The Clutter Of Dollar Signs, The Shrinking Watch Industry

Anybody else sick of talking about prices?

Juan-Carlos Torres, former CEO of Vacheron Constantin and 36 year Richemont Group veteran

“Art is hard to see through the clutter of dollar signs.” Roberta Smith, writing for the New York Times, 2013.

There is quite a lot of talk these days about a slowdown in the luxury industry in general, and a slowdown in the watch industry in particular. I won’t repeat all the numbers but according to the Federation of the Swiss Watch Industry FH, May export values were down 9.5% year on year, with export volumes down 13.4% for the month year on year as well. In the US, the drop in export value for the month was a slightly staggering 25.3% and so any long range plans that the industry might have had which were based on even a modest growth expectation, will probably have to be revised. Last week, the Fondation Haute Horlogerie had a press conference in Geneva, to discuss the matter and while there were beliefs expressed that the industry has been through ups and downs before, and that it will soldier on through, there was also a remark from Cyrile Vigneron, the former CEO of Cartier and now the brand’s Chairman of Culture and Philanthropy, who said, “A watch has become a cultural object of sophistication, but if we think things are forever, they are never forever. Culture has to constantly reinvent, otherwise it can disappear.” (For more on the press conference, check out Robin Swithinbank’s story for Business of Fashion).

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It is hard to avoid feeling as if when it comes to the decline in revenues, the industry is suffering from a self-inflicted wound but if it’s because it managed to talk itself into thinking things could grow indefinitely, based on the pandemic boom in sales and also in pre-owned watch prices, all I can say is, that there was a lot of that going around. What most of the hindsight concentrates on is what prices were, where they are now, and where they might be going, which is perfectly understandable; on the business side, the watch industry is an industry and is in the business of thinking about such things, and on the consumer side, we wonder just how much more expensive things are going to get.

Beyond a certain point, the various rationales for premiumization (the euphemism for price increases) start to look a little shaky. Earlier this year, Business of Fashion and McKinsey Group analyzed the situation in a report whose conclusions seem generally accepted at this point; the title of the story is “The State of Luxury: How to Navigate a Slowdown” (the headline image, rather menacingly if you are a watch guy, is of a pocket watch immured in a large block of ice) and the dek for the story says, rather pointedly, “Macroeconomic headwinds, shifting client preferences, and a deteriorating value proposition are weighing on the global luxury sector. The Business of Fashion and McKinsey outline five strategic imperatives for luxury executives.”

Luxury historically relied on exclusivity, with relatively high pricing and low production numbers, to drive the perception of prestige but it also relied on the idea that you were getting something qualitatively better. Rarity is the essence of traditional luxury, but ideally it ought to arise from rarity of materials and rarity of skill and the folks who pay attention to this kind of stuff for a living have been saying for months that there is a crisis in luxury because at some point, people start to wonder, especially when pricing keep going up by what seem like arbitrary amounts, what exactly it is that they are paying for. The notion that high net worth clients for luxury aren’t price sensitive only goes so far. Nobody, no matter how loaded they are, wants to feel like they’re being had.

Now the best protection against that is obviously an informed public that understands what the value prop for any luxury object is and no doubt, often high prices are their own justification – you are advertising that you have access and disposable income that some chump dangling at the end of a waiting list doesn’t. There are other measures of value, though, and a visible dedication to traditional craftsmanship from brands that base their prestige on their traditional craftsmanship, doesn’t seem like too much to ask. But I wonder if there isn’t a more fundamental problem, which is that a combination of price increases as well as the boom in preowned prices, has fundamentally altered the level of discourse about luxury watches (and really, about luxury in general). It’s always nice to buy something that holds its value and the perceived value retention of a luxury item – a vintage Balenciaga gown, an heirloom Cartier engagement ring, a long-cherished Patek Philippe wristwatch – has always been part of the value prop. Things have gotten to the point, though, where it’s starting to feel as if that’s mostly what we’re talking about and once what people are mostly talking about is money, luxury really starts to lose its sparkle.

Still, you get the feeling more and more these days that, while it may be for bad reasons, people are asking the right questions. There’s a tendency to be reductive in value discourse when it comes to consumer goods and when it comes to watches; we want our decision making to be based on clear, simple criteria. When I was a kid (in watch years anyway, I haven’t been a kid since Dinosaurs Ruled The Earth) the big thing was whether or not a watch movement was in-house. Nowadays, people count the number of internal angles on a movement – this has gotten a little ridiculous; the most recent Biver watches have the number of inner angles engraved on the rotor, which is a little reminiscent of the habit some watch brands had of gluing non-functional jewels into watch movements just so they could say their watches were better because the jewel count was higher. Still, though, the fact that the question is even being asked is a symptom of the fact that people won’t take the real value in rarity of craft for granted, just because a brand says it’s there.

Many years ago, A. J. Liebling wrote that in his opinion, anyone wanting to develop good taste in food and wine faced an uphill battle if they had money. The basic problem as he saw it, was that when you can have whatever you want, none of your choices really matter and you end up flattening out your experiences in a uniform avalanche of undifferentiated excellence, which might as well be undifferentiated mediocrity for all that you can tell the difference. The notion that relative poverty has its own intrinsic virtue had problems of its own but I think Liebling had a point.

Real luxury unfortunately for the luxury industry, is inherently not an industry and I don’t know if there is any solution to that fundamental disconnect. Luxury is inherently undemocratic in a lot of respects but real luxury based on real rarity of materials and difficulty in craftsmanship is like real hand-finishing – it doesn’t scale, although hey, simulating it does.

Now the fact is, a watch doesn’t have to be a hand finished objet d’art in order to be a pleasure to wear. Right now, I’m wearing a so-called Seiko Baby Alpinist, which I think right now is around a seven hundred dollar watch (mine’s about five years old). It’s got an incredibly solid bracelet; the green textured dial is a pleasure to look at; hands and dial furniture are terrific; and on top of everything else, it’s 200 meters water resistant. And here’s the thing. It’s easy to look at something like this and say that it’s a wonderful substitute for, say, a Rolex Explorer but that misses the point. The point of the watch is not that it’s a cheaper Explorer, the point of the watch is that it’s a fantastic Seiko.

I’m not entirely sure where the luxury watch industry goes from here (although if you want to know how we got here, I can recommend a wonderful book by Dana Thomas called Deluxe: How Luxury Lost Its Luster.) As I mentioned to someone earlier today, sometimes you wonder if the endpoint to all the price increases and production shrinkage, is that the Swiss watch industry just makes one twenty five billion dollar watch a year, and sells it to Elon (or whomever). But if the luxury watch industry and the luxury industry in general – and their clients – need a little reset after buying a little too much into the idea that it’s all about the money and not about anything else, maybe that’s not such a bad thing. Plus, I think the luxury watch industry is in no real existential danger; mankind is wily and resourceful and we aren’t going to stop wanting nice things.

I guess what a lot of this boils down to is that I got into this whole business because I like watches, and I’ve gotten so tired, tired, tired of all the money talk and all the pricing talk and all the industry analysis. I’m not interested when you get right down to it, in how the industry rationalizes its supply chains, or in trying to second guess margins, or in sell out vs. sell in or EBITDA or any of that jazz. What I want really, is to be able to buy a watch and feel reasonably sure, if I’m going to spend thousands of dollars on a watch, that I’m buying from a company that respects real enthusiasm for its products, doesn’t think of customers as dull chattel to be milked to within an inch of their lives, has an internal culture of respect for real passion for the product – I know that sounds like a ghastly cliché, but still – and which is made by people who care about what they’re making; I sometimes feel like the folks at Citizen who make Eco-Drive watches – a technology they have been perfecting for 40 years mind you – take more genuine pride in their work than some of these industry potentates. I don’t want to have the last five years of price increases measured against market indexes for pre-owned in my head when I buy a watch. If that’s what’s in people’s heads when they come into a boutique or browse online listings, there’s something very very wrong going on.

The gentleman up at the top of the story is Juan-Carlos Torres and when he started working at Vacheron Constantin in 1981, the brand was in rather dire straits. An aspiring wildlife photographer (if I’m remembering a conversation I had with him twelve years ago reasonably accurately) he joined Vacheron’s accounting department and he told me that when he started, there were 30 employees and they didn’t know whether or not they’d be able to pay the watchmakers from one month to the next. “When you joined Vacheron’s accounting department,” he said, “you were given a pencil, and if you wanted to get another pencil, you had to go down the hall to the lady in charge of supplies, and she’d measure your pencil. If it wasn’t short enough, you didn’t get another pencil.” We’ve come a long way since then and maybe it would be good to take a deep breath, take the long view, and remember that there really is intrinsic value in watchmaking, and not just value in watches as a kind of proxy currency. There’s more to life than money.

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