Friday, June 24, 2016

Brands/Watches: Turning Back the Clock?

Q: I’ve heard that the prices of Swiss mechanical watches are falling. Is now a good time to buy?
A: You’ve got excellent intel. Prices for Swiss watches are, indeed, slipping, which makes it easier to contemplate a big-ticket purchase. It is happening for a reason: Sales are down.
According to the Federation of the Swiss Watch Industry, 2015 was the first year since 2009 that exports dropped. More recently the Federation reported that in April of this year, “the trend of Swiss watch exports remained sharply negative.” Exports were down 11.1% in value compared with April 2015, and “over the first four months of this year, the downturn stands at 9.5%.”
What’s behind the drop? The strong Swiss franc has kept prices high, while anemic economic growth in Europe has kept demand lower than expected. Meanwhile, the low price of oil has corresponded to decreased spending in Russia and the Middle East. InAsia, the weak Chinese yuan, coupled with an official crackdown on corruption and a shift in tastes away from conspicuous luxury, has depressed sales in China and Hong Kong.
As a result, inventories are bulging and some brands are quietly cutting prices by 5% to 7%. (Believe me, in Switzerland nobody shouts about these things.) That sounds like good news for buyers—and it is. But is a $15,000 watch that now costs roughly $1,000 less really a bargain?
Some watch brands are quietly cutting prices by 5% to 7%—but discounting won’t last.
Some watch brands are quietly cutting prices by 5% to 7%—but discounting won’t last.ILLUSTRATION: MICHAEL SLOAN
The industry realizes that discounting may not be enough of an impetus to buy a luxury watch these days. So some brands have managed to generate interest by adding traditionally pricey features to unusually “affordable” watches, thanks to cost-saving production innovations. What to look for:
Chronograph/Tourbillons
The most controversial watch introduced this year is the TAG Heuer Carrera Heuer-02T, which boasts a chronograph (stopwatch function) and a tourbillon (a device that improves accuracy) in a 45-mm titanium case. Prices for similar watches often start at $40,000 to $50,000; the 02T (this is the controversial part) costs $15,950.
Other executives accused TAG Heuer of horological treason for selling a chronograph/tourbillon at so low a price. At Baselworld, Thierry Stern, president of Patek Philippe, commented on the 02T to Bloomberg Pursuits: “If they’re willing to try to kill the quality of the Swiss product, they’re on a very good track.”
Jean-Claude Biver, TAG Heuer CEO and president of the LVMH Watch Division, explained the motivation: “When sales drop, there is a crisis, but you make the crisis your friend.” The brand simplified the production for the 02T, greatly reducing costs.
Perpetual Calendars
People who obsess about timepieces appreciate perpetual calendar watches, which display the day, date, month, year and phases of the moon, making adjustments for leap years. This spring, Geneva-based Frédérique Constant (acquired last month by Japan’s Citizen Watch Company) introduced a Manufacture Perpetual Calendar watch with an easy-to-read dial and a 42-mm stainless steel case. Peter Stas, CEO of Frédérique Constant, touted his brand’s “lean manufacturing processes,” which kept the price to $8,995, well below the $13,000 to $500,000 similar models fetch.
Complications
Watch lovers know that a complication (any function or design flourish beyond a simple time display) can drive costs up. So in January, when Cartier unveiled the Drive de Cartier, I was surprised by its price—$8,750, so much less than the $20,000 figure I had guesstimated.
An elegant asymmetry rules on this watch, which has a date window at 12, a second time zone dial at 10, a day/night indicator at half-past 3 and a small seconds dial at 6. The dial also has delicate engraved patterns called guilloché. All that Cartier chic is in a 40-mm stainless steel case.
These three watches arguably offer excellent value for the money. But with most watch executives predicting the present doldrums will last two more years, the quandary for consumers is: Do we buy now or wait in the hope that prices will drop even further? 

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