MrWatchMaster Thinks: Transparency in the Watch Market

MrWatchMaster Thinks: Transparency in the Watch Market

We are pleased to bring you the first in our new exclusive series, ‘MrWatchMaster Thinks’ that invites leading figures from the horological world to share their fascinating views on current and future issues affecting the watch industry.

We are delighted that Dr James Nye begins our series with his thoughts on how not everything is what it seems, with his insights on transparency in the watch market.

I wear a number of different horological hats, being associated with different museums, societies and such like. One hat is that of being a liveryman of the Clockmakers Company, which since inception has been under an obligation, deriving from its Royal Charter, to protect the horological trade, most especially in London, but by extension in the United Kingdom. With respect to that obligation, the Company has focussed efforts over the last two years on encouraging the trade—and especially the wristwatch trade—to be more transparent in its marketing. There is a widespread appreciation of a possible revival of aspects of the British horological trade, but this is potentially at risk from the practices of both British and non-British participants in the market. It’s a complicated story, with a long historic backdrop worth exploring.

Sometimes, things are exactly what they seem to be. On other occasions, there’s a large difference between appearances and reality. The current watch market offers opportunities to observe both sets of circumstances. Take the tacky end first. We have the familiar trope of the inexpensive fake Rolex sold on an exotic beach, or to visitors in distant cities, in bargains struck between buyers and sellers who clearly each know what they are doing. Despite superficial similarities between the fake and the real thing, nobody is fooling anybody in the trade.

Roll back the clock two centuries and there was perhaps a very much less clear situation in one particular and large trade in watches we have come to know as ‘Dutch forgeries’, where both the words ‘Dutch’ and ‘forgery’ are very much open to contest. The subject of groundbreaking new research by Dr Struthers of Birmingham City University, here was a situation in which large numbers of watches were effectively passed off as being London made, despite being produced elsewhere. But there are huge subtleties involved, in that participants in the illicit business involved elements of the London trade. At more than one level, things were not what they seemed.

The watch market, from its earliest form, long before wristwatches, right up to date, can offer risks for the unwary. While the vast majority of watches now made have little intrinsic value, yet there is a very visible market in luxury watches—watches whose value bears no relation to their ability to tell the time, and this too has been a feature of watches stretching back into the past. And this is precisely where risks lurk for the unwary—if something is highly specialized, sought-after, maybe highly individualised, there is the opportunity for parallel markets to emerge (the classy boutique market for the real thing, and the back-street market for the knock-off) but far more dangerous is the temptation for unscrupulous people to capitalise on less than perfect knowledge in the marketplace—as the Prince of Morocco has it, ‘All that glisters is not gold’.

The financial aspect of horology, like so many industries, has changed radically over a century. Not only the working conditions have changed (becoming safer), but relative wages have risen. It is hard to sustain the image of the tortured handcraft worker producing exquisite work in appalling circumstances in the modern watch world. If employees are expensive, watch companies are in addition also committing to eye-watering expenditure on modern machinery capable of operating to the finest tolerances. The relative cost of making high-end watches probably remains high for manufacturers. Over decades, their market has also evolved. It was a century or so ago that European buyers were supplanted by waves of wealthy Americans. Between the wars, Breguet on Place Vendome would become used to serving the wealthy element of Stein’s ‘lost generation’. But in more recent times colossal wealth has emerged in Asia, supporting all manner of luxury markets, from wine to watches. And thus the watch manufacturers have had to adjust to the different demands and preferences of changing groups of buyers over time. And the public relations machinery of watch branding, which becomes ever more sophisticated, just as in other industries, has to try to maintain desirability and mystique—each brand seeking its own special marketing edge.

It is a common feature of luxury goods that a brand or label will operate at different levels—there will be a prestige cuvee, a couture line, some aspect of the brand which is pitched at the very top end, with relatively limited sales to the wealthiest clients, but such a strand offers significant legitimacy and allure to the balance of the range, pitched at a larger client base, who can afford a luxury product, but not ultimate luxury. The grandest complication watches sell in small numbers, but support the sales of countless other less expensive watches from the same house. Zooming the camera right back, there are other important elements, such as national branding. In the distant past, London and the UK held leading positions in the international horological markets—an advantage that was slowly squandered through a failure to innovate and invest, with first American and then Swiss manufacturers moving into poll position.

The Swiss have spent more than a century cementing a reputation for a national industry. While Asia utterly dominates the watch industry in terms of absolute volumes of units supplied, it is nevertheless Switzerland that currently predominates by value of sales, in view of the Swiss dominance of higher-end watch production. Despite accounting for as little as 2.5 per cent of global watch production, the Swiss watch industry exports more than CHF 20 billions’ worth of watches each year, and the industry is the second largest Swiss exporter, by value, after pharmaceuticals. It is clear that from a strategic point of view, the Swiss watch industry and its economic success is a matter of national importance for the Swiss government, and this underpins the success of individual Swiss brands in securing favourable international terms.

Yet it is interesting that arguments rage within Switzerland as to the qualification for ‘Swissness’. Whether the test is one based on value of component parts, or a percentage of components parts, or some other measure over time, there will always be firms that test the limits, seeking to reduce costs to a minimum through the sourcing of parts or labour from non-Swiss and less expensive locations. At the same time, other firms will see a marketing edge in maximising their Swissness, and may then shout loudly about how misleading their sharper compatriots are when they operate close to the wind. In the UK we have had the unedifying spectacle, now many years ago, of a decision that allowed a firm to claim watches as ‘Made in England’ on the basis that they were ‘deemed to have been manufactured or produced in the country in which they last underwent a treatment or process resulting in a substantial change’. It appears to have been successfully argued that, in essence, ‘assembly’ was a substantial change. Does this stand up to scrutiny?

Cars are sophisticated devices requiring servicing through their lives in order to continue to perform efficiently. Yet servicing does not mean entire disassembly, whereas in the case of a watch, entire disassembly and re-assembly are routine operations in the proper care of a watch if it is to have a long and useful life. The making of a watch and its assembly are quite distinct concepts. The working up of an underlying design, and the bringing of it to fruition through precision engineering, seem to lie closer to the heart of the ‘making’ of a watch, rather than assembly, or perhaps the re-finishing of raw components.

This view was bolstered significantly through the widely reported action of the US Federal Trade Commission (FTC), which issued guidance in 2015, mainly targeted at the Shinola company, making it clear that to qualify as ‘Made in USA’ a watch required manufacture in the USA, and not just assembly. When Shinola appeared to ignore the terms of the guidance, the FTC took further and direct action, compelling Shinola to make changes in the claims it makes in its marketing. From a regulatory point of view, it would appear the US has taken something of a lead on transparency in the watch industry.
Turning to the big issues in the minds of observers of the watch industry, there are two main areas of focus. One relates to the degree to which watch production is carried out in-house by any given brand, and the other relates to the desire to link brands with historic centres of watchmaking, such as Switzerland, the US and Britain.

The Swatch Group’s decision to cease the supply of parts and movements to third parties has been widely reported and discussed over many years since it was first announced, and the matter remains far from closed as Swatch finds itself with perhaps more of a battle on its hands than it anticipated. That is a story for others to tell. But the underlying philosophy, to which the decision relates, reflects, in part, a wider industry obsession that has emerged in the last few decades, and that is with ‘in house’ production.

In England, in the nineteenth and just into the twentieth century, a single high quality pocket watch might have involved the input of more than thirty individual specialists (frame makers, dial makers, train makers, escapement makers, springers, gilders, engravers, case makers, hand makers and many, many more). There was a strong division of labour and it was a perfectly well accepted business practice for the ultimate retailer of the watch—the controlling mind in the whole operation and the equivalent of the modern ‘brand’—to have its name on the dial, movement and case of the finished product.

Traditionally, the Swiss watch industry has also relied since the turn of the twentieth century on a division of trades, in which it has been standard practice for ébauches manufacturers to supply the final maker with raw movements, and for the ‘assortiment’ (mainly the escapement) also to be sourced separately. More recently, the major Swiss brands have come to value greatly the public relations value of being able to claim that all the production of their watches is carried out ‘in house’. A well-known example is the case of the Rolex Daytona—a classic Rolex model—for which the movement was traditionally sourced from Zenith, but is now made by Rolex.

The craze for ‘in-house’ has come to underpin much of the rhetoric of the watch brands in their public relations and advertising, and is reflected in the interests and concerns of watch collectors and amateurs alike, visible most easily through the widely used Internet watch forums and discussion groups. Watch collectors (and, in large part, watch observers who perhaps spend a lot of time following and commenting on the watch brands without necessarily purchasing) have come to obsess on issues of location of manufacture and the degree to which something is made in-house. The claims of watch brands to have accomplished anything, whether it be a new model, or a new element of a design, are now tested in the white-hot crucible of watch forums, which, by virtue of their on-line nature, have the effect of spreading commentary (especially negative and critical) like wildfire, world-wide, within hours. A notable case of this occurred in July 2014, when British brand Bremont unveiled a new model at a Science Museum launch. Starting the day before the launch, a remarkable online storm broke, summed up later by the Financial Times on 5 September 2014:

Comments on online forums and blogs challenged the claims for the BWC/01 calibre, the accusation being that it was not designed by Bremont but by La Joux-Perret, a specialist Swiss watch movement manufacturer with which Bremont has worked in the past on both its limited editions and its core collection […] The controversy underlines the fact that there is no industry-agreed definition of the term ‘in-house’. Over the past 20 years, some larger brands have bought specialist Swiss movement manufacturers, absorbing them into their own operations to create ‘in-house’ movements. The practice of commissioning an in-house movement from a third-party supplier and calling it ‘in-house’ is more common.

In the maelstrom of criticism that resulted, Bremont suffered a public relations setback. Bremont is a UK-based manufacturer, now employing more than sixty staff, and apparently on a planned pathway towards the manufacturer of watches in the UK, but an overly ambitious claim to have reached further along in that plan than was actually the case brought about a significant adverse reaction from observers, unhappy with a perceived lack of transparency.

The issues highlighted above are the stuff of Internet forums and discussion groups, and conversations among collectors—rarely does the discussion widen to include significant numbers of industry participants. But an exception occurred in March 2015, when the British Watch and Clockmakers Guild hosted a day-long conference in Watford, under the title ‘Developing a Co-ordinated Action Plan to Support the Growth of British Horology’. There were several sessions throughout the day, the most significant of which focused on the issue of the supply of parts from Swatch. Other topics included horological education, and the role of trade organisations. Of interest to us, the subject of ‘Brand Britain’ came last on the agenda, in the late afternoon. There was always the risk it would therefore be met by ‘conference fatigue’ and that the discussion might be less than vigorous. It was indeed the case that a noticeable proportion of the one hundred or so delegates from the morning had left by the time the conference reconvened for its last session.

Following presentations on what it might mean for something to be ‘British Made’, and how the Advertising Standards Authority (ASA) had acted in the past in relation to complaints about firms making claims relating to Britishness, the discussion was thrown open to the floor. Several delegates emphasised the point that, while there might be legal niceties over questions of claims to Britishness that may well be observed by market participants, there is also a moral dimension. The essential question posed was ‘While something may legally be entitled to be described as British, can it morally be claimed to be so?’ And of course for ‘British’ one can substitute ‘Swiss’ or ‘American’ with ease.

Examples were given of products in other markets that succeed despite their manufacturing process being in a developing country—the Apple iPhone, for example, which claims to be ‘designed in California, made in China’. The view expressed was that Apple benefits from the transparency with which it trumpets the manufacture of items in China—this is not seen as a negative, quite the reverse—while it also trumpets the location where its design work takes place—California—knowing that this is an important and compelling selling point.

An interesting intervention came at the end of the discussion, from James Gurney, editor-in-chief of QP magazine. He referred to the problems Bremont had encountered with its BWC/01 calibre in mid-2014. His view was that the way forward could only be through better communication between brands and the public. He argued legal approaches to defining country of origin would be too difficult to mount, while leaving a policing role to any given institution would be too great a burden. Instead, precisely the medium in which Bremont had met its difficulties needed to be the forum for egregious behaviour to be picked up and broadcast. Gurney argued the power of the Internet forum had been demonstrated by the Bremont debacle, and that it should be seen as the best method for the industry to regulate itself.

Gurney’s call for greater transparency chimes with the sentiments of the Clockmakers Company. There are two key areas in which the Company would argue firms should be more transparent. One is in relation to the invocation of significant British heritage behind modern watch brands, and the other is in relation to country of manufacture. The discussion above suggests ways in which the modern obsessions of watch brands have led them into error.

First, the overly strong and relatively recent emphasis on the production of items ‘in-house’ ignores a centuries’ old international tradition in the industry for reliance on a broad range of independent makers of the necessary components and assemblies, whether they be arranged as single piece workers, or in smaller companies and co-operatives. Some collectors and purists might well argue the industry has lost by this—and that the quality found in the finest creations of a century ago is now rarely visible, with limited and notable exceptions.

Second, the desire to self-identify with traditional centres of excellence—with ‘Swiss Made’, ‘Made in USA’ and ‘Made in England’ as obvious examples—has led some companies to sail too close to the wind. If the state of current legislation, and various trading standards, allows a watch brand to claim as ‘British’ or ‘Swiss’ items which any discriminating buyer would reject as such, were they to have the entire manufacturing process revealed to them in a transparent fashion, then the regulatory framework is probably at fault. But the solution doesn’t lie in an arms race of ever more detailed legislation or trading standards, in the face of which some manufacturers might choose to employ ever more devious tricks—it instead lies in the shining of an ever more powerful spotlight on the brands and their claims. Those who emerge as producing precisely what they claim—even if it is only the design and not the execution—will succeed in securing and maintaining customer confidence and appreciation.

Finally, there is the whole issue of the horological equivalent of the emperor’s new clothes. Recently, several of us, wearing different hats entirely, were considering a draft timeline for the watch and clock industry, for use on a web-site, to be used as a useful reference tool by newcomers to the watch and clock worlds, or perhaps to be used by journalists, in a hurry to discover when the lever escapement was invented, or the application of the pendulum happened, or perhaps when the first wristwatches were used. It had been a long day, and to lighten the tone, it was suggested that we might also draft a special April Fool’s Day version of the time line. This would include various key dates in the seventeenth, eighteenth and nineteenth century, marking the formation or starting dates for various modern Swiss-owned brands. Except of course the names involved were ones more familiar to students of horological history as being the famous names of various distinguished English watch and clockmakers, who have no connection whatsoever with the various modern brands which have revived the names in question. It is one thing to be inspired by a great character in history—it is quite another to appropriate them as your ‘ancestor’, or to appear to have done so. However small the number of people might be that have been or might in the future be fooled into imagining that these modern brands have a long and distinguished heritage, stretching back to important figures in the history of horology, it is too many. It can only damage the watch industry to be seen to be less than transparent in such matters.

In fact this is the key conclusion to be drawn from this survey. There may be watch buyers without much discrimination, but they are more than offset by the huge numbers of collectors and watch observers who look very closely into the claims of modern watch brands. For those who have an eye to long-term success, and who wish to be held in high regard by the watch buying community in both the near and distant future, it is vital to be honest and transparent in all facets of your business, from the integrity of the processes and skills brought to bear in making watches, to the advertising copy used to sell them.

Dr James Nye

Dr Nye has been involved in clocks since the age of fourteen, when he was put in charge of a Gents master-clock system at his school in Sussex. This sparked an abiding interest in electric timekeeping.

Following graduation from Balliol College, Oxford, James entered a career in finance and the energy sector. Retiring from commerce, he completed a PhD in financial history at King’s College, London, where he holds a visiting fellowship. His thesis included case studies of Victorian and Edwardian electric clock companies.

James is chairman of the council of the AHS. He is a long-standing member of the BHI, a Life Member of the NAWCC, belongs to the Deutsche Gesellschaft fur Chronometrie as well as Chronometrophilia, and is also a liveryman and member of the court of the Worshipful Company of Clockmakers.

James is also a Friend of MrWatchMaster.

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