Sign up to myFT Daily Digest to be the first to know about Retail & Consumer industry news.
This year marks a decade since the sale of the first watches of Linde Werdelin, a London-based brand founded by Danish-born Jorn Werdelin, a former investment banker, and his life-long friend Morten Linde, a product designer. While Linde Werdelin still makes fewer than 1,000 pieces per year at an average price of SFr21,000 ($21,000), growth had been reassuringly steady — until last July when, says Mr Werdelin, sales began to slow dramatically.
He now predicts a period of correction across the board, and believes that this could be the time for the industry to step back, reassess and prepare for a less rosy future.
“In some ways, I think much of the industry has lost sight of the fact that we are making luxury goods, and that means things which should be desirable and at least relatively rare. But when I see the big groups pushing so hard to increase production, to make ever more models and to open mono-brand stores which squeeze traditional retailers, I start to become a little bit afraid — because what will happen if the customer suddenly realises that this hard sell indicates that he or she is being encouraged to buy something that is not really rare at all, but that is more-or-less mass produced?
“Scarcity must remain the key — lose that, and I think the attraction [of a luxury watch] is gone,” says Mr Werdelin. His brand has traditionally produced only small numbers of each model, a policy which, he believes, helps to maintain residual values and serves to enhance the perception of Linde Werdelin among watch enthusiasts.
To many, Mr Werdelin’s overview of the situation might seem unnecessarily negative — but it is, he insists, realistic. In September and October of last year, he claims to have been told by some retailers that sales growth across all makes had virtually ground to a halt. (Not that you will hear much talk to that effect at Baselworld: “I think employees of the big brands will be told by the management to put a positive spin on the situation during Baselworld.”)
If January’s figures released by the Federation of the Swiss Watch Industry are anything to go by, such reports could become more familiar. The numbers showed overall exports down by 8 per cent to SFr1.4bn ($1.4bn), with 300,000 fewer watches being shipped globally than in the same period last year. The top three markets also recorded drops, with Hong Kong down 33.1 per cent (its 12th monthly fall in succession), the US down 13.7 per cent and China 1.9 per cent.
This trouble will not hit the big brands hardest — it will be smaller companies like Linde Werdelin at the sharp end, Mr Werdelin says. “If the end customer suddenly decides that what he is being sold isn’t real, then we might suddenly find ourselves back to where we were in the 1970s.
“There has been an enormous amount of creativity during the past 10 or 15 years, but I can really see all that disappearing. If we face difficult times ahead, I expect the big groups will get bigger — and that makes me wonder whether or not we will see the beginning of the end of smaller, independent brands, which are often the really creative ones.”
When Linde and Werdelin set up their brand in 2002 (the first pieces came out in 2006), their aim was to create mechanical watches which, uniquely, double as platforms for quickly detachable electronic “instruments” capable of logging performance data for skiers, divers and the like.
Linde Werdelin first had a presence at Baselworld in 2009, and also hosts retailers and journalists on a smaller scale during the SIHH show in Geneva. But now, as the brand prepares to attend Baselworld for the eighth year in succession, Mr Werdelin has started to question the relevance of such events.
“My father and grandfather were in the watch and jewellery business before me, as retailers with stores in Denmark. When my father went to the Basel show 30 years ago, he did so because it was the only way to see what was new. Exposure was very limited then, and if a watch was launched it might not appear in the press until one or two months later.
“Now, however, news is so instant that everyone knows about the latest products in seconds — and sometimes, due to so many ‘pre-Basel’ launches, before the event has even started. To me, that means some of its historical purpose is lost.”
But while Mr Werdelin still regards it as more or less essential to show at Baselworld because of the concentration of key players in the global watch community it attracts, he also believes it can be something of a double-edged sword to a small, independent brand such as his.
“We make fewer than 1,000 watches per year, and the cost to us of showing at Baselworld is around SFr200,000 ($200,000) — that works out at an enormous amount per watch. In addition, it’s also necessary to produce extra stock for the show and, of course, you are also much more inclined to accept orders. That’s great when times are good, but if we then fulfil those orders during a prolonged period of falling sales, retailers are very likely to sell our watches on at discount prices because they need to maintain cash flow in order to pay for premises, staff and so on.”
This has unpleasant knock-on effects: “Customers who have previously paid the full price see their watch as being devalued. The other problem that arises in a saturated situation is that we have to hold on to any overproduction in order to prevent it from ending up on the grey market — but the production train can’t just be switched on or off. Either way, it takes three to nine months due to the period of time required to order, manufacture and supply components.”
A result of the slowdown, says Mr Werdelin, is that Swiss suppliers who were previously too busy to accommodate small brands are now coming to his door to offer their services — but he feels it is unlikely that Linde Werdelin will need them.
“I have no hesitation in admitting that, from the annual 30-40 per cent growth that we’ve been enjoying during the past three years, we are going to be reduced to single figures in 2016 with sales down, in real terms, by perhaps as much as 25 per cent,” says Mr Werdelin. Like many in the industry, he attributes the downturn to myriad factors ranging from the fall in the oil price to flat interest rates and China’s continuing anti-corruption drive, which began in earnest in 2012.
“There’s a lot going on — and, when you put it all together, it’s easy to see why people might not place buying a new luxury watch at the top of their list of priorities.”
Get alerts on Retail & Consumer industry when a new story is published