Behind the Watch Face
Financial imperatives and the changing nature of luxury brands and how they are positioned means transparency in the watch market is ever more under the spotlight
Column courtesy of Mr WatchMaster
We are pleased to bring you the first in our new exclusive series, ‘MrWatchMaster Thinks’ that invites leading figures from the horological world to share their fascinating views on current and future issues affecting the watch industry. We are delighted that Dr James Nye begins our series with his thoughts on how not everything is what it seems, with his insights on transparency in the watch market.
I wear a number of different horological hats, being associated with different museums, societies and such like. One hat is that of being a liveryman of the Clockmakers Company, which since inception has been under an obligation, deriving from its Royal Charter, to protect the horological trade, most especially in London, but by extension in the UK. With respect to that obligation, the Company has focussed efforts over the last two years on encouraging the trade—and especially the wristwatch trade—to be more transparent in its marketing. There is a widespread interest in the renaissance of the British horological trade, but this is potentially at risk from the practices of both British and non-British participants in the market. It’s a complicated story, with a long historic backdrop worth exploring.
Sometimes, things are exactly what they seem to be. On other occasions, there’s a large difference between appearances and reality. The current watch market offers opportunities to observe both sets of circumstances. Take the tacky end first. We have the familiar trope of the inexpensive fake Rolex sold on an exotic beach, or to visitors in distant cities, in bargains struck between buyers and sellers who clearly each know what they are doing. Despite superficial similarities between the fake and the real thing, nobody is fooling anybody in the trade.
Roll back the clock two centuries and there was perhaps a very much less clear situation in one particular and large trade in watches we have come to know as ‘Dutch forgeries’, where both the words ‘Dutch’ and ‘forgery’ are very much open to contest. The subject of ground-breaking new research by Dr Struthers of Birmingham City University, here was a situation in which large numbers of watches were effectively passed off as being London made, despite being produced elsewhere. But there are huge subtleties involved, in that participants in the illicit business involved elements of the London trade. At more than one level, things were not what they seemed.
The watch market, from its earliest form, long before wristwatches, right up to date, can offer risks for the unwary. Whilst the vast majority of watches now made have little intrinsic value, there is a very visible market in luxury watches—watches whose value bears no relation to their ability to tell the time, and this too has been a feature of watches stretching back into the past. And this is precisely where risks lurk for the unwary—if something is highly specialized, sought-after, maybe highly individualised, there is the opportunity for parallel markets to emerge (the elegant boutique market for the real thing, and the back-street market for the knock-off) but far more dangerous is the temptation for unscrupulous people to capitalise on less than perfect knowledge in the marketplace—as the Prince of Morocco has it, ‘All that glistens is not gold’.
The financial aspect of horology, like so many industries, has changed radically over a century. Not only the working conditions have changed (becoming safer), but relative wages have risen. It is hard to sustain the image of the tortured handcraft worker producing exquisite work in appalling circumstances in the modern watch world. If employees are expensive, watch companies are in addition also committing to eye-watering expenditure on modern machinery capable of operating to the finest tolerances. The relative cost of making high-end watches probably remains high for manufacturers. Over decades, their market has also evolved. It was a century or so ago that European buyers were supplanted by waves of wealthy Americans. Between the wars, Breguet on Place Vendome would become used to serving the wealthy element of Stein’s ‘lost generation.’ But in more recent times colossal wealth has emerged in Asia, supporting all manner of luxury markets, from wine to watches. Thus the watch manufacturers have had to adjust to the different demands and preferences of changing groups of buyers over time. The public relations machinery of watch branding, which becomes ever more sophisticated just as in other industries, has to try to maintain desirability and mystique—each brand seeking its own special marketing edge.
It is a common feature of luxury goods that a brand or label will operate at different levels; there will be a prestige cuvee, a couture line, some aspect of the brand which is pitched at the very top end with relatively limited sales to the wealthiest clients, but such a strand offers significant legitimacy and allure to the balance of the range, pitched at a larger client base, who can afford a luxury product, but not ultimate luxury. The grandest complication watches sell in small numbers, but support the sales of countless other less expensive watches from the same house. Zooming the camera right back, there are other important elements, such as national branding. In the distant past, London and the UK held leading positions in the international horological markets—an advantage that was slowly squandered through a failure to innovate and invest, with first American and then Swiss manufacturers moving into poll position.
The Swiss have spent more than a century cementing a reputation for a national industry. Whilst Asia utterly dominates the watch industry in terms of absolute volumes of units supplied, it is nevertheless Switzerland that currently predominates by value of sales, in view of the Swiss dominance of higher-end watch production. Despite accounting for as little as 2.5 per cent of global watch production, the Swiss watch industry exports more than CHF 20 billions’ worth of watches each year, and the industry is the second largest Swiss exporter, by value, after pharmaceuticals. It is clear that from a strategic point of view, the Swiss watch industry and its economic success is a matter of national importance for the Swiss government, and this underpins the success of individual Swiss brands in securing favourable international terms.
Yet it is interesting that arguments rage within Switzerland as to the qualification for ‘Swissness’. Whether the test is one based on value of component parts, or a percentage of components parts, or some other measure over time, there will always be firms that test the limits, seeking to reduce costs to a minimum through the sourcing of parts or labour from non-Swiss and less expensive locations. At the same time, other firms will see a marketing edge in maximising their Swissness and may then shout loudly about how misleading their sharper compatriots are when they operate close to the wind. In the UK we have had the unedifying spectacle, now many years ago, of a decision that allowed a firm to claim watches as ‘Made in England’ on the basis that they were ‘deemed to have been manufactured or produced in the country in which they last underwent a treatment or process resulting in a substantial change.’ It appears to have been successfully argued that, in essence, ‘assembly’ was a substantial change. Does this stand up to scrutiny?
Cars are sophisticated devices requiring servicing through their lives in order to continue to perform efficiently. Yet servicing does not mean entire disassembly, whereas in the case of a watch, entire disassembly and re-assembly are routine operations in the proper care of a watch if it is to have a long and useful life. The making of a watch and its assembly are quite distinct concepts. The working up of an underlying design, and the bringing of it to fruition through precision engineering, seem to lie closer to the heart of the ‘making’ of a watch, rather than assembly, or perhaps the re-finishing of raw components.
This view was bolstered significantly through the widely reported action of the US Federal Trade Commission (FTC), which issued guidance in 2015, mainly targeted at the Shinola company, making it clear that to qualify as ‘Made in USA’ a watch required manufacture in the USA, and not just assembly. When Shinola appeared to ignore the terms of the guidance, the FTC took further and direct action, compelling Shinola to make changes in the claims it makes in its marketing. From a regulatory point of view, it would appear the US has taken something of a lead on transparency in the watch industry.
Turning to the big issues in the minds of observers of the watch industry, there are two main areas of focus. One relates to the degree to which watch production is carried out in-house by any given brand, and the other relates to the desire to link brands with historic centres of watchmaking, such as Switzerland, the US and Britain. The Swatch Group’s decision to cease the supply of parts and movements to third parties has been widely reported and discussed over many years since it was first announced, and the matter remains far from closed as Swatch finds itself with perhaps more of a battle on its hands than it anticipated. That is a story for others to tell. But the underlying philosophy, to which the decision relates, reflects, in part, a wider industry obsession that has emerged in the last few decades, and that is with ‘in house’ production.
In England, in the 19th and just into the 20th century, a single high quality pocket watch might have involved the input of more than 30 individual specialists (frame makers, dial makers, train makers, escapement makers, springers, gilders, engravers, case makers, hand makers and many, many more). There was a strong division of labour and it was a perfectly well accepted business practice for the ultimate retailer of the watch—the controlling mind in the whole operation and the equivalent of the modern ‘brand’—to have its name on the dial, movement and case of the finished product.
Traditionally, the Swiss watch industry has also relied since the turn of the twentieth century on a division of trades, in which it has been standard practice for ébauches manufacturers to supply the final maker with raw movements, and for the ‘assortiment’ (mainly the escapement) also to be sourced separately. More recently, the major Swiss brands have come to value greatly the public relations value of being able to claim that all the production of their watches is carried out ‘in house’. A well-known example is the case of the Rolex Daytona—a classic Rolex model—for which the movement was traditionally sourced from Zenith, but is now made by Rolex.