for LVMH (including BVLGARI Bulgari, TAG Heuer, Hublot and Zenith), and only to the rest of the market The participants leave little room for error. Hermès watches had a turnover of 195 million Swiss francs and a market share of 0.7%. The Kering Group (Kering, which includes Gucci watches, Ulysse Nardin and Girard-Perregaux), with cumulative sales of 380 million Swiss francs, has only a 1.6% share of the pie.
The “seven heroes” of the industry
Morgan Stanley found that only a few brands had a turnover of more than 1 billion Swiss francs in 2018. The “big seven” are Rolex (CHF 5 billion), Omega (CHF 2.34 billion), Cartier (CHF 1.66 billion), Longines (CHF 1.65 billion), Patek Philippe (CHF 1.35 billion), Tissot (CHF 1.05 billion) and Audemars Piguet (CHF 1.03 billion). The report further indicates that these predators outperformed the market average in 2018: according to the Federation of the Swiss Watch Industry, Swiss watch exports grew by 6.3% year-on-year and Morgan Stanley Bank estimates that members of the “billion franc club” grew by almost 9%. In other words, large companies with a wide range of price points are doing better than smaller ones. The polarization of the watchmaking industry is accelerating through the acquisition of market share; this phenomenon is also evident within multinationals. Of the 19 brands in the Swatch Group, the three best-selling brands (Omega, Longines and Tissot) account for 60 per cent of the group’s turnover and an even higher share of its profits.
The report also notes that independents significantly outperformed the listed group in 2018, with Rolex, Patek Philippe and Audemars Piguet achieving their highest ever sales and profits (according to estimates). According to the report, this performance is partly a reflection of the high-end positioning, with average retail prices (excluding VAT) for watch brands ranging from CHF 12,200 for Rolex, CHF 50,000 for Audemars Piguet and CHF 53,300 for Patek Philippe, to an even higher CHF 139,000 for Richard Mille. Swissair, and the brand’s sales in 2018 were up 15% year-over-year! Swiss watch exports of products priced between CHF 500 and CHF 3,000 and exports of products priced above CHF 3,000 grew by 7% and 7.3%, respectively, in 2018, according to data from the Federation of the Swiss Watch Industry.
While price positioning was one aspect, Morgan Stanley also pointed to other reasons for the excellent performance, namely vertical integration, long-term management, zero tolerance for grey market practices, modest annual volume growth, and selective distribution channels. By way of example, the report singles out Tudor, which has a relatively low average retail price of CHF 3,300 and sales of CHF 280 million in 2018, and which has significantly outperformed Breguet and Girard-Perregaux in recent years. Morgan Stanley said the difference in performance between independents and listed groups was reflected in profitability. Rolex, Patek Philippe and Audemars Piguet have operating margins of more than 30 percent, while Richemont and Swatch Group have operating margins of “only” 16.45 percent and 13.6 percent, respectively.