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 Posted: Thu Dec 21st, 2006 08:11 pm
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Why the Watch Industry is Putting its Manufacturing House in Order


Words are powerful things in any industry based on perceptions, and in watches few words have the power of "manufacture." In the small, pathologically political Swiss watch industry, the word generally applies to those companies who make their own original movements. But just how the term is applied depends on who you're talking to, because the word "manufacture" is a mark of elitism that is being worked into the business and marketing strategies of companies across the industry, regardless of how closely they may fit its strictest definition.


And there's good reason they ought to. With consumers in the United States and elsewhere growing increasingly educated and selective about what they buy, what goes into the watches they plunk down thousands of dollars for may become an important point of difference. The more they learn about the prestigious and sexy brands under the glass, the more they may begin to realize that the venerable traditions of the Swiss watch industry are not quite what they?ve been led to believe.


So just what is a true " manufacture?" Most experts define it as a company that designs and builds their own movements, from the baseplate - the ebauche - on up. Jaeger-LeCoultre, which completes this entire process in Le Sentier, is generally regarded as a true manufacture. Raymond Weil, which buys its movements, is not. This is not much of an issue for a brand like Raymond Weil because the issue doesn't reflect on a specific brand's level of quality, its design, or its desirability with consumers at large, the vast majority of whom have yet to give it a thought. But at the top of the industry, there are increasing signs that manufacturing authenticity is becoming more and more of an issue. And as things in fine jewelry and watches have a way of trickling down to the mainstream, it is something everybody ought to at least think about.


" There's a lot of disinformation out there, but in general the customer today is much more educated," says Rob, a jeweler in Colorado, who has a very well established watch business. "Of the 250 brands coming out of Switzerland, only ten or so could even be considered manufactures, so it's a pretty elite statement to be able to say that this watch was manufactured under the complete control of the brand. For a person spending ten, twenty, or fifty thousand dollars on a watch, it can be very important. Consumers are so educated these days. It's amazing how it's transforming. It's like diamonds. Twenty years ago, certificates weren't that important. Now everyone wants their .60 pointer certified."


Clearly, the major brands are taking note as well. And even if their executives don't trumpet the issue, their actions speak louder than words. Consider the recent moves at the top of the industry: In 1996, Chopard develops its first in-house movement, the L.U.C., and gives it top billing in its growing men's collection. In 1999 Vacheron Constantin acquires the HDG workshops in the Vallee de joux bringing the assembly of it's high-end pieces under its company umbrella. In 2001 Piaget opens its "manufacture" in Geneva's Plan-les-Ouates district. The same year LVMH aggressively re-launches Zenith as an authentically manufactured high-end chronograph line. This year Cartier, whose prestige in watchmaking has always rested on its ability to combine its design with high-quality movements from around the industry, is for the first time introducing a pair of original movements for its high-end Privee line. "It seems as if all of a sudden, everybody is a manufacture," says Ronnie Wolfgang, U. S. president of Jaeger-LeCoultre. "A few brands are making a calibre or two of their own, but very few do everything."


One factor in the industry's sudden flurry to verticalize itself is the realization that outsourced supply chains are extremely vulnerable, especially after the wave of consolidation that has swept the industry. One particularly salacious rumor that was circulating through the 2001 trade shows was that the Swatch Group, which owns the vast majority of the industry's movement suppliers, was considering prominently stamping its name on its products, thereby exposing a reality most companies would prefer not to highlight to the consumer. While this failed to materialize, the consternation of countless watch executives was very real.


The interdependence of watch companies dates from the very beginnings of the industry, and only since the proliferation of the corporate-takeover has the atmosphere been as competitive. Major breakthroughs, like the first wristwatch minute repeater, were created through partnership, and justly, both Omega and Audemars Piguet take due credit.


Today the waters are just as muddy. The use of third-party movements is common among most brands, even those who specialize in complications. The majority of complicated watches on the market today are manufactured with a base movement, purchased from one of the major suppliers such as ETA, and a complication "module "also purchased virtually intact, which is then assembled under the auspices of the brand. Frederick Wenger of module and movement maker Jaquet Baume explains: "What modules allow you to do is use a base movement like ETA, which is inexpensive because they're manufactured in quantity, and then add the modules you want, such as a big date or a power reserve. So basically, they allow you to come up with lots of different looks, but technically, they're the same. We build both modules as well as a "manufacture" movement that we make from scratch. We've worked for just about everyone in the watch industry except Rolex and Patek Philippe. Many of the Richemont brands use us. Some people buy the modules and others use the manufacture movement. Others, like FP Journe, have us make parts for the movements they design. Some people buy a little of everything we make."


Manufacturing techniques like these are a reality in the twenty-first century. With not enough watchmakers to go around, there is literally no alternative for many brands. "If you put modules over an existing motor it's much easier and cost-effective than designing a whole new calibre," continues Mr. Wenger. "That's a very big task." In fact, the expense of creating an original base movement can run into the millions, making the price of entry into the "manufacture" club very steep indeed.

 
There is a subtle implication when you discuss manufacturing techniques that there is somehow something wrong with the use of supplied movements, that by making original movements, the few manufactures are better fulfilling the traditions of the watchmaking industry. This is all part of the grey veil of misinformation that surrounds the inner workings of the industry. In fact, there may be just as much technical innovation that takes place with third-party movements as in the manufactures.


Oftentimes, these movements are altered to such an extent, bringing in custom parts and new ideas, that the resulting mechanism might as well be new. But because so much of the watch industry's public perception is based upon the myth of the watchmaker laboring for months on one piece, it is the question of original movements that takes center stage as a consumer issue.


What is changing? New sources of consumer information and influencers are making the watch world a very different place. Previously, the collector, the only dangerously knowledgeable type of consumer, was few in number and reluctant to pay retail. Only a jeweler who was prepared to service this particular type of client needed to worry about their questions. Given the distribution policies of most high-end brands, these tended to focus on discounts anyway.


Now, after more than a decade of "golden years" for the watch industry, there's a much higher level of consumer information. Niche publications, and especially the Internet, put all manner of facts at a consumer's fingertips. "It's difficult for me to describe without being self serving," says Patek Philippe's U.S. president Hank Edelman, "but I think other companies could end up having a problem as customers get more sophisticated and knowledgeable."

 
Some do give the impression that they perform the majority of the work when, in fact, it is done by another party." In the age of "viral marketing" where consumer-to-consumer communication carries far more credibility than a brace of expensive print ads, the days of keeping dirty laundry private are gone forever. Patek Phillipe, of course, has been a beneficiary. While making almost everything itself, it has seen its desirability at auction skyrocket.


Not all companies have been as fortunate. While the industry has thrived throughout the nineties, there have been a number of "sick men" who have failed to keep up. One of these is Breguet, which despite beautiful product and arguably the name with the most potential value in the industry has been aggessively discounted throughout the 1990's. Distribution policy bears much of the responsibility, but many of the brand's woes come from a perception, even among some collectors, that the watches with movements supplied by others, are something less than genuine.


Swatch Group purchased Breguet two years ago, and since then, it has been the stated intention of Chairman Nicholas Hayek to move the brand to the top of the industry. It's extremely important for the Breguet brand to have exclusive movements," comments Mr. Hayek, whose Swatch Group also owns movement suppliers, ETA, Frederick Piguet, and Lemania, principal supplier of Breguet. "We've invested millions in Lemania?s capacity. And from now on they will only be supplying Breguet exclusively. They will continue to make the movements for the Omega moon watch as they've always done, but they won't sell anything to anyone else." This testament to the importance of vertically integrated manufacturing comes from the largest third-party movement supplier in the industry.


For those companies who have a positive story to tell regarding their status as a "manufacture," the front lines are at the counter. Sales associates seem to have the consistent presence and credibility to be able to communicate this key point of difference. "So how do we communicate this? We do a lot of training," says Jaeger-LeCoultre's Ronnie Wolfgang. "We go through all the steps of what it means to be a manufacture, what we do, and how we have 34 active calibres in the line. We really hammer on this constantly when we do in-store training. It's extremely important to get the customer to understand that we are a real manufacture."


Manufacturing authenticity is not something that will completely alter a retailer's watch business overnight. The greater part of many retailers' volume is based on fashion business where this is not yet an issue. But high-end mechanicals, as the image leader for the watch industry, have the power to make changes, and this is something that retailers with this kind of business will eventually face. "The average Bulgari customer doesn't care," adds Rob, the jeweler in Colorado. "They're buying the watch for status and fashion. But we try to inform the customer as best we can and let them make their decision. The more informed a customer is, the better he can make a choice. If you're going to spend six figures on a watch, you might want to know who did the work."

Source: http://people.timezone.com/mdisher/Articles/MovementArticle1.html

 

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