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Time winds down

High-end watch sales slow while industry layoffs clock-in

by Executive Staff

To define luxury from a buyer’s point of view is a complicated thing. For some, a $10,000 timepiece would satisfy their senses, while wealthier shoppers would have to pass the $100,000 mark to obtain the same satisfaction. From the viewpoint of watchmakers and retailers, luxury is certainly a lot easier to define. For them, a timepiece is characterized by the number of complications it has — the features beyond the normal display of time. These complications constitute the movement of the watch, which is its internal mechanism. So the more complications a watch has, the more complex is its movement, and thus the more luxurious it is.

Luxury watch brands are many. They include Breguet, Patek Philippe, A. Lange & Sohne, Vacheron Constantin, Cartier, Zenith, IWC, Jaeger LeCoultre, Harry Winston, and others. All these brands, and many more, are continuously coming up with innovative and unique complications designed to charm customers with the most captivating timepieces.

“Watch creations today are becoming more and more sophisticated with the latest innovative technology and movements,” says Patrick Normand, managing director of Cartier Middle East and South Asia.

Luxury watches with numerous complications are referred to as ‘Grandes Complications.’ These are hard to obtain as they are very complicated, man-made and take a few years to be manufactured. Thus they are the most expensive.

Among the world’s most complicated watches is the Patek Philippe Caliber 89 pocket watch. It was launched in 1989, on the company’s 150th birthday. The watch includes 33 complications, and is made of more than 1,728 components. The $6 million pocket watch took five years of research and development and four years of manufacturing. The most important features it includes are a thermometer, the date of Easter, a star chart and sidereal time. The most expensive pocket watch also lies in Patek Philippe’s portfolio. It is the Henry Grave Supercomplication, which was sold at Sotheby’s in New York City for $11 million.

As for wristwatches, the most expensive and at the same time the most complicated wristwatch is considered to be the Vacheron Constantin Tour de l’Ile. The $1.5 million piece includes 16 features and is made of 834 parts. These features include sunset time, perpetual calendar, second time zone and others. Only seven editions of the wristwatch were produced.

There remains a more expensive watch that is worth mentioning. The watch’s price does not lie in the complications, but in the precious stones included with it. The 201-carat Chopard is a watch bracelet that includes around 870 diamonds of every color, and costs $25 million.

Complicated watches are a big challenge for watch makers, and their complexity is reflected in their high price.

“That was a big challenge for us,” says Georges Bechara, the regional director of Zenith Middle East & North Africa, when talking about Zenith’s Defy Xtreme Tourbillon Zero-G which defies gravity — meaning it negates gravity’s effect on timekeeping — and took five years of research. Bechara further explains that the zero gravity complication was thought to be undeliverable, and too hard to manufacture.

“We are talking about a watch that has 744 components in the movement, all made and assembled by hand.”

Some watchmakers might be slowing down on their novelties since the financial crisis began, but others are still active in introducing new unique movements to the market. Cartier, for example, launched its fine watch-making collection, which features in-house movements created by the Cartier manufacturer in Switzerland.

“This reflects the house’s intense and ambitious research into mechanism, displaying the art of fine craftsmanship and savoir-faire,” says Normand.

In dubai, the sale of luxury products has dropped by around 45 percent

Demand dropping off

Amid this global downturn, luxury shoppers, including watch enthusiasts, are less keen on spending and indulging themselves with palatial timepieces. Overall, the luxury sector faced a decline of 15 to 20 percent in the first half of the year, according to the ‘Luxury Goods Worldwide Market’ report published by Bain & Company, a global business consulting firm. According to their research,overall the watch and jewelry market declined 12 percent.

Worldwide, the drop in luxury sales is expected to be 10 percent for 2009, given that the market is expected to stabilize in the second half of the year. The report estimates the drop in the Americas to be around 15 percent, and 10 percent in Europe and Japan. These three markets account for 80 percent of the global sales. The Middle East and China are faring better, and might even witness a projected growth of 2 percent and 7 percent respectively, said the report.

More precisely in Dubai, Tony Jashanmal, a director of the Jashanmal Group of companies, told Reuters that sales of luxury products have dropped around 45 percent.

For luxury watches, Bechara from Zenith says “sales have dropped between 30 percent and 35 percent versus the first half of 2008 [in Dubai].”

At the other end of the region, Lebanon’s luxury market seems to be affected as well. Barkev Atamian, business manager at Ets. Hagop Atamian in Lebanon, said sales of high-end luxury watches in the country have come down by around 50 percent.

“People affected are the high society, and even if they have the money to buy, they are not in the mood,” says Atamian, explaining that 85 percent of his demand comes from Lebanese, and most of these are expatriates who are cutting their spending.

Zeina Kahwaji, general manager at Cadrans in Lebanon, retailers of luxury brands like IWC, A. Lange & Sohne and Patek Philippe, says that the drop is about a 20 to 30 percent decrease in year-to-date sales.

“But we have not entered the high season yet,” she says.

Kahwaji also says people are shifting to less expensive and less complicated watches.

“Instead of buying the most complicated watches that have 16 complications, they buy timepieces with one or two complications.”

The Bain & Company report echoes Kahwaji, stating that customers are reaching the lower category of luxury products. The report says they are more focused on the “intrinsic quality of materials and the durability of luxury items instead of on fashion content.”

Atamian disagrees however, saying: “Some of these people have more than 100 watches in their cases. They buy each time a limited edition or a watch that is very rare [comes out]. They want to have something special, so I think they will wait until the market changes.”

Pink slips between the gears

With sales orders decreasing and uncertainty reigning over the market, industry players say layoffs look likely among many of the large watch companies.

“There will be a wave of firing,” says Bechara. “All the watch companies overstaffed because the orders were abnormal.”

Bechara also explains that with orders down by 40 percent, a company cannot continue at the same pace as before. 

“In the big groups, no one waits,” says Bechara, when talking about the possibility of companies retaining their employees until markets recover.

Eric Vergnes, Middle East’s general manager at Tag Heuer, agrees.

“There are many companies that have to lay-off employees,” he says, while indicating his was not one of them. “We cannot hire anyone, but we will not fire anyone.”

Takes a lickin’, keeps on tickin’

The coming months will be tough for the luxury market, since these products will remain out of the purchasing basket of most customers until the crisis eases. But what has helped the watch market is that 2008 was a year of record growth, which has enabled these companies to invest heavily in the region, thus securing a better position in the market.

“We are not suffering that much because we have invested heavily in 2008 in a new boutique which has opened in Dubai Mall in November,” says Vergnes. “It is somehow compensating for less traffic in other parts of the city.”

Normand from Cartier has the same experience.

“Since our recent boutique openings in Dubai and Qatar, we have experienced good sales with a substantial amount of footfall in our stores.”

Market players seem to be optimistic for the summer, since the effects of the financial crisis might soften on the luxury market, especially in the Middle East where luxury still remains in demand.

“The second half of the year will be better. [Then] there is Ramadan. We will get out of it soon but in small steps,” says Bechara.

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