February's Numbers

The export numbers are in for February, and if I am honest they are better than I thought they would be, but also indicate that things are heading south.  

Courtesy of the FH

Overall exports are down by 8.7%.  Keep in mind, as always, that a watch exported is not a watch sold.  Curious to relate, a lot of watches went out to the US, which if reports are to be believed saw an increase of 17.8%.  I'm calling bullshit on that one.  Yes, the number of watches leaving Swiss Cantons bound for a recipient in the US may indeed be 17.8%.  In reality?  A great majority are heading, ultimately, for trans-shipment to the grey market.

You see, some things are going to start happening pretty quickly.  Those of you who might occasionally purchase the odd bottle of wine will be pleased to know that there are some amazingly good deals to be had.  Why?  Pretty simple, with things on lock-down, companies are sitting on stock, with fewer customers and people getting nervous about spending money?  Let's just say that  if you thought the grey market was offering some staggeringly good deals in the past?  Brace yourself, there are about to be some stunningly good deals.  How good that is for the health of the watch industry is, of course, a separate conversation.

So let's see what happens.

Be well -

The July Numbers

Are in -

Courtesy of the FH

In fairness, it could be worse.  But I am, as always, somewhat perplexed as to what really constitutes positive results.  Now numerically, any sort of increase is positive.  But when we compare these numbers to two to three years ago we continually think that we can and will return to those halcyon days. 

July is a curious month (as will be August).  Part of each month is lost owing to the Swiss Watchmakers Holiday.  But again, my gut tells me that these type of numbers are the new reality.  

Now before we go all doom and gloom, let's be clear, mechanical watches are not going anywhere.  Watch enthusiasts are just as enthusiastic now as before the Apple Watch came, and new fans and collectors are coming in every day.  But economic realities are, well, real.  

So what the bigger question becomes, is how long will failing brands continued to be propped up when they continue to fail to meet expectations and when sales increases continue to not happen on the scale that they did in the past?

Consider a few other realities -

We are, whether we like to admit it or not, starring down the barrel at the very real possibility of another recession here in the US.

There is a great deal of geopolitical uncertainty not just in the US but around the world.  At the moment the only thing that seems certain is uncertainty.  And with that uncertainty comes a wariness of spending on things that might not be necessary.

And again, back here in the US, the student debt crisis is now having a knock-on effect on the economy at large.  While we all agree that the 
Millennial generation is a rich and wonderful marketing target, more and more millennials are starting to buckle under the weight of their student loan debt.  And more and more are now defaulting on those loans, which in turn is impacting their credit, which... I think you get the picture.

Every Party Needs a Pooper

The books have closed for June, and let's just say the results are not exactly rosy.  

Courtesy of the FH

What had been a rather gentle, steady drop essentially bottomed out this past month.  And in fairness, it would be easy to say that this is not worth panicking about, because the numbers are still in the plus range (i.e. above zero), but like a frog put into a pot that slowly comes to a boil, it is perhaps once again too late for some brand bosses to make the adjustments necessary to salvage what might turn out to be a shitty year overall.  

Now how is it possible that things were going so great, and one bad month has Mr. Grumpy being so negative?  Well, I would simply refer you, gentle reader, to the graph provided by the FH summarizing the last year.  

Notice a trend?  

So what happened?  The same thing that some of us have been talking about for awhile, and that other people have either ignored or failed to notice.  There was a reason why export numbers climbed impressively towards the end of last year and the start of this year - the new Swissness regulations.  Simply put, there was a very real impetus to shift as much product outside of the borders of the Cantons prior to the implementation of the regulations.  Although that was meant to happen when the meter flipped in January, several brands were, let's just say, using "alternative facts" to justify continuing to flush the tubes of not 100% Swissness product during the first half of this year.

And now?  Well now we are starting to see where things really are.  It is worth noting that yes, we are still in the black and have not slipped back into the red.  BUT, it is also worth noting that if we are talking about trends, the numbers are trending in a Southerly direction, and like that frog slowly coming to the realization that his warm bath has now become soup, brands are going to have to start making some tough decisions that will inevitably cause some pain.  Ad budgets will contract, panicky gambits will be employed, and unfortunately, the transfer window will open for a lot of people who thought for sure that they had outrun the reaper during this current downturn.

In fairness, this latest shake out has been on the books for several years, the product has been piling up, and the the transshipping destination countries have been saturated in overstock product.  The majority of the big dogs have now also discovered the soft grey market of online super stores that are selling their overstock watches as "gently used", and while that can "clean" some of the glut, it is really a drop in the bucket overall.

As many of the brands have finally adjusted their production numbers to the real world, it remains to be seen what the real demand is.  July and August are likely to be bumpy as we are in the Swiss Watchmaker Holidays.

Let's hope things will pick up.

The Forecast Calls for Pain...

As that other great commentator on the watch industry, Alfred Tennyson might have mused -

In the Spring a young man's fancy lightly turns to thoughts of... pain.

Courtesy of the FH

Now apologies for the fuzzy condition of the image, but in fairness, the statements from the FH regarding the purported growing strength of the Swiss watch industry are somewhat fuzzy in their logic when viewing their own graph.

Let's make this pretty simple.  As the graph above shows, export numbers have been slowly, but steadily dropping off since August.  Now taken in context of previous years?  Yes, things are somewhat better.  But while I think that this is a "glass is half-full" point of view, it doesn't necessarily mean that there is no water in the glass at all.  But it does mean that the water is rapidly evaporating.

In speaking with a friend how knows about these things, he has informed me that the HR scalpels are out, and as the fat has already been trimmed, the next step is happening - assembling companies are starting to cut hours.  More than that, several other assemblers are simply letting staff go.  And that's the part that should be most concerning.  You don't hear about people like assemblers getting let go.  Let's face facts, they are not brand employees.  Owing to this, the leaders of these big groups, and even the smaller brands can claim that all is well!  But it isn't.  This is yet another canary in the coalmine.  

In reflecting back on the incredible shrinking fair that is BaselWorld, and whether their over-inflated egos can admit it, SIHH as well, let's be very honest - this is a symptom of a larger problem.  The fairs, the number of attending brands, retailers and enthusiasts are merely a reflection of the overall health of the industry.  And right now?  The industry is still paying the price of playing with Confederate money for so many years.

 

 

 

The Funny Thing About Numbers

Okay, it's time once again to play Bullshit Bingo with the latest numbers from the FH, or as it might be more gently put:
One person's success is another person's cause for concern.

Let's start with the big picture with the December results from the FH -

Courtesy of the FH

Now I am not a trained economist, and in the interest of transparency, I failed Macro Economics my first year at the University of Oregon.  Having said that, it does not take a Nobel laureate (or even a Sloan Research Fellow) to notice a somewhat worrying trend in the direction of the graph for the export numbers over the last quarter of the year.  Curious to relate, other pundits will crow about how much things are improving, particularly here in the (currently chilly) US.  Well, I'm calling bullshit.  

Talk to most retail partners and you do not exactly hear how good things are.  The big swinging dicks (i.e. the decision makers for several BIG retail sources) took a pass on SIHH.  Let that sink in. Now consider that BaselWorld is going to continue to compress and a lot of retailers will give it a miss as well.  No, this does not mean that we are entering "end times", it does mean that this recovery is not exactly what some outlets would have you believe.

So who is doing well right now?  The grey market.  When big brands are offloading directly to the grey market sources, that ensures a steady (albeit much smaller than hoped-for) outflow of watches from the 26 Cantons.  It also means that the price for "almost new' watches offered by your favorite online resources will continue to move downwards as supply will continue to outstrip demand.  Yes, I did retain that much from my failed class back in 1988.  Which means that more and more people will find themselves unwilling to pony-up the full sticker price to buy from an actual retail partner.

So let's think about a few basic facts -

1.  With the new Swiss regulations, there are likely to be fewer exports in the coming months as several brands are trying to "toe the line" on the rules.  Important side note, several brands can't be asked to comply and are still playing it fast and loose, so we shall wait and see what potential repercussions might be.

2.  The grey market isn't going anywhere, but just as Las Vegas and Times Square shed their lurid pasts, the grey market is now squeaky clean and presenting itself as a trusted source for previously owned watches.  A little inside baseball, what that really means is that the watch is being sold as pre-owned, but it is likely the most wear it ever saw was in a store where it didn't sell.  And again, there is nothing wrong with this, but it is not good in the long run for the brands.  And for you the buyer?  You're all excited about getting that "Like New in Box" watch for 40% off - until you decide you want to trade or sell it.  And then you come face to face with our old friend, the sunk cost trap.  And that goes double for the brand directors driving their products straight into the grey market hopper.

3.  Retail will not totally disappear, but we will see more retail stores go under.  Sorry, there is no way around it.

4.  Ditto for watch brands.


So here's hoping I am wrong, that all is well, sales are brisk, and the needle will tick up again.

We Sail Tonight for Singapore - The Voyage Continues

Numbers, they say, don't lie.  But sometimes they fib.

Courtesy of FH

Yes, numbers are up.  EXPORT numbers.  And interesting to relate, the US is again up.  Which makes sense because the big three as well as Rolex and Patek have subsidiaries here and they can "park" a lot of watches here.  In speaking with my friends in the retail sector, they are not exactly going out and buying a new sports car.  And some once very influential and successful retailers are seriously contemplating whether or not they will make it through this year.  Because what we often fail to understand when we read the (insert the metaphor of your choice) love-story-comeback-feel good-triumph story put forth by some of my colleagues in the 4th and 5th Estates is the reality that exports are not the same as sales, and more importantly, the increase in exports is very likely to level off fairly dramatically once the new SWISSNESS standards are fully in force.  December 31st the clock will strike midnight, and many of the small and the mighty in the industry will watch the  stock that does not meet the standard still remaining within the Swiss borders turn into pumpkins. 

And apart from that, there is one very curious statistic that I will share, the phenomenal improvement shown by that titan of watch sales... Singapore! 
Mighty Singapore showed an uptick of, wait for it, +25%!  Point of full-disclosure, I have never been to Singapore, but I suffer from a distinct sense of incredulity in believing that the demand in Singapore is that great right now.  Is the Grey and Soft Grey market demand great?  Sorry, silly question ; )

And now a little inside baseball for all of you who think I might be full of it, ever wonder how the grey-market and soft-grey market always seem to have so much product?  And have you ever heard the near comedic response of brand managers and their Swiss and German ownership claiming to be just as shocked and concerned as their frustrated and pissed-off retail partners?  Well, to quote that other great commentator on the watch industry - Gabriel Byrne as Tom Reagan (Millers Crossing) -

“I’d worry a lot less if I thought you were worrying enough.”

Here's hoping that I'm wrong.

Is the Recovery Real?

The results for August are in, and strictly looking at the numbers, they would appear very encouraging.

Courtesy of the FH

And in fairness, they show a very positive trend.  The export numbers are, indeed, up.  But the tell-tale realities remain - sales are not up to a level that would clearly state that things are back to normal.  And that remains the $64,000 Question - when will the export numbers truly measure the strength and stability of the Swiss Watch Industry?

One key time period we should all be waiting on is the first (and possibly second) quarter of next year.  As I and many others have mentioned - the new standards for what make a Swiss watch "Swiss" go into effect, and there is a not so subtle push to get as much product outside of the borders of Switzerland as possible before the odometer turns on January 1.  Export numbers are simply that - export numbers.  They do not tell us whether manufacturing numbers are up, they do not tell us that sales are up.  When we are talking about the major groups, all that they are really telling us is that products have been transferred from HQ to a subsidiary.  

Now one other interesting item to consider - the US market is STILL down.  And in fact it is down nearly 5%.  Also interesting to relate with that number being as low as it is, the US is still #2 in global exports...  
I am no economist and am not on the shortlist to replace the current Secretary of Commerce, but the numbers don't really make sense.

We will wait and we will see - and hopefully we'll see an actual recovery.  But what we in the press, and many of you consumers have absolutely no way of knowing - is just how much of this export increase is due to a business improvement, and how much of it is a flush of product prior to January 1?

To be really, really clear - I personally want to see things improve.  I am tired of reporting on less than inspiring results.  But the industry, and those who ran the brands and wrote the checks have spent the last 7 years pigging out and forgetting the lessons that they should have taken to heart then.  Let's see if the lesson sticks this time.

Stay tuned.

Maybe the Numbers are Improving...Maybe Not

Okay pals and gals, the numbers are in for June from our friends at the FH are happily reporting the news of an uptick in Swiss watch exports.  

Courtesy of the FH

I apologize if the image is a bit fuzzy, but that is appropriate because the correlation between increased exports and actual watch sales is equally hard to pull into focus.

If we were to believe that numbers don't lie, then apparently every jeweler in Italy and the UK must be selling boatloads of watches with truly Herculean increases of exported watches arriving in these two locations.  The numbers for the US are, at least, more believable with a further poor month resulting in a decrease of 1.3%, and Japan with an additional decline of 15.4%.  And if the numbers are to be believed, then we can all breath a sigh of relief!

But the problem with fuzzy numbers is they tend to be fuzzy for a reason.  And I will repeat what I said here about a month ago - increased export numbers do not necessarily indicate increased sales numbers.  While I will not claim to be in touch with every retailer in every country, I can say that the reports back do not reflect the very large volumes of Swiss watches that are being exported to the UK and Italy.

Which means, once again, our old friend the Grey Market, the Light Grey Market, and good old fashioned trans-shipping might better explain a part of it.  The other part is the need to get as many watches out of the country before the new "Swissness" becomes reality - and that means only about 6 months left.

So no sports fans, I do not think we are out of the woods quite yet.

"The Watch that Saved Christmas!"

Or - "How the Grinch overslept and the Swiss watch industry lived to see another day."

Shamelessly borrowed from the world-wide infoweb

So the books are closed on December, and it would appear that the results indicate that a sort of "participation trophy" is in order for the industry, as to quote the FH:
At  -4.6%, exports reported one of the shallowest falls for the year...

Courtesy of the FH

Which, I guess, is a bit like your teenage son informing you that his girlfriend is only "a little bit pregnant".  Going from a hemorrhage to simply a steady blood loss is not exactly cause for celebration.

But just as little Billy and Susy deserve a trophy for showing up to 75% of their soccer games, I suppose we should be cheered that although there was still a drop and the graph line still keeps receding ever southward, at least the losses this past month were not as bad as the trend. 

"So you see, it's still a loss, just not as bad as before!"

Now the constant reminder that I have to give is this - these are export numbers.  They are NOT SALES.  They do not take into consideration watches that might have been RETURNED to Switzerland by subsidiary offices. 

And lastly, as most of us know, these numbers are probably going to climb in the coming months not due to demand, sales or any other "normal" indicator.  They will increase as the newest version of Swissness goes into place, and all of the watches that will not meet the standard for the implementation have been provided "exit visas",  In other words, brands need to ship AS MANY WATCHES AS POSSIBLE out of the country. 

Meaning?

Ashford, Touch of Modern, Overstock.com, Joma Shop and Mass Drop (among others) will be riding a near tsunami of product at blow-out prices.

We may be near the bottom, but there is about to be an even bigger drop.

Screaming Jesus on a Ferris Wheel! It's Not Getting Better

And the Butcher's Bill is in from the Federation of the Swiss Watch Industry, and the numbers are down again.  So despite Mr. Hayek's assurances that July would be better, it looks like it was not.

Now, is SWATCH Group the entire industry? Of course not. But they are the canary in the coal mine. And more to the point, it bears mentioning that short of a Lazarus-like recovery, things are not going to improve to the levels that would mitigate the losses already incurred by SWATCH Group and the other big dogs.  

Interestingly enough, the US is once again the number one country in terms of volume, representing 10.9% of the total export numbers.  But take that positivity with a healthy serving of salt, because the US numbers are - spoiler alert - down again.  The US drop is 14.5% as is the total for total wrist watch exports.  

Interestingly enough, the numbers in the UK are dramatically up +13.4%.  And startlingly, the numbers in Italy are also up as well - +9.9%.  

It bears mentioning that as the books close on July, we are now rapidly approaching the make or break holiday season.  This is usually the time when retailers are replenishing their inventory to prepare for the holiday onslaught.  But if the retailers I have been in touch with are any gauge on this, it is looking like a blue Christmas.