US Jewelers Could Benefit From Watch Manufacturer's Strategies

Implications: Despite the economy, select watch manufacturers, continue to grow sales and profits.  US jewelers could benefit from their growth strategies.  Here is how.

Analysis: US retail jewelers should consider copying Swiss watch company strategies.  For instance, Swatch and Timex, both known for selling inexpensive time pieces, have moved upscale.  Swatch, one of the largest low priced, Swiss watch manufacturers has diversified their offering to include a wide range of high priced, aspirational and luxury brands including Breguet®, Blancpain®, Omega®, Longines®, Rado®, Tissot®, and Hamilton®.  Most recently, Swatch has joined with Tiffany to manufacturer and distribute the prestige jeweler’s branded watches.  Similarly, Timex has leveraged its sophisticated, manufacturing prowess to make better brands like Nautica®, Guess®, and now, Versace® brand.

This comes during a period in which the traditional watch business is declining.  According to the most recent statistics, low end and middle market watch sales have declined by as much as 20%.  The reason, younger consumers don’t buy watches.   The fact is, for many consumers under 40, time keeping is a function of a cell phone or a PDA which makes a basic watch a redundant accessory.  That’s bad news for basic watch makers like Casio®, Citizen®, and Seiko®. 

Whether due to luck or good strategic thinking, Swatch and Timex have achieved double digit sales increases while many of their competitors have watched both sales and units decline.  They accomplished this in part, by reengineering their businesses to sell aspirational and luxury time pieces instead of basic watches.  These time pieces exemplify quality, status, and prestige, key attributes high end consumers will still pay a premium for, in spite of a ‘Blackberry®’ in their purse or breast pocket.   

The US jewelry industry is also suffering a down turn, in part, because of the economy. However, the truth is that low-end and middle market jewelry sales have been trending downward for several years while high end fine jewelry and watch sales have continued to increase.  One explanation for the continued growth was that the luxury consumer was more resilient to swings in the economy than the typical mid market consumer.  Another reason could also be that aspirational jewelry customers that typically bought better diamonds as gifts abandon the middle market jeweler to buy prestige watch brand carried in better stores.  Why?

Price points for many popularly priced diamond ring and gold jewelry products dropped precipitously at the beginning of the decade as retailers imported massive quantities of low quality, light weight jewelry items from India and China.  Initially successful, mass merchandisers and discounters stole significant market share from department stores and jewelers alike.  Unfortunately, many jewelers like Zale followed their perceived competition down market only to watch margins decline and the US diamond jewelry market contract.  In retrospect, it’s now clear that as consumers tired of repairing broken rings and replacing lost stones, they rejected traditional diamond products as gifts in favor of alternative product categories including high end electronics, travel, and aspirational watch brands too.

Whether jewelry executives will buy this argument remains to be seen.  Many jewelry executives continue to believe the problem is the economy.  Others point to changes in the consumer.  Both are partly correct.  But status and prestige are still attributes consumers ascribe to products and what seems clear, at least to me, is the biggest thing that has changed about mid-market jewelry retailing is the jeweler and the product sold in their stores, not the economy and not the consumer.

Mid-market jewelry retailers could do well to follow watch manufacturers example and move up market in terms of both product style and quality.  Granted that may be a challenge in an economy where gold prices have exceeded their 20 year highs and are still going higher.  But if the watch companies are the measure, there are a growing number of customers willing to pay premium prices for quality products as measured by content, design, and utility.