Brexit and British watches
The diversity of British watch brands in price points and positioning as well as manufacturing processes leads to a range of different concerns about Brexit across the resurgent industry, but even those most concerned feel Brexit has been good for them so far.
Mike France, co-founder of Christopher Ward, could well be the most pro-Remain executive in the industry. France would like to see the unravelling of negotiations, or a second referendum, but even he recognises Brexit, through the devaluation of the pound, has drastically improved exports. “We’re growing by close to 50-60% per annum. In some markets it’s over 200%,” says France.
It’s hard to know how much of sales is down to the brand’s relaunch simultaneous to the EU referendum. However, most other brands also have spikes in exports, suggesting currency devaluation is more at play. Whereas his peers do not see Brexit as a day-to-day concern, France’s fear for future UK economic growth makes Christopher Ward extra conscientious about having a Brexit contingency plan, investing in aggressive expansion in growing markets, including Hong Kong, Taiwan and South Korea. France (the country) and Germany are also options if they grow faster than the UK.
Most other executives surveyed do not share Mike France’s urgency. “To be honest we’ve never sold so many watches abroad as when we came out of Brexit,” says David Brailsford, founder of Garrick, who sees no downside. “It’s had a positive effect for us.”
“It is something I’ve thought about but it’s not something that’s relevant in that it’s going to influence a large part of how I do business here at Schofield. It just isn’t,” says Giles Ellis, founder of Schofield Watch Company.
Meanwhile, few British watch brands have a strong retail presence in the UK – some being completely online, like Schofield and Pinion – leaving Swiss brands to reap the benefits of the surge of luxury shopping tourists in London’s boutiques.
The US is the critical market
Certainly the fact that the EU isn’t such a big market for UK brands reduces their concern about Brexit. Imported components are sourced mainly from Switzerland, which is outside the EU, or from China and the US is a far more critical market commercially.
Garrick sells a whopping 90% of its watches to the US and “only a handful” in the UK. The Schofield Watch Company makes 45% of its sales in the US (and Canada), 45% in the UK. New sub-£200 brand, Shore Watches also sells predominantly in the US and UK.
London-based Mr Jones Watches, a sub-£200 brand with an element of playfulness, sells 25-30% in the US, 30% in the UK and a maximum of 20% in the EU. However, taking countries individually its next largest markets in order are China (3rd), Australia, France, then Germany.
“I think the shared language, sensibility and humour or appreciation of British sense of humour has always gone down well with the USA and also Australia,” says Mr Jones Watches founder, Crispin Jones.
Pinion on the other hand is heavily focused on domestic sales. Currently it is selling 70% of its stock in the UK and 30% in the US reflecting stronger exports on a weak pound, but preorders for the Pinion ATOM foresee this returning to its usual 90% UK, 10% US split.
Dealing with increased manufacturing costs
The fall of the pound is inevitably eating into profit margins calibrated to a stronger currency. With three years’ worth of components in stock at current sales volume, Pinion hasn’t yet had to reprice for the higher cost of acquiring parts, which could clearly hurt sales in the UK. Piers Berry, founder of Pinion, is increasing batch production size to reduce costs but would have to do so by an order of magnitude (from 50-100 to 500-1000) to significantly reduce them.
Bremont, the UK’s largest brand by volume and selling at the highest retail price, wants to completely avoid repricing. “Global pricing is an issue,” says Giles English, co-founder of Bremont, “[and] we don’t want to have to increase our UK prices for global parity thus making our watches too expensive in the UK.”
Christopher Ward repriced in January 2017 but what it lost in UK sales it more than made up for in exports. Its bought-forward position in components came to an end in August 2016 shortly after the referendum. Sub-£200 brands are managing supply costs differently. Shore Watches has found a new manufacturer and is moving to higher-priced items. Mr Jones has a stock of components to shelter it from current market rates but will reassess its prices after Christmas. Both import components from China and pay in dollars.
Skilled labour concerns
Despite positive export sales there remains a lingering concern about skilled labour for some. Robert Loomes, technical director at Robert Loomes watchmaking company, is vice chairman of the British Horological Institute (BHI). He doesn’t believe enough watchmakers are being trained in the UK to replace European watchmakers who may leave. However, this might be balanced by BHI-trained Brits who may return from Europe. Nobody knows.
There is also a different kind of loss that is not compensated for Loomes implies: the risk of stagnation. “There are so many countries that have outstanding watch and clockmaking histories and we share by the sharing of knowledge. The lack of opportunity to share and visit is just intellectually sealing yourself off.”