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Making Time

Explore Switzerland // By June White // Nov. 10, 2016

Swiss watches are the global market leader, despite the strong CHF casting a shadow over exports. But is the industry braced for the challenge of new generation smart technology? Ironically it could be an Apple causing trouble for Switzerland again...

Making Time

Watchmaking in Switzerland is like a precision movement - balancing a tradition for luxury, design and craftsmanship with the need to innovate, to compete and – above all – to export. According to the Federation of the Swiss Watch Industry, the country will produce over one billion watches this year, generating export revenues of CHF20billion. But will the good times hold? The strong Swiss Franc could push mid-range brands onto the back shelf – with demand in the biggest markets, including Hong Kong, China, the US and Singapore, already showing a dip. Will this shortfall be picked up by Europe and the Middle East? A recent report by Credit Suisse paid tribute to Switzerland’s global watchmaking profile, but emphasised the dependence on international demand.

In the luxury segment Switzerland enjoys a near- monopoly position - it is by far the leading exporter of watches in value terms. Watchmaking is now Switzerland's third largest export sector after pharmaceuticals and machinery, and at 95%, almost its entire production is exported. Virtually no other sector is so focused on exports. - Credit Suisse, Swiss Watch Industry – Prospects and Challenges.

The Swiss watch industry is dominated by a handful of names. The major players are Swatch Group (brands include Swatch, Omega, Harry Winston, and Tissot), Richemont (Montblanc, Piaget, Cartier, Alfred Dunhill), LVMH (Tag Heuer, Hublot, Zenith), and Rolex (Rolex and Tudor). The haute horlogers are led by Patek Philippe and Vacheron Constantin. 

“Over the last 10 years, Swiss watch exports have grown at an average annual rate of 7.2% – significantly faster than Swiss industrial exports as a whole. Although business has slowed markedly in recent quarters, exports remain at record levels by long-term standards,” Credit Suisse.

However, the recent Swiss currency appreciation brought this warning from another bank, this time Citigroup: “A strong Swiss Franc has historically been bad for Richemont’s Pro t and Loss account and even more so for Swatch.” And it’s not just the financiers who are voicing concern. Earlier this year Swatch CEO Nick Hayek described the central bank’s decision to lift the currency cap as a “tsunami” – for both the export industry and for tourism. He famously greeted the news with the expression “words fail me ...”

But it’s not the first time the country has faced down a strong CHF. In 2010-2011 Switzerland overcame a similar challenge. A weak Euro against the US$ and Asian currencies this time round could also be a saving grace, helping to boost tourism in Europe. A Swiss watch is still a number 1 souvenir, and for a select group of visitors this includes the exclusive grand- complications, which - ironically - are less exposed to shifts in the currency markets. Fabienne Lupo, head of the Geneva-based Fondation de la Haute Horlogerie recently described clients in this sector as the 1%. It was a reference to the concept that 1% of the population owns 99% of the world’s wealth.

 

TIME FOR CHANGE

So Swiss watches are surviving the currency hikes, but have they missed the innovation trail? The Apple Watch launched in 16 countries and sold two million in 60 days – despite mixed reviews – and sales in 2016 are expected to hit 27 million. But while Apple is refusing to reveal revenues, BNP Paribas recently predicted that the global smartwatch market will reach US$10billion by 2018. Swatch claims to be ready to do battle with the next in its Zero Touch series, launching in Rio 2016. The Touch One was basically a fitness tracker but new models will work with Windows and Android smartphone software via a non-charging technology called NFC. Tissot is also in the game, with touch- screen sensors and super-thin, pliable batteries, while Tag Heuer offers GPS and health monitoring. Montblanc also has the Bluetooth- enabled TimeWalker Urban Speed e-Strap.

These may not be watches with app ecosystems like Apple’s, but they are likely to have things like biometric sensors. - said BNP Paribas

However, in Switzerland there are still doubters. Credit Suisse for example, insists that future fashion trends are still more likely to create the biggest market impacts. The next big style statement? That old favourite - austerity.

“The function of a watch as a timepiece is less relevant in the era of mobile phones and computers. For the owner, it is more of a social signal, communicating the wearer's external values such as status or personality. The taste for Western status symbols in the emerging markets is likely to remain high, and in contrast to other luxury goods, such as automobiles or artwork, a watch can be worn and displayed at all times,” continued Credit Suisse.

“Nevertheless, preferences can change over time, so it is certainly possible that a general trend away from luxury and back towards modesty and frugality may emerge. For this reason, the Swiss watch industry has to keep a close eye on trend patterns so as to respond promptly and appropriately.”

Could there be a more pressing issue than the rise of smart technology? Internal adjustments are actually the current industry priority. The mid-range sector is dominated by one major player – Swatch Group – and it is flexing its muscles. Swatch brands include upmarket names Breguet, Blancpain, Harry Winston and Omega, plus more than ten others, and the company has gross revenues upwards of CHF9.2billion a year. In fact Swatch Group account for one-third of all Swiss watch sales and, even more crucially, it controls the component sector.

 

MADE IN SWITZERLAND

In the 1970s Swiss watchmakers were shaken by cheap quartz technology flooding into Europe from Japan. The market was undercut and some 60,000 skilled people lost their jobs in Switzerland. The response of Swiss-Lebanese entrepreneur Nicolas G. Hayek Sr. was to play the Japanese at their own game. His bold, bright plastic Swatch styles launched in the 1980s – and were an overnight success. The secret was Swiss quality. Now Swatch Group leads the manufacturing sector, racking up 25% growth in both China and Hong Kong last year. But it is the group’s ETA brand, and subsidiary Nivarox- FAR, that most worry the economists. They supply components – including more than 90% of all regulating balance springs - to almost all the mid-range Swiss brands, including LVMH and Richemont. Now Swatch has declared that it will limit component sales to 30% of the Swiss total by 2018. Although the Swiss Competition Commission promptly obliged Swatch to extend this deadline, there are still concerns that it will throw the market into turmoil.

However, in the long run Swatch may actually be doing the industry a favour. Other watchmakers are now investing in their own factories and, in the cases of Richemont and LVMH, buying up and developing smaller component-makers. High-end Swiss watchmakers remain unaffected of course. For example, Patek Philippe manufactures every fine component in-house. Meanwhile the Swiss government is setting the bar higher for the brand “Made in Switzerland,” proposing that at least 60% of parts must be Swiss made in order to qualify for the label.

So should the Swiss watch industry be optimistic for the future? Credit Suisse is con dent that with strategic foresight and innovation continued growth is expected from markets like Vietnam, India, Russia, Ukraine, Malaysia, South Korea, and Mexico. There’s also a timeless luxury to Made in Switzerland that even Apple can’t compete with. In an era where people replace phones and gadgets every couple of years, it’s hard to imagine an Apple Watch as a family heirloom.

 

TIME ON THEIR HANDS

Contemporary Swiss watchmaking began as a cottage industry in the 19th century. Farming families – especially in the canton of Jura - occupied the long winter months making watch components at the kitchen table for companies in Geneva. Their resourcefulness boosted meagre incomes and created a highly flexible supply chain. In 1800 England and Switzerland both produced 200,000 timepieces. But by 1850 the Swiss and its army of out-workers had ramped up to over two million watches. The UK meanwhile saw virtually no increase.

However, the tradition for luxury watches in Geneva started much earlier. In the mid-16th century, skilled Huguenot exiles arrived from France. Strict Calvinistic rules prohibited all displays of wealth, so the enterprising gold- and silversmiths found a compromise. Elaborate pocket watches provided status for wealthy merchants under the guise of practicality.

In the late 1700s it was the innovations of Abraham-Louis Breguet that put Switzerland firmly ahead. Breguet pioneered the tourbillon, a rotating device counteracting the effects of gravity on a pocket watch; the pare-chute, a shock-absorbing mechanism; and the flat balance-spring with one or two terminal coils, known as the Breguet overcoil.

However, as the concept of mass-production began to take shape, Frédérick Japy, a watchmaker from the Jura, adapted the existing French flat calibre watch to factory processes. Suddenly quantity was more important than quality and in the late 1800s Switzerland flooded the American market with cheap watches.

Despite this industry low point, many respected names were emerging. By the 1860s Longines was employing 1,100 people and in the same decade an American called Florentine A. Jones founded the International Watch Company (IWC Schaffhausen). By the turn of the 20th century, Switzerland was again renowned for quality and precision. In fact, in the period after World War I the reputation of Swiss watchmaking was rede ned by the haute horlogers – whose reputation for excellence adds value across the sector.

 

HOW SWISS IS YOUR WATCH?

A watch can say Made in Switzerland if:

  • - the movement is Swiss,
  • - the movement was cased in Switzerland and/ or;
  • - the manufacturer carries out the final inspection in Switzerland

A watch movement is Made in Switzerland if:

  • - the movement was assembled in Switzerland, 
  • - the movement was inspected by the manufacturer in Switzerland and/or;
  • - Swiss manufactured components account for at least 50% of total value, (excluding assembly costs).
  • - A Swiss Movement refers to a watch movement intended for export, not cased in Switzerland, but otherwise meeting the criteria.

 

SEE TIME FLY ...

Patek Philippe Museum 

Tues to Fri 2 - 6pm, Sat 10am – 6pm

Ancient masterpieces and grand complications rub shoulders with elegant contemporary styles by prestigious Geneva super-brand Patek Philippe, one of the most distinguished watchmaking companies in Switzerland and the world. Housed in a prominent 20th century Plainpalais industrial building – formerly a workshop for Patek Philippe’s own intricate bracelets and casings – the collection highlights the fascinating heritage of the brand, which has remained privately owned since its foundation in 1839. A visual timeline helps visitors to follow the path of clock and watch development, starting with incredible antique creations from the 15th century and including stylish luxury designs from the 19th century by Patek Philippe itself. There’s also a library and an extraordinary array of automata and enamel miniatures, two metiers that once went hand in hand with fine watchmaking.

Musée international d'horlogerie 

Tues to Sun 10am – 5pm

Nestled in the Jura mountains near Neuchâtel, La Chaux-de-Fonds is at the heart of Swiss watch making – and is home to many famous brands and a former renowned training school. In fact the Museum grew out of the school’s incredible collection of treasures, works of art and timekeeping devices (watches and clocks doesn’t do justice to the intricacies of some of the exhibits!) Dynamic new temporary shows keep the museum up to date, and while Swiss watches and clocks predominate there are pieces from around the world. La Chaux-de-Fonds is a UNESCO World Heritage Site and even the unique urban planning links to watchmaking culture. Straight roads interlaced with workshops and housing reflect the growth of a 17th century cottage industry into a “town factory”.

Time Experience

How often do you get the chance to create your very own personalised Swiss watch? Time Experience is an original way to enjoy the authentic watchmaking process first-hand, with qualified professionals guiding you through each highly-technical stage to build your bespoke mechanical watch. Thanks to the prestige workshops of the well-known Swiss brand Louis Chevrolet, Time Experience takes you behind the scenes at the company’s HQ in Porrentruy, in the Jura, to assemble high-quality gears and mainspring, casing and winding mechanisms. Inspect the details carefully with your own eye-glass and finish with your choice of strap or bracelet. The watch you make is a certified TMF Time Experience model with its own unique serial number.

Patek Philippe Museum

Tags: Watchmaking

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