Concluding 2016; an important change is needed
We’re almost at the end of our beloved 2016. We have seen a lot of cool things happening within the watch landscape this year – starting with sapphire cases and going out with bronze. Many things happened – some of which were great, others left us in awe about ‘what now’.

What absolutely shocked most of us was the result that showed a change which has been going on for a couple of years now. Brands fell of their respected throne and movement suppliers tried to survive never-ending storms. A problem that – if not accepted – will not end when 2017 starts. Sadly, this isn’t something we can leave in 2016 and forget – reality proofs otherwise.

Decreasing Sales of the Swatch Group.

Trying to keep ourselves updated about all the latest developments, we keep reading and reading. Trying to use all the bits of information to complete a giant puzzle of an unknown number of pieces – one cannot provide all the information. The same goes for us, we can’t give you all you need to know about the changes, but we can give you a heads-up about what we do know. Seems fair if you ask me.

The reason why I’m writing this article right now, is because of an article I read on ABlogToWatch only a few minutes ago. An article that, compared to the few pieces spread across the internet, gave a lot of pieces to the puzzle at once. What struck me the most? The unbelievable stubborn way of thinking within the industry and the traditional approaches used – in a not-so traditional time.

Conventional way of thinking
First of all we have the simple word ‘balance’. No matter what market, no matter what industry, every healthy company needs balance to operate in a way that’s profitable and – as far as possible – provides them with a future perspective. If there’s no balance – in terms of costs and profits – there’s no healthy company. Resulting in the white flag waving and another sinking ship. Oh hey, that looks a bit like the watch industry the past year. What a coincidence.

Market shares. Source: http://www.statisticbrain.com/wrist-watch-industry-statistics/

Reading the article, I was surprised right from the start, but what really surprised me was the figure showing the financial cycle within the Swatch Group. Displaying a total period of time of more than 1000 days from buying materials for production up until they receive the money from a sold watch. As shown in the article, this cycle is about a third for the Richemont Group. Now I know a large company works on predictions and payments in advance etc. but this is just ridiculous. Not because of the period being more than 3 years(!), but because of the way the industry reacts to this change.

Not facing reality
What shocks me is the fact that all of these things are happening over such a long period of time. As Mr. Stark says, these changes are going on for about 3 years now. 3 years? What company keeps going left for 3 years (and maybe more in the near future) when everything suggest you should try a right turn every once in a while? Of course, directing a company that large, with that much employees and that much influence isn’t as easy as riding a bike. But come on. I mean, how many times do you need to hit your head before thinking you should try another approach?

As I said, I can’t satisfy you guys with a puzzle completely solved. That’s not because I don’t want to, but because it doesn’t matter how hard we try.. someone, somewhere keeps hiding a few pieces to the puzzle for us. It’s like we are all Harry Potter and we can’t enter the Forbidden Forest.

Export October 2016. FH©

Shocking numbers
As we all have seen, numbers published by the Fédération de l’Industrie Horlogère Suisse or short FH, showed decreases on a global scale. Asia and Europe have had the most drastic falls in terms of numbers, whereas America showed far less decrease – but still a decrease. Also stated on their website ‘for the third consecutive year’, meaning the current position of the industry isn’t something that popped up in the blink of an eye.

Decreasing numbers. FH©

As displayed in the statistic above, we can clearly state that there’s never been any bright light at the end of this tunnel. I guess it’s not sure which direction this is going, but one thing is for sure: there has to be done something. The decrease of sales has to end somewhere, or has to be balanced by a well-placed production and inventory.

Superiority or not
As stated in the article that made me write this one, the conventional way or planning within the big companies (Swatch Group and Richemont Group) results in a very static way of working. In the first decade of this century, luxury mechanical watches became increasingly popular. Only to become more and more popular in the following years, until 2013. From that moment on, numbers decreased – as in sales numbers and export numbers. However, the production capacity increased and never changed in that same period. As told by Mr. Stark, the reason for all of this starts with the fact that production planning goes over a period of 2 – 3 years.

At the start of this period, a prediction can be very realistic and achievable. Resulting in positive noises for starting the process for the upcoming period. However, after a while, demands (in this case the consumer’s demand) can change – asking for the company or even industry to adapt. That’s what you would expect, however that’s not what’s happening in Watch Land. The biggest players in the game keep holding on to their original game plan, resulting in hard times as we see at the moment.

Decrease of Stock of Swatch Group (orange) and Richemont Group (blue). Source: https://markets.ft.com/data/equities/tearsheet/summary?s=CFR:VTX

The dynamic aspect needed to flourish even during times of decreasing demand is nowhere to be found right now. I can agree a little bit on the fact that production and inventory is kept on a certain level as a sort of ‘insurance’ or investment – but not in this situation. Is this the point of no return? Are production processes so far evolved that slowing them down means a negative outcome for employees? I mean, how can you keep growing your inventory if sales numbers are decreasing? Where’s the need for a bigger inventory when you already have a certain minimum?

One giant contradiction
What’s happening? Difficult, hard to tell what’s happening if you’re not monitoring all companies at once with ALL of the information available. The funny thing is, the Swiss Watch Industry has always been something special, or at least that’s how the big bang sees itself. An industry ruled by Switzerland (not so sure of that, take a look at the ABlogToWatch article), but one that’s not really evolving in terms of ‘adapting to your surrounding’.

On the one hand we have the ‘Swiss Made’ products being very special and luxurious – only reachable by a small percentage. On the other hand we have companies that strive to produce as much products as possible – trying to become larger than life. How’s that possible? It isn’t – resulting in a downfall as we are seeing right now.

Decrease of Share values. Source: http://quotes.morningstar.com/chart/stock/chart.action?t=SWGAF&region=usa&culture=en-US

If the watch industry wants to keep things safe and sound, they should go back to their values. The reason why people are buying what the produce and what they are telling in each campaign and every catalogue. You can’t produce, create, reproduce and at the same time expect that the numbers of consumers grows and keeps on growing. No, it is not like buying a loaf of bread. One buys a luxury Swiss Made watch to admire it and take care of it for time to come. That same person – with a few exceptions here and there – won’t buy another expensive watch within a week, or month. However, the companies still think their consumers will keep buying and buying.

Being stubborn and not taking a look at numbers, decreasing sales and ongoing production. Resulting in an inventory that would be described as ‘risky’ and ‘unhealthy’ in any other industry. It’s time for a traditional industry to become part of the 21th century and safe itself for another big disaster up ahead.