< PreviousFEATURE / LUXU RY WATC H E S 30 Vol. 21/06, March 2020 Luxury watch brands are facing more competition than ever to stay relevant in an ultra-tech environment while remaining true to the centuries-old artisan craftsmanship BY GAVIN GIBBON CLOCK IS TICKINGarabianbusiness.com 31 / LUXU RY WATC H E Sand emails are growing in popularity. In terms of Apple, its wearables and accessories category produced revenue growth of 54 percent to $6.5bn last year, led by gains in sales of its hugely popu- lar Apple watch. And yet, according to Matthieu Haver- IME WAITS FOR NO MAN. That is certainly the case in the luxury world of horol- ogy, where traditional brands are being forced to marry the historical legacy of a centu- ries-old craft with a generation that craves modernity. Forced is possibly too strong a word, as watchmakers are rising to the challenge in a marketplace where the competi- tion is fierce. The industry has been on a collision course with tech giants for several years now. Smart, wearable healthcare watches that can show texts lan, chief commercial officer of Ulysse Nardin, the luxury watchmaking company founded in 1846 in Le Locle, Switzerland, there is definitely room for both. He tells Arabian Business: “The good news is for the industry, young people like watches and that’s very important because when you see on one side the trend of Apple, who is producing more watches each year than the whole Swiss industry, you can see that as quite frightening. On the other hand, when I’m travelling to Asia and America and Dubai, I see young people wearing mechanical watches. $21.7bn The value of Swiss watch exports last year, according to the Federation of the Swiss Watch Industry “Sometimes they can have the Apple watch or Samsung on one wrist and a proper mechanical watch on the other one. That’s very important and reassuring for the future” FEATURE / LUXU RY WATC H E S 32 Vol. 21/06, March 2020 Tarabianbusiness.com 33 / LUXU RY WATC H E S “Sometimes they can have the Apple watch or Samsung on one wrist and a proper mechanical watch on the other one. That’s very important and reassur- ing for the future.” In his comments, meanwhile, Tag Heuer CEO Stéphane Bianchi says there’s no threat to ‘traditional’ watch sales from connected ‘smart’ watches which have become increasingly popu- lar over the last several years. In Tag Heuer’s case, the company launched its first connected watch in 2015, and now has several different models. u Developed over centuries of fi ne craftmanship, the Swiss watch industry is a key pillar of the country’s economy u The Tag Heuer Connected Modular watch workshop in Switzerland “Connected watches will of course be important in the future, even if tradi- tional watches remain the main [focus] for Tag Heuer,” he says. “But what we see is that people who buy smart watches wouldn’t have bought a tradi- tional watch, so there’s no cannibalisa- tion of customers.” Additionally, Bianchi says that in about 80 percent of cases, buyers of Tag Heuer connected watches “get to know the brand” and then move on to buy other watches. “It brings more customers to tradi- tional watches,” he says. “It’s a very good match between these two kinds of watches.” Luxury on the wrist According to the 2020 Wealth Report from Knight Frank, luxury watches increased in value by 2 percent last year and 60 percent over the past ten years. That may seem slightly insig- nificant compared to rare whiskeys, which rose in value by five percent last year and a mammoth 563 percent since 2009, but there is nothing insignificant about walking around with a luxury timepiece on your wrist.“We think this country will become the next big [market] in the Middle East. We invest a lot in Saudi Arabia” u Each Bovet timepiece is created by a skilled ensemble of artisans and technicians u Founded in 1822, Bovet combines traditional know-how with an avant-garde spirit u Pascal Raffy, CEO of watchmaker Bovet 59,103 The number of jobs in Swiss watchmaking sector in 2019, according to the Convention of Swiss Watchmaking Employers FEATURE / LUXU RY WATC H E S 34 Vol. 21/06, March 2020 Pascal Raffy, CEO of watchmaker Bovet, tells Arabian Business: “If you differentiate yourself with quality, with sustainability, with a real attention to every single detail, there is room and it depends of course on your personal project, are you seeking quantity, or are you seeking, as we do in the house, much more quality? Quality being the essence, quantity being not so important.” Quality is front and centre of Bovet watchmaking. Every Bovet timepiece – including its ‘entry level’ 19Thirty models – boasts a level of artistry and finishing that is exceptional, even in the haute horlogerie sphere that the brand inhabits. “It’s not the house at the haute couture of watchmaking, where you can do 10,000 watches per year. We do 800 timepieces per year and it is at the real pleasure of the collectors around the globe.” The fi ne art of Swiss watchmaking According to figures released by the Federation of the Swiss Watch Indus- try, Swiss watch exports from the start of 2019 through to September totalled CHF15.9bn ($15.9bn). The US, China, Japan and Singapore are the biggest markets, with the UAE coming in ninth, with watch exports in 2018 totalling CHF911.9m ($911.9m). That, however, does not mean the Middle East market is of less importance to the Swiss horological giants. Watch sales in the Middle East repre- sent a growing sector for the Swiss industry, and in recent years have seen a range of timepieces featuring symbols of the region, from desert-inspired colour arabianbusiness.com 35 / LUXU RY WATC H E S combinations and metiers d’arts depic- tions of Arabian wildlife, to actual sand in dials and, of course, editions featuring the colour green, a hue that resonates with the Islamic culture and heritage of the Middle East. Bianchi says that the company increasingly views Saudi Arabia and the wider Middle East as a “very important market”. “That is especially true in Saudi Arabia. We think this country will become the next big [market] in the Middle East,” he says. “We invest a lot in Saudi Arabia.” As a sign of the company’s increased focus on the kingdom, Bianchi points to a green limited edition Aquaracer watch made specifically for the Saudi market in September. The 200 watches – each of which were priced at approximately $2,000 – quickly sold out. “Next year, we’re going to have another one [limited edition Saudi watch]. I can’t tell you about it, but it will be amazing as well,” he says. “We believe this is a fast-moving market and is going to get bigger and bigger over the coming years. For us, it’s strategic to be there.” Haverlan, meanwhile, reveales sales from the brand’s flagship store in Dubai Mall for the first two months of the year “We believe this is a fast-moving market and is going to get bigger and bigger over the coming years” u Skilled craftsmen play an instrumental role in producing excellent Swiss timepieces $510m The value of the Middle East luxury watches market by 2025, according to Goldstein Research36 Vol. 21/06, March 2020 FEATURE / LUXU RY WATC H E S u Bovet timepieces are well known around the world for their high quality and rich decoration u Kern was named Breitling CEO in September 2017 made up 40 percent of its annual target. The boutique store, which opened its doors on the first floor of the Fash- ion Avenue extension in Dubai Mall in September last year, witnessed “record sales” in January, with the high levels of interest continuing into February. He says: “During the month of Janu- ary and over 20 days in February we have achieved almost 40 percent of our annual budget from January to December.” Part of that success has been down to the popularity of the Freak X, an entry- level variation on the epic and iconic Freak, launched in January 2019, which comes in at around one fifth of the price of the Freak (starting at $21,000). Haverlan says: “We wanted to bring the Freak to a much wider audience, even though we produce very limited quantities, and also trying to talk to younger consumers. “What we see today in terms of sales, we have sold quite a few Freak X to people dreaming about owning a Freak, but who could not afford. Freak X prob- ably represents about 15-20 percent of what we sell here in the boutique. “For a watch that retails between 20,000 – 30,000 Swiss Francs ($20,000 - $30,000) that’s not bad.” While Georges Kern, Breitling CEO, says the Middle East ranks fourth or fifth globally for the company and provides arabianbusiness.com 37 / LUXU RY WATC H E S The challenge in the watch- making industry is to remain creative, according to Maximilian Büsser, CEO of MB&F. A relatively new kid on the block in terms of its competitors, MB&F was founded by Büsser in 2005 and is based in Geneva. The Horological Machines are MB&F’s fi rst line of wristwatches and are inspired by science fi ction and Büsser’s childhood. He tells Arabian Business: “It’s important to dare to be creative again, and take risks. We should look at introducing art directors to replace marketers, so the focus becomes creativity above everything else.” In 2018, the Middle East barely represented six percent of sales. Büsser expects that to rise to around 13 percent this year. “The region is, with the US, our biggest growth over the last two years,” he says. That’s thanks, in part, to the brand becoming more widely known and appreciated. Büsser says: “For many years MB&F was only known in the region by the “watch-geeks”. The die-hard super knowledgeable afi cionados. We can sense in the last 18 months that suddenly the brand has jumped onto the radar of the next tier of watch afi cionados.” Time to be creative Maximilian Büsser, CEO of MB&F, explains why current trends don’t matter that perfect customer blend. He explains: “Dubai in particular is dependent on tourism but we are always mindful of our local clients and also the large number of foreign nationals who live here. The market is very mature and we need to ensure we cater to the needs of the different customer segments. “Looking at 2020, Dubai Mall is currently one of the leading boutiques in the world. Moving forward we will continue to develop our boutique network in the region, with a particular focus on expanding our offering in Saudi Arabia.” Of course, the luxury watch industry is not immune to world events and the clock is ticking on how long the current coronavirus can last and exactly how much damage the crisis will do. The drop-off in the Chinese market, in particular, is having a serious impact. But Haverlan is confident they have enough to weather the storm. He says: “If you look at the luxury busi- u The Breitling Navitimer is one of the world’s most popular mechanical chronographs ness as a whole it is affected by coronavi- rus and it’s not just the luxury industry. But if we talk about our industry, and especially if we talk about the region, I think Dubai Mall relies for about 35-40 percent for the luxury segment for the Chinese. If you do focus too much on the Chinese, you are definitely suffering. “The good news for Ulysse Nardin is that we are very much balanced and actually the Chinese are just one customer type among others who are purchasing here in Dubai.” Kern, however, fears the impact could be more severe and certainly longer lasting. He tells Arabian Business: “The industry is not in any sort of existential danger but it’s possible to imagine that in the years ahead, there could be some consolidations in terms of truly global and relevant brands. It is important that the industry and the watch brands adapt to the changing environment as they have done successfully in the past.” WANT TO MAKE A GULF DEALMAKER LAUGH? ASK WHEN’S THE NEXT IPO Bankers and lawyers all agreed that no clients would be making any critical decisions until the dust settles BY BLOOMBERG/ B ANKING AND FINANCE arabianbusiness.com 39 IMES ARE ESPECIALLY TOUGH for dealmakers in the Gulf, where the currents battering global markets have converged. But a simple question did brighten a senior banker’s mood the other day: He burst out laughing when asked about his next initial public offering. The promise that Saudi Arabia would anchor a regional investment-banking boom moved further into the distance after the crash in oil prices and the week- end arrests of senior members of the House of Saud. The reaction Monday (March 9) in Dubai’s financial centre amid the market rout ranged from gallows humour - jokes about stocking up on toilet paper - to resignation to some guarded optimism. The bankers and lawyers all agreed that no clients would be making any critical decisions until the dust settles. Some complained air-travel restrictions related to the coronavirus meant they couldn’t visit those few customers contemplat- ing moves. “This kind of uncertainty may affect investment decisions and will require strategic and tactical adjustments but will also create new opportunities,” said Miguel Azevedo, head of investment banking for the Middle East and Africa at Citigroup Inc. Sales shelved Agility Public Warehousing Co. was one of the first to retreat amid the carnage. The Kuwaiti logistics firm said Sunday (March 8) it would consider alterna- tives to London for the listing of one of its subsidiaries. Amlak International, a Saudi consumer-finance company, post- poned an announcement to sell shares, according to people familiar with the matter. A spokesperson for the company didn’t immediately respond to a request for comment. The fallout of the oil-price war and the coronavirus shocks risk setting off a vicious circle undermining economic- liberalisation efforts that depend on foreign capital. Investment banking fees would be collateral damage as plans for privatisations and large-scale invest- ments in non-oil sectors evaporate. The bankers’ sombre mood contrasts with recent optimism about prospects in Saudi Arabia. Global heavyweights such as Goldman Sachs Group Inc. and HSBC Holdings Plc have chased trophy deals, such as massive sovereign bond sales and Saudi Aramco’s record initial public offering. Aramco’s share sale was supposed to herald a change in sentiment for regional capital markets activity. For three years, investment bankers shuttled back and forth between the company’s headquar- ters in eastern Saudi Arabia and various finance centres, but the IPO concluded with an anti-climax after the company decided to pull its international listing. The fees the banks earned fell way short of the IPO’s pre-sale hype. Deal slump Even before the most recent shocks, deal activity was lacklustre. The number of listings in the Gulf countries last year declined from the two previous years, according to figures from data provider Dealogic. The number of mergers and acquisitions also fell, Dealogic data show. The outlook only darkened after the OPEC+ alliance led by Russia and Saudi Arabia collapsed. Oil crashed more than 30 percent after the breakup triggered a price war, sending equities plung- ing. As the markets were absorbing that shock, Saudi Arabia’s de facto ruler, Crown Prince Mohammed bin Salman had authorities round up the brother and a nephew of Prince Mohammed’s father, King Salman bin Abdulaziz, on the grounds they were plotting a coup, according to a person familiar with the matter. “So much of what happens under MBS’s leadership is based on the element of surprise, of shifting balance, and claiming control,” said Karen Young, a resident scholar at the conservative T “Foreign investors are less likely to venture into countries with higher risk profi les” 25% How much crude oil prices were down in the week ending March 12, amidst restrictions on travel as a result of the coronavirus American Enterprise Institute in Wash- ington. “But the biggest threat to Saudi right now is the possibility of very low oil prices, back to 2015 or lower levels. This the crown prince will find harder to control.” A busy market The events sent shock waves across the region’s already fragile markets following the unhappy plight of Abu Dhabi’s trou- bled hospital operator NMC Health Plc, Aramco’s truncated IPO and DP World Plc’s surprise delisting. Still, the region’s troubles mean even more work for some. Restructuring bankers remain as busy as ever. NMC appointed Moelis & Co. as an adviser, while the family office of the company’s founder hired Houlihan Lokey Inc. One senior restructuring specialist quipped that his business was a natural hedge against other banking activities. The malaise of NMC, which is being investigated by the U.K.’s financial regu- lator over fraud allegations, comes less than five years after Saudi Arabia opened up to outside investors and highlights the region’s stuttering status as an invest- ment-banking destination. Still, foreign direct investment in the kingdom was about eight times higher a decade ago than it is today. “When big prominent firms like NMC falter where standards were not respected, maintained and monitored, they generate reputational problems for not just the U.A.E. but the whole of the Middle East region,” said Nasser Saidi, the former chief economist of Dubai’s financial centre. Finance pros in the region are concerned that the accounting scandal at NMC could ripple through the capital markets the same way the 2018 collapse of Abraaj Group snuffed out private equity in the Middle East. Financial red flags raised by foreign investors like the Bill & Melinda Gates Foundation led to the flameout at Abraaj. “The Gulf region is facing a twin crisis from coronavirus and declining oil prices that will be incredibly difficult to manage in 2020,” said Ayham Kamel, the head of Eurasia Group’s Middle East and Africa research team. “Foreign investors are less likely to venture into countries with higher risk profiles.” Next >