THE BACKGROUND - The quality of the timepiece adorning a wrist says a lot about the consumer - or so an increasing number like to think. The luxury watch market is being boosted by men's growing interest in their personal appearance and broader appeal to the younger, style-conscious market. Mintel estimates that the market will be worth £405m in 2005, with value sales up 17% since 2000. While luxury watch sales account for only 3% of the watch market by volume, they make up 55% by value. The mean unit price paid is £717, reflecting the large number of watches sold at the entry level.
Men's watches account for just over half of the luxury watch market by volume (56%) and 64% of its value. However, women are seen as a hugely important element in this market, with the segment experiencing the fastest growth in the sector. Women are key buyers, not only making purchases for themselves, but also buying men's watches as gifts.
Switzerland is the clear leader in luxury watch production, with the UK the seventh-biggest importer of its watches. Imports from the country rose 29% between 2000 and 2004.
It would appear that the luxury market is increasingly within reach of more segments of society, with 23% of consumers owning a luxury timepiece - up from 11% in 1999, according to Mintel. The growth in the number of ABC1s is aiding this market. ABs make up 25% of the population and C1s 29%.
Marketing agency Added Value and Walpole, a body representing the British luxury industry, recently conducted a study looking at why consumers are attracted to luxury brands. 'We tested the rules of luxury and found that across the board the power of myth and cultural cool were more important than people had allowed for,' says Guy Salter, deputy chairman of Walpole.
'This means the luxury market has to play the celebrity game as much as anyone else. The main motivation for buying luxury is that people want to be desirable. It is the most basic of human instincts.'
Skills shortage
In the luxury watch market there are two key problems: a lack of properly trained and experienced watchmakers and the prevalence of counterfeiting.
As a result of the 70s' quartz revolution, the art of watchmaking has all but disappeared in the UK, so that many luxury watches must be sent to Switzerland for servicing. Insufficient service capacity may affect sales in the long term. This year several luxury brands joined forces to set up the British School of Watchmaking in Manchester to invest in training and recruit apprentices.
Fake luxury watches come in varying degrees of quality and sophistication, from cheap and obvious knock-offs to expensive counterfeits designed to dupe shoppers. The latter are often available on the internet, although luxury brands make it clear that they do not sell online.
In terms of design, bigger face diameters remain popular in luxury watches and there has been a shift to more simple, less ostentatious styles. However, diamonds are still the jewel of choice for adornment and are beginning to be used more in men's watches.
The luxury market is made up of some long-established brands as well as newer names that have stimulated sales. Elite manufacturers that make their watches and components in-house include Roger Dubuis, Jaeger-LeCoultre, Piaget, Rolex and Zenith - brands that dominate the collectors' market.
Rolex is the world's leading luxury watchmaker, with its Rolex and Tudor brands. The Rolex name, created in 1908, was established as a reliable watch under extreme conditions such as mountaineering. The company invests heavily in advertising and sponsorship, such as the PGA European golf tour and Wimbledon. In 1927 it introduced Rolex ambassadors and has signed up sports stars it views as representing its 'pioneering spirit' ever since.
The Swatch Group's main luxury brands are Omega, Longines and Rado. Like Rolex, Omega is associated with sports timing, while Longines' image is tied more to its elegant designs. With its modern-looking Rado watches, Swatch has invested in material development to produce a scratchproof surface.
LVMH's luxury watch brands include TAG Heuer and Zenith. TAG Heuer's focus has always been on sports watches and it has a long association as a Formula One sponsor. It has used sportsmen such as Tiger Woods as brand ambassadors for years, but launched a £15m ad campaign in January featuring actor Brad Pitt. Women's watches were introduced to its range only in 1999.
The Gucci watch brand, in line with its fashion heritage, is aimed more at the female market. Recent watch models have incorporated the brand's 'G' logo.
Richemont Group-owned Cartier is probably the most exclusive of the jewellery watchmakers. It has been careful to position itself so that it appeals equally to men and women.
Sophisticated allure
Despite the exclusive nature of this market there is stiff competition and heavy adspend. Luxury watches take a disproportionate share of all watch advertising, accounting for 62%, with most campaigns appearing in print.
The luxury watches market is succeeding in maintaining its exclusivity while innovating and appealing to a slightly broader demographic. Mintel is, therefore, optimistic about its future with a predicted growth rate of 25% at current prices from 2005 to 2010, taking the sector's value to £505m.
LUXURY WATCH BRAND ADVERTISERS BY ADSPEND (POUNDS 000) 2004 2002 02-04 % change 1 Rolex 2424 2144 13.1 2 TAG Heuer 1606 989 62.4 3 Breitling 1385 961 44.1 4 Omega 1089 1824 -40.3 5 Goldsmiths Group 1051 523 101.0 6 Raymond Weil 1047 740 41.5 7 Patek Philippe 914 1238 -26.2 8 Chanel 628 256 145.3 9 Cartier 576 603 -4.5 10 Oris 543 278 95.3 11 Chopard 484 659 -26.6 12 Ernest Jones 462 453 2.0 13 Louis Vuitton 459 404 13.6 14 Rado 420 287 46.3 15 Longines 419 288 45.5 16 Tiffany 335 323 3.7 17 Officine Panerai 316 200 58.0 18= Breguet 307 399 -23.1 18= Jaeger-LeCoultre 307 392 -21.7 Others 3911 2928 33.6 Total 18,683 15,889 17.6 Source: Nielsen Media Research/Mintel TOP 10 LUXURY WATCH BRANDS BY UNIT SALES (000) 2005* 2002 02-05 % change 1 Rolex** 71.5 68.5 4.4 2 Omega 39.2 37.5 4.5 3 Gucci 33.8 33.0 2.4 4 TAG Heuer 31.5 28.5 10.5 5 Cartier 24.4 23.0 6.1 6 Raymond Weil 19.9 18.9 5.3 7 Longines 12.8 11.3 13.3 8 Oris 9.4 8.3 13.3 9 Maurice Lacroix 7.9 7.0 12.9 10 Breitling 7.3 7.0 4.3 Source: Mintel *Estimated **Includes Tudor
ANALYST COMMENT
SANJAY NAZERALI MANAGING DIRECTOR, THE DEPOT
With only 3% of watches sold in the UK priced more than £500, one would be forgiven for assuming that luxury watches are a small sector.
Indeed, only 500,000 were sold in 2004 out of a total of 18m pieces.
But that 3% accounts for more than 60% of the market's total value; £405m from total sales of £710m.
It is growing at about 17% a year, a rate far in excess of any other part of the luxury sector. This is down to the upward impact of fashion brands on luxury brands.
Most mainstream fashion brands, from DKNY to FCUK, can now be seen on a watch face. What's more, they are relatively inexpensive, costing between £100 and £350.
These products have become the staple of the industry, turning timepieces into accessories and decimating the traditional watch market. But the most interesting impact this influx has had is on the real luxury sector - watches costing more than £500.
The moment fashion becomes more accessible, higher-end consumers are driven upwards in a bid to differentiate themselves. This segment, christened 'uberluxe' by style commentator Tyler Brule, does not celebrate the old luxury values of craftsmanship, tradition and investment. It has learned, instead, how to incorporate contemporary values into luxury.
Chanel has launched a sports watch priced at several thousand pounds. Jaeger-LeCoultre, bastion of old horology, now talks about 'what's new' on its website.
As final evidence of this explosion of watches in the luxury sector, last month Porsche opened its first lifestyle outlet, Porsche Design, in Bond Street. Among its top-selling items is a titanium chronograph.
The price? £2895.
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