Monday, October 5, 2015

The "New" Swissness and Overproduction

So what happens when you take an aggressive new stance on what "Made in Switzerland" means, mix in 2 cups of overproduction, and bake it for approximately 15 months in a major watch sales slump?
Well, suffice it to say, it is not going to be pretty.
Here are the "armchair" basics as I understand them.  As always, if I have gotten a fact wrong I welcome feedback and will correct it immediately -
1.  Introduction of the Swissness legislation will take effect finally on 1 January, 2017.
Meaning that a lot of the "semi-Swiss" watches out there still unsold that were produced before January 1, 2017 will need to be sold before the end of 2018.  Seems like a long time, doesn't it?  Well let's take a few other considerations into account.  It is closing in on the end of 2015 and several brands are still trying to blow out preexisting stock from the overproduction from previous years, which will be replaced by the need to sell the over production of this year and next year and on and on.  Think I'm kidding?  Check your favorite Internet/grey market source.  And that is just what you can see.  Like cockroaches, most grey marketers spend their time scurrying around in the dark.  In fairness, they are the creation of overly rapacious watch company CEOs.  
2.  If you can sell 4000 watches, then by all means you should double that production to 8000 because you can always dump those watches in Hong Kong and mainland China... not any longer.  Many retail giants in Asia are reporting deep stocks of unsold watches.  And they are PISSED.
3.  We are in the depths of one of the worst watch sales periods on record, and we still do not know where the "bottom" is.  But it is likely that we have not reached it yet.  Smart watches?  Cell phones?  Slowdown in China?  Those are all excuses.  What the brands are now learning in a very painful way is despite what IWC's Mr. Kern so boldly claimed - that essentially an IWC watch represented a somewhat inelastic demand - meaning no matter how high you jack up the price, the demand will still be there, they in fact do not.  
Wanna' revisit those talking points Mr. Kern?  While I agree with him that watches are emotional purchases, sooner or later rational thinking will collide with and surmount emotion.  And rational thinking is now governing watch buying decisions.
What I suspect we will see in the coming months?
Even greater numbers of watches flooding the discount/grey market at even more deeply discounted prices.  More and more retail stores struggling and ultimately giving up.  The brands that can't survive will either go broke or go "dormant" - which by the way is the suspicion that many people are starting to have about Zenith - it is their anniversary and it is being celebrated with all of the excitement of Arbor Day.  In other words, it is not being celebrated AT ALL.  
A person with a great deal of knowledge has described this gathering catastrophe as a tsunami.  I think that is probably a pretty apt analogy.  As we know, those who see the signs and make the adjustments will make it to a safe harbor.  Those who insist on going the same way as always will find themselves broken on the shore.  

Let's hope I'm wrong.

No comments:

Post a Comment