Takes a Licking and Stops Ticking
Why you don't need a watch anymore.
These days, the correct time is everywhere: in the corner of the computer screen, on the television in elevators, on cable news channels, in train stations, as well as on car radios, microwaves, ovens, and in all sorts of public places. And, perhaps most significantly, on cell phones, BlackBerries, and iPods. Most people these days carry a highly accurate and durable time piece, but it isn't a watch.
All of this is bad news for the watch industry—or at least for that sector of the watch industry that sells watches meant to be used to tell time, as opposed to watches that are meant to be worn as fashion accessories or as portable symbols of status and wealth. As in many other consumer areas, the middle is getting squeezed. According to Deborah Rudinsky, merchandise manager at the Doneger Group, sales of moderately priced watches—time pieces that retail for under $200—were probably down about 10 percent in 2005.
Judging by the results of Fossil, a publicly held retailer that specializes in watches, those difficulties continued through 2006. Fossil's bread and butter is making moderately priced watches in Asia and selling them through its own stores and outlets (148, by my count), and through midrange department stores. Its house brands include Fossil ($55-$165) and Relic ($45 to $85). Fossil's 2005 10-K shows that domestic sales of all watch products barely budged between 2004 and 2005, rising from $241.9 million to $245.2 million. In 2005, sales of Fossil watches fell 10 percent, while sales of the cheaper Relic watches fell 17.6 percent. The slump evidently continued through 2006. Through the first half of 2006, domestic watch sales fell another 7.3 percent thanks to a 21.4 percent decrease in Fossil sales, although sales recovered somewhat in the third quarter and fourth quarter. By my calculations, Fossil's domestic watch sales were $253.3 million in 2006, compared with $245.2 million in 2005. That rise of 3.3 percent is pretty meager, considering inflation and the growth in the number of stores Fossil operates.
Obviously, one can't conclude too much from the results of one company. Perhaps Fossil's designs simply didn't strike a chord in 2005 and 2006. But the results indicate that midrange watches are now clearly discretionary products. And, judging by my admittedly casual research, many consumers are using their discretion and deciding not to wear one. A canvass of Slate's New York bureau and the adjacent Washingtonpost.Newsweek Interactive advertising sales office revealed that fewer than half of these mostly young, urban, educated professionals were wearing watches. They don't need to.
For companies like Fossil, the future rests on catering to people who assuredly don't need a watch (or several watches) to tell the time, but who want them anyway. "The customer is buying a fine watch more as a jewelry piece and less as a timekeeper," said Doneger Group's Rudinsky. Women are drawn to watches that help accessorize different outfits. Men are drawn to high-tech gadgetry. Fitness geeks of both sexes opt for souped-up digital watches equipped with heart rate monitors and GPS technology. "To capture younger customers, watches today need to have much more of a fashion nuance," said Rudinky.
At the high end, watchmaking remains a thriving business, as the global wealthy spend consistently for lavish watches. The Federation of the Swiss Watch Industry 2005 report notes that Swiss manufacturers have suffered a long-term decline in unit volume: Exports fell from 28.2 million units in 2002 to 24.3 million units in 2005. But while they're selling fewer units, Swiss watchmakers seem to be selling more high-end watches. Sales data from January 2007 (a month when Wall Street hotshots were spending their massive bonuses) indicate that while the volume of U.S. purchases was down marginally from January 2005, the dollar value in francs was up nearly 14 percent. That can't all be chalked up to a weaker dollar.
Traffic at Fossil outlets may have been disappointing last year. But given how well the wealthy are doing in this economy, it's likely that traffic at Tourneau stores was impressive.Meanwhile, some of the smartest minds in fashion are laying bets that the watch will continue to evolve from a quotidian utility into beloved bauble. Polo Ralph Lauren announced that it would create a new joint venture with Swiss luxury goods company Richemont to peddle luxury watches and fine jewelry.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at firstname.lastname@example.org and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.
Illustration by Rob Donnelly.