The coronavirus pandemic brought the luxury watch industry to its knees with a historic downturn in 2020. In the first quarter, the Federation of the Swiss Watch Industry (FH) reported an unprecedented collapse in exports with an 81 percent drop year-on-year. (For a detailed analysis of the Swiss luxury watch exports, read this. )
By the end of 2020, the decline in exports had started to slow down, thanks to China — the ultimate saviour for the Swiss. Over the last six months, Chinese consumers have created a surge in sales for luxury watches in the mainland with a strong demand for brands like Rolex, Omega, Cartier, Patek Philippe and Audemars Piguet.
The Crowning Glory
While a large number of watch brands were slammed by the pandemic and the subsequent economic instability, the demand for privately-owned top brands like Rolex and Patek Philippe didn’t nosedive as badly as expected. According to the latest report on the Swiss watch market brought out by Morgan Stanley in collaboration with LuxeConsult, 2020 turned out to be a golden year for the Rolex group, or the Rolex SA that also owns Tudor.
Though Rolex has been the most sold Swiss watch brand in terms of value for a number of years now, it became the largest watch group in Switzerland for the first time ever in 2020. With a 26.8 percent market share Rolex SA has trumped Swatch group (at 25.2 percent) to become the world’s largest watchmaking company. Richemont, where Cartier accounts for 40 percent of watch sales, has a market share of 18.2 percent, followed by LVMH at 7.1 percent.
Despite a 15 percent decline in sales Rolex emerged as the top brand in terms of revenue for the luxury watch industry last year. According to Morgan Stanley’s report, the brand sold 810,000 watches with an estimated net sales of CHF 4.4 billion. “The decline in volume (for Rolex) was likely more pronounced than in value, given the fact that it passed on a price increase of about 5 percent on a weighted basis early 2020 (Louis Vuitton, Chanel and Rolex passed on the biggest price increases during the pandemic; a testament of the strength and desirability of these brands),” states the report.
So what makes Rolex the undisputed market leader in luxury watches? Besides the fact that Rolex has been making the most dependable tool watches for over 100 years, a comprehensive product range and an aggressive market share strategy led by CEO Jean-Frédéric Dufour has hugely helped the brand’s rise to the number one spot.
The relentless demand for the brand’s key models like the GMT, Submariner, Explorer or the Daytona in the primary and secondary markets have created a desirability for Rolex that stands unmatched. Yet last year, Rolex reduced its production by almost 20 percent due to the pandemic-enforced shutdown in Switzerland.
“Between 2009 and 2019, we estimate that Rolex’s annual production went from 800,000 to 1m, a very moderate +2.5 percent CAGR. In 2020, Rolex could have easily kept the production volume of 2019, but rather than supplying the markets with bigger quantities and making its watches more accessible, it decided to reduce the output and shift inventories from markets where the Coronavirus had forced the business to close to other markets,” states the Morgan Stanley report. “Rolex appears focused on applying a luxury strategy built on driving scarcity. This means growing the production slowly annually. It also means a very strong focus on fighting the grey market, now the plague of a number of luxury watches, given the transparency on pricing brought by a number of dedicated trading sites.”
The Rise of Tudor
Over the last 10 years, Tudor has significantly come out of the shadow of its mighty cousin Rolex to stand on its own as one of the most desirable watch brands among youngsters. Helped by a dose of celebrity endorsement by the likes of David Beckham and Lady Gaga, Tudor has been building up on its enduring style with a range of watches that are much more easily available and affordable than Rolex.
In 2020, Tudor was one of the few watch brands that managed to scale up sales despite the downturn. In fact, the brand has been gaining market share from its competitors like TAG Heuer, which witnesses a drop of 31 percent in its sales last year. “We believe that Tudor was one of the best performing Swiss watch brands in 2020, as in 2019, (with sales likely up around +11 percent last year), as the brand benefited from, among other things, the scarcity in stores of a large number of Rolex Oyster Professional models,” states the Morgan Stanley report.
According to Oliver Müller, founder of LuxeConsult and a contributor to the market share analysis in this report, Tudor has been performing much better than its peers over the last few years thanks to the consistent efforts of the Rolex management. “Rolex is not only using Tudor to protect itself from underneath to make it more difficult for competitors to get up the price ladder, but it has given the brand a very own product and brand identity. Tudor watches are not using Rolex movements, but they do share the same quest for product excellency and a coherent story telling,” he says.
Star Performers 2020
Besides Rolex, the key watch brands that promise to bring the industry back on its feet this year are Omega, Cartier, Longines, Patek Philippe and Audemars Piguet. While the overall industry suffered a 21 percent decline in value and 33 per cent in volume in 2020, these brands recorded an impressive performance in an otherwise lacklustre year.
As per the Morgan Stanley report, Omega with its estimated sales of CHF 1,758m in 2020, ranked second in terms of the total turnover among the top five watch brands in Switzerland. Just 38 percent lower than Rolex, Omega sold approximately 500,000 watches last year. “Given Omega’s lower average price per unit (CHF 5,620) in 2020, the gap in terms of market share is relatively wide. We estimate Omega’s share at about 8.8 percent in 2020 vs. 24.8 percent for the Rolex brand,” states the report. The brand was also able to increase direct e-commerce penetration quite markedly — from 6 percent to 12 percent — last year.
Over the last four years, Cartier has been wooing watch connoisseurs with the most amazing modern interpretations of its icons like the Tank Cintrée, theAsymétrique, Santos de Cartier, Crash and the Santos-Dumont. The credit for Cartier’s recent rise as one of the top three covetable brands in the world goes to its dynamic CEO Cyrille Vigneron, who has been focussing on bringing back the most elegant vintage designs in special editions for the discerning.
In 2020, Cartier contributed to around 80 percent of the total sales for Richemont’s jewellery division. As per Morgan Stanley’s estimates, only six of the 350 brands in Switzerland posted a turnover exceeding CHF 1bn last year and Cartier was one of them. The brand commanded 6.7 percent share of the Swiss watch market in 2020. “We assume that watches accounted for 30 percentof Cartier’s sales mix. The two most recent product launches and communication campaigns for Santos and Pasha are a clear indication that the brand is trying to connect with a younger generation of customers. This visual strategy encountered a huge success especially in China where the brand fetched record numbers on social media engagement (the 1bn+ views on Cartier Pasha on TikTok), says the report
While Longines’ average retail unit price is relatively low (at CHF 1,350) as compared to the top three brands, it sold an estimated 1.5m units in 2020, allowing it to capture 6.2 percent market share in the industry. Longines launched a few vintage-inspired watches in 2019 and 2020, which generated good traction.
“2020 was not our best year, but it was okay,” said Patek Philippe president Thierry Stern in a recent interview with Swiss newspaper Neue Zürcher Zeitung. “At the end of the year, we were a good 20 percent down in terms of sales, but that’s not a problem because as a long-standing family business, you’re prepared for such things and have reserves,” he said.
Having lost one sixth of its production days due to the lockdown in Switzerland, Patek Philippe sold 53,000 watches last year. However, as per Morgan Stanley, the brand did mark itself as the fifth most significant company in terms of its turnover in the luxury watch industry. “The brand has one of the highest average selling prices (CHF 35,200), which explains the importance of its turnover and its 5.8 percent share of industry sales,” says the report. “Patek Philippe’s desirability has never been as high and new and old watches trade at significant premiums to official list prices on online platforms. While the brand might be perceived as old-fashioned, it has not been as visible in terms of communication as some of its peers, and is not working with ambassadors, the strength of the brand means that a large number of highly visible trend setters such as rappers (Drake, Jay Z, Cardi B), boxers (Conor McGregor, Floyd Mayweather), etc. are wearing Patek watches.”
With a reported turnover of CHF 1,125m last year (down only by 9 percent from 2019), Audemars Piguet was one of the best performing watch brands from a top line perspective. According to Müller, the brand’s success can be explained by its coherent product and branding strategy. “The number of doors selling AP watches have been strongly reduced in recent years and either integrated in brand owned mono-brand boutiques or joint-ventures with leading retailers. AP’s advantage is also its size, which makes it possible to shift production and distribution priorities quickly and to adapt to the market,” he says.
The Morgan Stanley report illustrates this point further by stating that Audemars Piguet will end up controlling directly 100 percent of its distribution. “Eventually, AP’s watches will no longer be distributed in multi-brand stores. This strategy has already been implemented by ultra high-end brand Richard Mille (in which AP has a 10 percent stake). It is in stark contrast to Patek Philippe’s strategy and even more so to Rolex’s (which is 100 percent wholesale and has no online distribution, directly or indirectly).”