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Why luxury Swiss watch brands’ switch to steel could rebound on them

Luxury Swiss watch exports continue their slide. It’s a familiar story and figures from August, the latest month for which statistics have been released by the Federation of the Swiss Watch Industry, show sales falling another 9 per cent year on year.

Hong Kong remains a key export market, but sales this year have fallen off the proverbial cliff, down 28 per cent in value year on year for the period from January to August.

“Things are bad, there’s no denying it, and it’s likely to get worse,” one watch executive told SCMP.com on condition of anonymity during a subdued launch event in September.

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The reasons for this collapse in sales have been pored over countless times by industry analysts. Chief among them are Xi Jinping’s crackdown on graft in China, a general slowdown of the Chinese economy, market saturation, the strong Swiss franc and the ever increasing market share of smartwatches.

Unlike the fashion industry, which can adapt to prevailing trends and wider economic conditions every six months, the mechanical watch industry can only correct its course every 18 months to two years, given the long arc of the design, manufacture and production process. Only now are we seeing some brands’ strategy to deal with the slump – many have looked to create more accessibly priced products primarily by introducing steel watches, or iconic pieces in steel variants.

The shift to steel began to creep in last year with big releases from the likes of Zenith, Montblanc and Jaeger-LeCoutre, but at 2016’s big trade shows, Salon International de la Haute Horlogerie in January and Baselworld in March, the biggest, most storied brands in the industry fully embraced steel.

Rolex has weathered the downturn better than others, given its ultra-luxury positioning and strong secondary sales market, but the brand launched two big steel watches this year at the entry level and at the collectors’ level. The Rolex Oyster Perpetual Air-King, priced at a relatively modest CHF5,900 (HK$46,200) was a tacit admission, although the company would never admit it, that prices for Rolex were disconnected from the value of the product.

At the higher end, and to much fanboy hysteria, Rolex released a steel Cosmograph Daytona, one of the iconic pieces in its product mix, priced at CHF11,800 (HK$92,500). Produced in limited quantities, the steel Daytona is already selling for double or triple its value on the secondary market, but Rolex is one of a handful of brands that can engender such devotion even in down markets.

Piaget has arguably made the boldest recent move into steel. The Polo S, backed by a comprehensive and ostensibly expensive global campaign fronted by Hollywood stars Ryan Reynolds and Michael B. Jordan, made a splash when launched this summer at an event in New York – global launch events no longer take place in China or Hong Kong, such is the anaemic performance of those markets. At the event, Piaget chief executive Philippe Leopold-Metzger called the Polo S “a watch for a new generation”, a generation of course that has less disposable income to spend and is nervous about the future.

The Polo S was marketed as Piaget’s first steel collection, although it isn’t the company’s first steel watch, the last of which came in 2001. It’s priced under the psychologically significant US$10,000 level, which is important positioning for a brand as exalted as Piaget. Part of the more youth orientated and sporty Polo collection, the watch itself has been critically lauded by the watch press, although some have remarked on its similarities with the Nautilus designed by the legendary Gerald Genta, who made steel sexy in the 1970s and 1980s when the watch industry faced a similar decline brought on by competition from Japanese quartz watches.

Another leading light that has embraced steel, something that only five years ago would have been deemed unthinkable, is Vacheron Constantin; steel editions of the Quai de l’Ilehave brought down the entry-level price for this celebrated brand by several thousand dollars. Blancpain (with the Villeret Quantième Annuel GMT)and Girard-Perregaux (Dual Time) are two more august brands that also released steel watches.

The move to entice new customers or retain the loyalty of old ones with more affordable steel pieces seems to be the dominant trend, but the shift to steel isn’t without its risks. According to data released this year by Exane BNP Paribas, Piaget and Vacheron Constantin, both part of the Richemont Group, depend on models in precious metals (gold, platinum, titanium) for more than 90 per cent of sales. Brands so closely identified and so reliant on precious metals and higher premium pricing will find it difficult to manoeuvre in the current market, Exane’s research suggests.

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Independent players, priced significantly below the prestige brands, may face more competition in the middle market. Kuan Teo, co-founder of Myku, an independent brand that specialises in the use of precious stones and materials in its timepieces, believes that customers for luxury watches “would be less interested in lower-priced, widely available or manufactured materials”. Teo believes the current vogue for steel is only a temporary solution as “luxury by definition is exclusive to a few”.

“Offering wider access to a luxury brand through accessible price points may drive sales on the shorter run, but dilutes the image. It is a double-edged sword, as existing customers and those interested in exclusivity may no longer aspire to buy into these brands,” Teo adds.