IWC CEO Georges Kern at the exclusive “For the Love of Cinema” event hosted by Swiss luxury watch manufacturer IWC Schaffhausen at the famous Hotel du Cap-Eden-Roc, Cap d’Antibes, France, 19 May 2013
Georges Kern © Getty

Utterances from the Swiss watch industry tend to be sugar-coated, which is why Georges Kern, chief executive of IWC Schaffhausen, caused such a stir in November 2015. He said that watches in the industry were overpriced — a rare statement in general, even more so from a company owned by Richemont, one of the world’s biggest luxury conglomerates.

His brand has decided to bring prices down by focusing on its two mid-level collections, Pilots and Portofino, launched in December 2014. Indeed, IWC confirms that prices for new Pilots are lower now than when similar models were launched in 2012.

As the brand with the highest growth within Richemont, one of the big three watch groups, Mr Kern’s move may indicate what consumers can expect from Baselworld: prices adjusted downward.

It can’t come soon enough, says Adam Craniotes, chief executive of Red Bar, the worldwide watch lovers’ group, as inflation has been widespread and relentless. “Honestly, it’s every brand. I don’t think there’s a single brand that didn’t take advantage,” he says.

Some within the watch industry are even pleased that prices are now being examined. Alain Zimmerman, chief executive of Baume & Mercier, a Richemont brand, says: “I’m so happy that price has finally become part of the discussion. In the past, price didn’t matter a lot [to other brands]. For many people $2,000 is a hell of a lot of money.” Baume & Mercier decreased prices on its Classima range by 10 per cent two years ago.

On the whole, growth in watch prices has been outpacing inflation, says Jon Cox, head of European consumer equities for Kepler Cheveux. “From 2000-14, the value of the industry has increased on a growth rate of 6 per cent year over year, but in unit terms, there was no growth. So the boom is entirely due to prices.” Core global inflation has not been above 3 per cent since 2000, according to JPMorgan.

The most likely explanation for such exuberant price rises is the increase in wealth around the world. According to the World Wealth Report 2015, compound annual growth in wealth between 2009 and 2014 was 7.7 per cent. Wealth in Asia, the key new market for luxury goods, went from $5.9tn in 2002 to $15.8tn in 2014.

The consequence of such wealth-driven demand is that when growth falters — such as with the current collapse in commodity prices and the rise in the Swiss franc after it was unpegged last year — the luxury market does too. The Federation of the Swiss Watch Industry recorded a 3.3 per cent decline in value of sales from 2014 to 2015, with Hong Kong falling by 22.9 per cent and mainland China by 4.7 per cent.

In the light of such news, it is less surprising that the discounting of sought-after watches can be openly found across reputable internet retailers. David Sadigh, founder and chief executive of the Digital Luxury Group, a Swiss-based watch industry analysis company, says he constantly sees steep discounts. On, a watches and luxury goods website, he says you can find Rolexes with discounts of between 10 and 25 per cent, “and Raymond Weil is 75 per cent off. I’m seeing an Audemars Piguet at 20 per cent discount and the James Bond Omega is at 38 per cent off. This is the model they just launched last year.”

Watch companies viewed China’s unprecedented growth as a reason to ramp up production, as with Citizen, which cited expansion into China as the reason for its 2012 acquisition of La Joux-Perret.

Yet appetites for luxury goods were already slowing as far back as 2012, when Pinault-Printemps-Redoute (now Kering) saw just a 2 per cent increase in Gucci’s sales in the Asia-Pacific region. With the production cycle of Swiss watches at anywhere from a year to four years for the haute horlogerie pieces, makers are now facing excess inventory.

“Most of the brands,” says Mr Sadigh, “are telling you they’re not aware of the discounting, but in some cases they know they sold watches to distributors or retailers which they knew did not have the capacity [to sell through]. They say, ‘Oh, I don’t know where my watches went,’ but they do.”

Online discounts may represent a first quarter reaction to the soft 2015 holiday season. But the discounts could also be part of a wider trend; Patek Philippe, which declined to be interviewed, made a downward price adjustment in select markets 12 months ago because of the unpegged Swiss franc, according to an open letter from chief executive Thierry Stern to retail partners.

Others in the industry are wary. “We know what’s going on, and unfortunately there’s no business as usual,” says Stephen Urquhart, chief executive of Omega, who indicates the brand will not reduce prices but acknowledges 2016 will be a challenge. “We’ve been through this. Omega has been trying to get its position back properly so the worst thing to do is to lose consistency.”

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Omega is a case study in what will and won’t work in shoring up prices. It has spent recent decades working to restore the brand to its pre-1970s position when it was head to head with Rolex in prestige, pricing and demand. Approximately 10 years ago, the company dropped numerous retailers including US department store Macy’s and started building standalone flagships in an effort to bring back parity. This leaves it less at the mercy of wholesale distributors’ pricing policies.

Following similar logic, over much of 2014-15, brands within the Richemont group opened standalone stores, seizing control of their inventory and distribution. The conglomerate currently does more than 50 per cent of all retail sales within their own stores, according to the World Watch Report.

Brands within the Swatch Group such as Longines have rapidly moved to greater control. In the past twelve months, the company has opened three of its own shops in the US, a market where it did not have a single standalone boutique a year ago.

This suggests that it will be able to maintain prices, as does its ownership. Richemont, Swatch and LVMH can absorb the costs of excess stock or counteract the effects of increased costs.

Reduced prices please prospective buyers — but almost no one else, says Mike Margolis of Horology Works, which represents H Moser & Cie, Hautlence, Anonimo and Cyrus Watches across North America. “My personal opinion is a price decrease makes everybody angry: the guy who bought two weeks ago is angry, the dealer is angry; the only guy who likes you is the one who hasn’t bought yet.”

Of the brands he represents, Margolis indicates that none has yet indicated a price shift downwards for Baselworld, with the exception of Hautlence which has already made a correction on one reference after feedback indicated it was initially slated too high.

Pressure on prices comes from the Apple Watch too, which starts retailing at $549 and goes up to $1,500 for a model with a leather strap by Hermès. If Apple releases a major update, the Digital Luxury Group estimates the likely sales of 25-30m pieces would hammer the mid-priced Swiss watch market at a time it can ill-afford.

The importance of prices is more than symbolic. Even if they do start to come down, whether openly at Baselworld or surreptitiously afterwards, it may not be enough to protect independent brands, says Kepler Cheveux’s Mr Cox, who suggests that consolidation and takeovers are likely. Prices may be only the first things to fall.

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