As many of you know or have heard through the grapevine, 2016 has been a rough year for the Swiss watchmaking industry facing its steepest fall in exports since 2009. While 2015 wasn't a very good year either with the value of the watch industry exports being 3.3% lower than in 2014 and almost as low as 2012 —total value at 21.5 billion Swiss Francs—, 2016 aims to be one of the worst years the industry has had in the last seven years.

For the month of June of 2016, the number of Swiss wrist watches exported is already 16.4% lower than the number for June of 2015 at 2.2 million pieces. It is not surprising that precious metal watches are the worst performers with a -31.4% decline —as of June 2016— as Asia is the biggest market for this particular type of watch.

Precious metal watches posted their fifth consecutive month of steeply falling sales through July 2016 with a considerable impact on the total result. However, watches priced between 500 and 3,000 Swiss Francs —export price— are the only ones that have avoided a double-digit decline.

Below you will find the share of exports by country as of June of 2016 according to the Fédération de L'Industrie Horlogère Suisse FH. The main export markets have dropped as follows when compared to June or July of 2015: Hong Kong -32.7%, France -27.8%, U.S. -14.7%, China -6.5% and Japan -4%.

Share of Swiss Watchmaking Exports by Country as of June 2016

Considering that Asia represented half of all Swiss watchmaking exports in 2015, the fact that Hong Kong, China, Singapore, Taiwan and Japan are in decline, is definitely not a good indicator of how business is going this year. Singapore —one of the watch capitals of the world— alone, represents 485.6 million Swiss Francs and its performance when compared to 2015 is down by -12.8%. For Taiwan, the decline is -18% and for Russia -23%. But, what makes things even worse is that exports to Asia are typically much higher in terms of value than they are in terms of units when compared to other continents. Therefore, this contraction through Asia has a greater impact on the overall state of the industry as precious metal pieces and highly complicated watches are often preferred in that continent.

As a reference, precious metal watches represent 39% in value of Swiss watchmaking exports but only 2% in units; stainless steel timepieces represent 37% in value and 54% in units while two-tone —stainless steel and gold— accounts for 14% in value and 5% in units.

Below is the share of Swiss watchmaking exports by continent. America represents the continent and not the U.S. alone. Source: Fédération de L'Industrie Horlogère Suisse FH.

Share of Swiss Watchmaking Exports by Continent FY 2015

Roughly in 2015, Switzerland shipped 28.1 million watches worth $22.4 billion USD to around 200 markets —mechanical watches represent 80% of export sales by value. However, China and Hong Kong still remain as the markets with the highest numbers of non-Swiss watches exported at 682.8 million units and 276.7 million units respectively —these are all those Michael Kors and other low end brands we see everywhere. As a reference, the average price of watches exported by China is $4 USD and $24 USD for Hong Kong.

As you all can see, this has been a terrible year for the Swiss watchmaking industry and we're not sure if things will get any better. After looking at the numbers by country, markets like Russia, Belgium and Qatar are also hurting drastically.

Additionally, we've noticed that as a result of this market decline, the number of novelties released by the brands between Baselworld 2016 and the end of the year is nowhere at the level of last year. Simply go to our News section and see when was the last time we posted a novelty there.

Below is the distribution of Swiss watch exports by country and the change in % between Jan-Jun 2016 and 2015/2014. Source: Fédération de L'Industrie Horlogère Suisse FH.

Share by Country January-June 2016

In summary, 2016 looks to be one of the worst in the last seven years of the Swiss watchmaking industry. Along with the economic turmoil in Europe and Asia, the price reduction strategy followed by groups like Richemont or LVMH has also had very little positive impact on the state of the business. While the SIHH 2016 and Baselworld 2016 were filled with novelties, most companies focused their efforts in simply releasing new dials for watch references that have been in their portfolio for a very long time or simply updating products with in-house movements. In reality, how innovative is that? How many different dials or limited editions can there be of a particular watch? Despite the bad year so far, let's not panic, we are not anywhere near the 'Quartz crisis'.

What we are lacking here is the aggressiveness and the drive that some brands had when the Audemars Piguet Royal Oak was launched in 1972 and the Patek Philippe Nautilus was presented in 1976. The state of the industry calls for revisiting obsolete business practices, adjusting pricing strategies but more than anything, for the 'big dogs' to truly release new game changing watches at competitive prices. And by game changing, we are not talking about the 'play a different game' tagline of the new Piaget Polo S we reviewed here.

Simply look at Omega's pricing strategy over the last ten years. Does it make sense to pay for an Omega Seamaster Planet Ocean as much as you would for the new Rolex Oyster Perpetual Air-King we reviewed here?

Or perhaps you might want to consider getting that new Bremont DH-88 for $10,500 USD without an in-house movement. The list can go on and on and on.

Additionally, the industry is also hurting as the secondary market —pre-owned and heavily discounted new stock— continues to flourish. This secondary market is not only flooded with pre-owned watches in 'like new condition' at very competitive and aggressive prices, but also with heavily discounted brand new watches that authorized dealers have dumped —almost at their cost— in the hands of online re-sellers like Jomashop or pre-owned watch dealers selling across different watch forums. As serial 'watch flippers' continue to feed their watch collecting addiction via the secondary market, they will refrain from buying brand new watches at full retail from authorized dealers or from brand boutiques.

All in all, the industry needs to transform and rely a little bit less on the Asian markets to avoid an even more steep fall in sales. Could it be the right time for the brands to create a whole new segment within their product portfolios and lure in the younger generations that are not wearing mechanical Swiss watches? Or what about offering certified pre-owned watches at the brand boutiques? If you can buy a CPO Porsche or a CPO Rolls-Royce, why wouldn't you buy a CPO timepiece? Well, maybe it is time to do so.

For more info on the Fédération de L'Industrie Horlogère Suisse FH click here.