Amidst all the excitement of SIHH I wanted to share some of my broader perspective on the luxury watch industry. The last 10 years have overall been very good to the luxury watch industry.  The revitalization of innovation and consumer interest in mechanical watches led to a robust resurgence in demand, and also a vast proliferation in the number of new brands. Most of these brands, some with history and a story to tell, some without, were all seeking their piece of the “watch boom.”  Many of the brands preferred to establish themselves under the moniker of “independent”, while others tried to “mainstream” themselves (presumably) to build their brands into the next Omega or Rolex.  Through all these years, times were generally (very) good, all were generally (very) happy:

Source: SIHH & Banc of America Securities – Merrill Lynch estimates.

Now that times have changed and global economic growth is anemic and likely to remain so in the near term or longer, it is inevitable that the industry will experience a shakeout. In these times and conditions, there are too many brands chasing too few wallets (no matter how thick or thin those wallets are).

Although it must be said that the decline in sales at the major watch houses is not as severe as many have predicted, there is no doubt the cracks are starting to show:

• Richemont  - recently reported its Q3 results – the watch segment (26% of Richemont sales)  showing -5% growth vs. Q3’08, but are still +6% on a year-to-date basis (9 mos.)
• In its quarterly report Richemont stated “Demand for luxury goods…has fallen dramatically”; “Richemon is currently facing the toughest market conditions since its formation 20 years ago”; “…we see no cause for optimism” and “We must assume that there will be no significant recovery in the foreseeable future.”
• Swatch – analysts forecast +3% organic sales for the second half of 08

Some of these numbers are positive, you say.  Yes, but keep in mind these are the LEADERS in the market whose scale puts them in arguably the best position to weather economic storms.  What about the smaller, independent brands?

Brands will fail and cease to exist.  Others will be purchased by their bigger, stronger competitors who have the ability to withstand long term economic cycles.  Consolidation is inevitable.

The shakeout has already started:

1) Villemont – the “first” casualty, bankrupt

2) Bedat & Co. – rumored to be shut down

“I never heard of these brands anyway”, you mi