Swiss National Bank Boosts Pre-Owned Watch Market
Whatever reasons the Swiss National Bank (SNB) had to remove its exchange rate floor of CHF 1.20 Swiss Francs on the EURCHF, the effect will hit the Swiss watch industry. “Like a tsunami” as Swatch CEO Nick Hayek responded to the appreciation of 39% of the Swiss Franc against the Euro. Shares of both Swatch Group and Richemont dropped immediately with 17 and 15,5% on the first day of the news.
We asked Professor Jan Adriaanse (1972, founder of www.turnaroundpowerhouse.com) if he could explain to us what the effect will be on the Swiss watch industry, but also on the retailers using Euro currency and of course you and us, watch aficionados and collectors.
On first sight, the impact on the Swiss watch industry is that prices (on top of the annual price increases) of watches will increase significantly for clients (retailers but in the end also customers) who use the Euro currency. For example, at today’s exchange rate, a €8960 Euro Omega Speedmaster Dark Side of the Moon will increase to €10.049,- Euro. The big question is of course, whether the watch industry and their retailers will just increase the price of their watches 1:1 or that they will take some loss on their side as well. We will come back to that later.
Euro Watch Retailers
What will be the effect of this decision of the SNB for European retailers? Are they going to order watches at the SIHH and later on during BaselWorld? Jan Adriaanse explains that “Retailers with a large stock could be using the situation to address their clients to ‘buy now’.” However, the retailer has fairly large margins (they also carry high risk of course) so according to Jan Adriaanse the retailer is also obliged to discuss with the Swiss watch brands how they can keep the prices reasonable. Differences in pricing (Europe, Asia) can also give the grey market a significant impulse, something both brands and retailers won’t be very fond of.
Pre-Owned Watch Market
Another market that the Swiss watch industry (and most official retailers) are ignoring is that of pre-owned watches. This market is already quite huge, but will get quite a boost especially for the young pre-owned watches. Jan Adriaanse says “sellers with a lot of (pre-owned) stock will – at least temporarily – have a great time. Websites like Chrono24 will probably see a huge increase in interest from people interested in young occasions. ” The same will go for grey market dealers of course, based on their current stock.
So what does this mean for your (and my) collection of watches? “I foresee an increase in value of your watch collection, especially for watches with high-demand like for instance the Royal Oak or a GMT-Master II”, says Jan Adriaanse. It seems that is a bit like the regular annual price increases of Swiss watch brands. Every time Rolex (or whatever brand) increases their list prices, the prices of pre-owned watches will increase as well accordingly. However, with a steep increase of the Swiss Francs, the prices of pre-owned watches are bound to go up ‘steep’ as well.
What Should Happen?
Swiss watch brands, given the comment of Swatch Group CEO Nick Hayek, are not very happy with the situation that surprised and overwhelmed them all on that Thursday the 15th of January. What should Swiss watch brands do? Just keep the prices according to the current conversion or should they chip in?
“My feeling is that some Swiss brands just raised prices during the last couple of years without giving it much thought. Especially the mid-segment of luxury watches is in danger due to the current situation.”, says Jan Adriaanse. This could very well be the case. Remember the famous speech that IWC CEO George Kern gave exactly 3 years ago in Zürich? (if not, click here) In this speech he, amongst other things, bluntly admits that there is a lot of hot air in the price of a luxury watch. Just for the sake of being expensive and thus interesting for a group of customers.
Although there will always be a large group of people that don’t care and just want to have a new Rolex Daytona, Audemars Piguet Royal Oak Offshore or Hublot Big Bang. Whether it is 10.000 or 12.000 Euro, they don’t care. As a watch enthusiast or collector we think it matters but to a large group – who does not read about watches or compares prices to these of a year ago – it is just about swiping the card and take the watch home with them.
Jan Adriaanse says that “in my preconceived opinion, the Swiss might think that their products are so superior, that they can just pull it off. Not something I would advice them to do, but it might be a typical reflex that we call the ‘threat-rigidity-effect’ in combination with the ‘curse of success theory’. This means that because of the success you had in the past, you are underestimating future threats’.”. Adriaanse also refers to the recent open letter to IWC from John Mayer on Hodinkee (here), that addressed some of this typical Swiss watch industry behaviour.
So how should the Swiss watch industry cope with it? “My message for the Swiss industry would be not to increase the prices according to the currency exchange, but to use this apparent incident to get back to the basics and think about their position in the (global) watch industry, also taking other aspects into account such as technological innovations (think smart watches) especially when talking about the mid-range brands.”, says Jan Adriaanse. We might add that the German watch industry and other non-Swiss watch manufacturers (including Seiko with their Grand Seiko line-up, ready to supply high-end European retailers) are rubbing their hands probably already to sell their watches to the consumers that are fed up with the unreasonable price increases.
Well, enough food for thought for now. We will be more than interested to see what the atmosphere will be in Geneva this week at the 25th SIHH that we are going to cover. We will keep an eye on – and perhaps talk to – retailers from Euro countries that are there to make their orders for 2015.
Thoughts? Please share them with us in the comments below.
A big thank you to professor Jan Adriaanse to answer our questions.