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Watches: about its origin and history

But the past 20 years have witnessed a timekeeping revolution that we should appreciate. It started in 1969 with Seiko’s introduction of the electronic quartz watch. Hamilton Watch Co. took another major step the next year and introduced a solid-state electronic watch that displayed figures on a screen. A JC-K article in 1970 called it the “most dramatic step forward in watches since [the invention of] the hairspring in 1675.”

Wilhelm Alpsteg of the Swiss Watch Federation Institute says the electronic watch not only changed the way watches are made, but also the way time products are marketed and promoted. The first story in this chapter recalls the development and refinement of quartz watch technology, as well as changes in watch marketing and the reasons we choose the watches we glance at so many times a day.

The second story recounts how the venerable Swiss watch industry lost its preeminence by concentrating too long on mechanical watches while the U.S. and Japan took large chunks of the rapidly growing electronic watch market. The Swiss have worked hard to regain some market share, but they’re still playing catch-up ball.

The new Asian watch industry jumped right on the electronic watch bandwagon, meeting the explosive demand for lower-end digitals. The third story tells how the industry nearly did itself in through overproduction. Luckily for Japanese and Hong Kong manufacturers, they were able to carve a niche for themselves by aiming for higher quality. Now other Asian countries, including China, have high hopes for their own emerging watch industries.

The fourth story in the chapter takes a look at what the past 20 years have meant for watch production and sales in the U.S.

A REVOLUTION IN TIMEKEEPING

In 1969, the watch industry entered the Space Age.

It didn’t happen on the moon, where U.S. astronauts used and wore sophisticated mechanical timepieces. It happened on earth–in Swiss and Japanese laboratories, in busy Tokyo stores and in a venerable U.S. watch factory in Pennsylvania’s Amish country.

Watchmakers in all three lands lighted a fuse to an explosion that shook the global watch industry in 1969 and reverberates to this day. The explosion was the introduction of the electronic watch; the fuse was something tinier than a baby’s fingernail–a sliver of synthetic quartz crystal that provides precise timekeeping by vibrating at very high frequencies when activated by electrical impulses.

The development of electronic watches not only changed the way watches are made. “It fundamentally altered the way time products are marketed and promoted,” says Wilhelm Alpsteg, senior watchmaking instructor at the prestigious Swiss Watch Federation Institute.

Before quartz: Electronic watches and quartz timekeeping didn’t spring full-born from some designer’s brow in 1969. Indeed, electric watches were predicted in an 1879 issue of Jewelers’ Circular. (That prediction, however, involved a cumbersome device requiring two vest pockets–one for the pocket watch and one for an electric generator, both cased in hard rubber and connected by an insulated chain!)

The first quartz “clock” (the size of an average room) was developed in the U.S. in 1929. Precise atomic clocks with quartz oscillators, used by scientists and governments, followed in the 1940s. Hamilton Watch Co. of Lancaster, Pa., marketed the first commercial electric watch in 1957. And three years later, Bulova startled the industry with Accutron, a wristwatch with an electronic tuning fork oscillator, eliminating the need for escapement and balance, with accuracy to within a minute per month.

But it was the quartz oscillator, powered by a button-size battery, that shaved electronic watches’ accuracy to within seconds annually. More importantly, the easily produced synthetic quartz crystal allowed the mass production of inexpensive electronic watches.

History in the making: Several firms worked on quartz technology in the late 1960s. But it was Hattori Seiko in Tokyo and Longines-Wittnauer in Switzerland that first went public in 1969.

Longines displayed a prototype at the 1969 watch trade fair in Basel, Switzerland, but didn’t bring out its first commercial model until 1970. Seiko started to sell its electronic quartz watch in Japan in 1969 and introduced it to the U.S. in 1970 (at $1,250 retail). But before the bulky watch even reached the hands of U.S. jewelers, Seiko in October 1970 debuted a second-generation, smaller version at half the price ($650). Company officials considered it, and the U.S. market, so important, that the firm’s rarely seen president hosted a press luncheon in New York to announce the breakthrough in miniaturization.

Just four days later, Longines-Wittnauer’s own quartz analog went on sale at Macy’s in New York (for $575). The curtain had officially gone up on the competitive quartz watch market in the U.S.

Digital debuts: Hamilton Watch Co. and Electro/Data Inc., a Garland, Tex.,

electronics firm, worked together in 1969 on another breakthrough: a solid-state watch (using integrated, encapsulated circuitry instead of moving parts) that told time with figures on a display screen.

In May 1970, Hamilton unveiled the prototype, which JC-K at the time called “the world’s first truly electronic portable timepiece” and the “most dramatic step forward in watches since [the invention of] the hairspring in 1675.” In keeping with the scientific euphoria of those moon-walk days, Hamilton dubbed the watch Pulsar, borrowing the name from the recently discovered distant stars that emitted regular radio pulses.

The watch, which went on sale in 1972 at $2,100 retail, had no moving parts. It consisted of a computer module that calculated time, an advanced quartz crystal and a specially designed 4.5-volt rechargeable battery. To see the time, the wearer pressed a button on the watch face for a digital readout (in red) on the light-emitting diode (LED) display.

Global success: Digital watches with their trendy, Space Age look captivated consumers and took the market by storm. They grew even more popular as their prices dropped. According to conservative estimates at the time, the U.S. market alone almost quadrupled in volume (from 200,000 in 1973 to more than 750,000 in 1974). Sales reached $188 million in 1974.

But the LED watch soon lost favor, accounting for less than 4% of jewelers’ digital sales by 1978. Consumers complained LEDs were hard to read in bright sunlight, and many disliked pushing a button to tell time. LEDs were supplanted by liquid crystal display (LCD) watches, which show time continuously and are easier to read. LCDs remain the leading type of digital.

No denying it–quartz digitals were hot. In 1974, more than 100 models debuted at the spring watch show in Basel. By that summer, they were a major jewelry-store item. A JC-K poll found 40% of all $150 + watches sold by jewelers were digitals. Demand was so great that many manufacturers couldn’t keep pace. And the popularity kept building. By decade’s end, one of every four watches sold worldwide was digital.

Such demand caused the watch industry’s version of a gold rush. By 1976, dozens of U.S. firms made or marketed digital watches–established watchmakers and newcomers alike. Among the newcomers were electronics and semiconductor firms such as Texas Instruments, as well as Hughes Aircraft, Motorola and General Tire & Rubber. It was boom-and-bust business: for every digital firm that went into business, another folded because of marketing or financial woes.

Overseas, the advent and global popularity of electronic watches virtually created the modern Hong Kong watch industry. In 1969, Hong Kong had a handful of firms making 3 million cheap mechanical watches and components. By 1978, it was home to literally hundreds of watch firms, exporting 49.4 million watches (most of them digital). It even surpassed Japan to become the world’s largest watch exporter (in units).

Busted boom: HMW Industries, which had been spun off from Hamilton to sell Pulsar, first laughed at suggestions that cheap Hong Kong watches could affect the market. But such overconfidence proved dangerous. In 1976, HMW reported a “sharp reversal” in earnings and a 20% drop in U.S. and foreign sales. A year later, digital sales had “virtually disappeared from all but the very lowest price levels,” said HMW. It sold Pulsar–lock, stock and logo–to a Philadelphia firm that later sold it to Seiko.

The problems that overwhelmed HMW affected much of the industry. Too many firms, especially in electronics, operated on high volume and low prices. That pushed digitals out of jewelry stores and into mass-merchandising markets.

Many small manufacturers and marketers went out of business because they were undercapitalized or lacked adequate distribution arrangements. And many foundering firms simply dumped their merchandise on the market.

Getting out: By the early 1980s, the digital boom had collapsed under a world glut of cheap digitals and cut-price competition. It hit Hong Kong’s fledgling industry especially hard. Many watchmakers there, including some of the biggest, went bankrupt or simply closed their doors.

Digitals didn’t disappear, of course. They settled into the under-$50 end of the watch market, where multifunctional digitals were popular. In the late 1980s, digital and analog quartz watches literally came together. Several firms introduced “anadigi” watches: timepieces with analog dials and digital readouts on the same watch face. Digital timekeeping also found its way to such items as pens, stick-on plastic clocks and ruler-calculator watches.

During this time, much production of solid-state watches and time products moved to labor-intensive, low-wage countries, primarily in Southeast Asia. China, already a major producer of watches for home consumption, became an important source of digitals. Manufacturers from Hong Kong and Japan set up production facilities in China to capitalize on the country’s abundant low-cost labor. In 1988, China displaced Japan as the second largest exporter of digitals to the U.S. It shipped 41.8 million digitals here that year, up 248% from 1987 and 3,383% from 1986.

Quartz analogs: Quartz analogs (with traditional watch dials and hands) quickly filled the gap that digitals left in jewelry stores. They increased from 3% of total world production in 1975 to 54% in 1988. Even Swiss luxury watchmakers such as Patek Philippe, Vacheron Constantin and Baume & Mercier added quartz models to their painstakingly handmade lines.

In the U.S., the 1980s became the decade of the quartz analog. A major factor was Swatch, the inexpensive ($35) plastic-case watch developed by Swiss watchmaking giant ASUAG. Swatch, launched worldwide in 1983, took the market by storm. Within five years, more than 50 million Swatches had been sold worldwide.

Swatch itself was a technological breakthrough, manufactured by automation in a sharp departure from Swiss hand assembly. But the key to its success was an aggressive, avant-garde media campaign aimed at young people. The campaign promoted a new concept in watch marketing: the watch as a trendy fashion accessory first and timepiece second. Like clothing fashions, Swatch offered new styles for every season and type of activity, and was sold primarily in department stores.

Swatch’s concept of watches as fashion accessories has dominated watch styling and marketing through 1989.

Breakthroughs: The electronic watch revolution opened the door to other technological advances. One short-lived trend was solar watches (electronic timepieces equipped with solar microgenerators that converted light to electrical energy).

Others have been more long-lasting. Continuing advances in miniaturization of electronic components, for example, enabled manufacturers to produce constantly thinner watches and break new ground in styling. From 1978-1980, watch thicknesses shrank from 4.1mm to 1.48mm. In 1989, Hattori Seiko produced the thinnest-yet to mark its 20th anniversary of quartz watch production. The limited-edition, handmade, gold-encased watch is just 0.85mm thick and cost 1 million yen (about $7,000).

Other advances include a watch that speaks the time at the press of a button, watches with a radio or TV, watches made with Space Age metals such as titanium, watches that show several time zones simultaneously, watches that receive messages and watches that can be linked to a personal computer.

In 1988, almost 20 years after the introduction of the battery-powered quartz watch, Hattori Seiko and Jean d’Eve of Switzerland each premiered battery-less quartz watches. The watches generate their own electrical power, converted from the motion of the wearer’s wrist. In 1989, Nepro of Switzerland introduced the world’s first clock operated by ultrasonic technology (without moving parts) and the world’s first watch without a winding crown.

Meanwhile, the public also has grown fascinated with complicated, multifunction watches. Among the most popular types are chronographs and sport watches and watches with moon phases, rim or perpetual calendars, day/date windows and subdials.

Mechanicals’ comeback: By 1988, the dominance of the quartz watch was complete. Five out of every six timepieces produced worldwide were quartz. But while the quartz watch captured consumers’ dollars, the mechanical watch may hold their hearts.

A new Swiss watch industry report says mechanicals are experiencing a revival after a dramatic drop in the 1980s. And Swiss watchmakers speak of a revival of high-quality mechanicals, including automatics (self-winding mechanicals), skeletons (open to view front and back) and open case-backs.

Watchmakers attribute the popularity to the growing demand for chronographs (many of which are mechanical) and consumers’ renewed interest in the craftsmanship of mechanical watches. Neither does it hurt that watchmakers themselves are cultivating the high-quality mechanical watch market, where they face no competition from mass producers in the Far East.

One example of the interest in mechanicals is Patek Philippe’s Calibre 89. Billed as the world’s most complicated portable timepiece, it drew much attention and brought $2.74 million at auction in April 1989. Also, several Swiss and Asian watchmakers recently introduced skeleton watches in the midprice range.

But perhaps the best example comes from Swatch. This creator of the world’s most successful quartz watch added mechanicals to its line in 1989.

SWITZERLAND’S WATCH INDUSTRY RISES AGAIN

One thing you’ve got to say for the Swiss watch industry: it’s resilient.

Twenty years ago, it was the world’s No. 1 watchmaker in volume, value and reputation.

Ten years ago, beset by what a leading Swiss bank called “a series of technological, economic and structural upheavals,” it seemed to be sinking into oblivion.

Now, it’s bounced back, thanks to major structural changes, innovative products and aggressive marketing. If no longer the world’s leading watchmakers, the Swiss have regained some of their market share. And they intend to keep it.

Downfall: In 1969, the Swiss were the king of the watch hill. One of every two watches — almost all of them mechanical movements — were Swiss-made. But that changed with the advent of electronic watches (quartz crystal analog and digital). Swiss technicians had been fiddling with the new technology, but the Japanese and Americans were the first to adapt it to the commercial watch market.

Many Swiss watchmakers thought digital and quartz watches were a fad, so they continued to concentrate on mechanical watches through the early 1970s. By 1975, they started to feel the heat as the U.S. and Japan snatched large chunks of the market. Swiss exports dropped 22% — serious for a land that exported 97% of its watch production — and sales in the U.S. — its largest market — were off 40%.

An enormous backlog of unwanted mechanical watches built up, tying up critical amounts of capital. Small companies closed, and for the first time in decades, Swiss watchmakers laid off workers in large numbers.

Making modules: The Swiss didn’t entirely ignore the quartz revolution. Major firms such as ASUAG, one of the country’s biggest watchmaking groups, made quartz modules (the equivalent of mechanical movements) for other firms’ electronic watches. And Ebauches S.A., a major movements producer, worked with Texas Instruments to produce liquid crystal display (LCD) digitals for a few Swiss brands.

But overall, the Swiss were slow to develop their own electronic timepieces and innovative, aggressive marketing campaigns. Other problems beset the Swiss also. Unlike the unified Japanese watch industry, the Swiss industry comprised hundreds of independent firms. And when the U.S. dollar was devalued in the mid-1970s, the Swiss franc sky-rocketed, making Swiss watches more expensive and less competitive in foreign markets.

In the late 1970s, the Swiss began to fight back. They invested heavily in electronic equipment, and by 1979 were making all their own quartz components. They entered the digital field in full force and put more stress on quartz analogs. The changeover to quartz technology also led to more coordination and consolidation among the country’s many small producers.

Facing `disaster’: But the changes came late, and the Swiss industry entered the 1980s facing its biggest crisis in decades.

In 1981, key Swiss watchmakers got a stern warning from Gedalio Grinberg, chairman of North American Watch Co., a successful marketer of upscale Swiss watches. He said the Swiss faced “disaster” if they didn’t challenge the Japanese advances in the low- and mid-price range in the U.S.

At the time, the speech seemed more epitaph than warning. Production of Swiss watches and movements was dropping (from 96 million in 1976 to a low of 45 million in 1983). Exports to the U.S. fell 50% from 1976-’81 (12 million to 6 million), and Swiss watch firms dwindled 47% from 1970-’79 (1,620 to 870).

Switzerland’s major watchmakers were in serious financial trouble. In 1980, SSIH, another large watchmaking group, lost some $80 million. In 1981, it got a $150 million credit transfusion in a rescue devised by a consortium of Swiss banks. Even so, SSIH and ASUAG lost a combined $50 million in 1982.

Shotgun wedding: In a surprise move the following year, ASUAG and SSIH announced they would merge to cut losses to Far East competition, to regain market share and to try to revitalize the Swiss watch industry. The merger included ETA, the largest Swiss movement maker and a subsidiary of ASUAG.

Actually, the merger was something of a shot-gun wedding, demanded by the bank consortium that earlier came to ASUAG’s rescue. The consortium wanted to help the two firms because they represented more than half the annual output of the Swiss industry. The bankers kicked in $300 million in credit in return for a streamlined, efficient firm with the product, financing and marketing know-how to compete with the Japanese.

The result was the ASUAG/SSIH Group, later renamed the Swiss Corp. for Microelectronics and Watchmaking Industries Inc. (SMH for short in English).

Enter Swatch: Even before the merger, ASUAG started to work on ways to beat the Japanese at their own game. In 1979, it developed the Concord Delirium, a luxury watch of record thinness (1.98mm) featuring a quartz movement integrated with the molded case, rather than assembled separately, then encased. If that one-piece construction could be applied to a mass-market watch, engineers reasoned, they finally might have something to use against the competition.

After almost two years of work, they came up with the answer: a one-piece, sealed, $30 watch called Swatch (short for “Swiss watch”). In a sharp departure from Swiss hand-crafted artisanship, Swatch watches come off an automated assembly line at ETA’s plant in Grenchen, Switzerland.

ETA test-marketed Swatch in the U.S. in late 1982 and formally launched it with an aggressive worldwide media campaign in 1983. The watch took the world by storm. Within in a year, Americans were buying 100,000 Swatches a month. Within five years, more than 50 million had been sold worldwide.

Fashion accessory: Swatch’s production was innovative, but even more important was its focus on watches as fashion accessories. Since 1983, Swatch has introduced more than 400 models in styles for every season, taste and activity. Among them have been the transparent Swatch, the Granita di Frutta Swatch (fruit-scented), Pop Swatch (oversized watches on elastic bands) and even metal-case Swatches.

The impact has been spectacular. Swatch almost single-handedly revived the fortunes of the ASUAG-SSIH group. In 1985 alone, Swatch watches accounted for most of the 12.2% increase in Swiss exports and led to the hiring of thousands of people in the Swiss watch industry.

It also spawned a variety of knockoffs and imitators, and led the movement of watch firms into nonwatch products such as clothing sporting watch logos. By the late 1980s, the firm opened Swatch boutiques in U.S. department stores and flirted briefly with Swatch merchandise (from sunglasses and towels to razors and phones), before deciding to concentrate again just on watch and watch accessories.

The innovation at SMH wasn’t limited to Swatch. Tissot, another SMH brand, brought out the RockWatch (case carved from granite), the ShellWatch and the Wood Watch. And Omega, SMH’s well-known upscale watch, streamlined its inventory and operations and made a strong comeback in the U.S. and globally in the late 1980s.

The innovation reached even the upper end of the industry. Most luxury watch manufacturers added quartz models to their lines, and some — such as Patek Philippe and Vacheron Constantin — started to use computer-aided-design technology to develop new watches and movements.

Merging: Consolidation of the Swiss industry accelerated through the 1980s, especially among high-end watch firms.

For example, Audemars Piguet acquired 40% of Jaeger-LeCoultre. Top management acquired Girard-Perregaux then agreed with Italian jeweler Bulgari to set up a new firm to produce watch movements. And Mondaine Watch Ltd., best known for its mass-market M-Watch and its Gruen Swiss watch line, bought Lusa S.A, a Swiss watch-case factory.

But much of the consolidation was orchestrated by non-Swiss buyers. Sheik Yamani, former Saudi Arabian oil minister, acquired Vacheron Constantin. Cartier bought Piaget and Baume & Mercier (giving Cartier 40% of the global luxury watch market, up from 25%). Asia Commercial Co., one of Hong Kong’s biggest quartz analog manufacturers, bought Juvenia. And Stelux Holdings, one-time owner of Bulova and probably Hong Kong’s largest and best-known watchmaker and retailer, bought Universal Geneve.

The acquisitions and mergers have injected new funding into old-line firms, enabling them to improve or expand production facilities and marketing. By the end of the 1980s, it was apparent the Swiss had regained their footing in the slippery world watch market.

WATCHMAKING MOVES EAST

In 1969, the average American would have been hard-pressed to name a single Asian-made watch brand. Now, Asian watches dominate the U.S. market. Consider this:

* The largest watch companies in the world — and some of the leading mid-price suppliers of the U.S. market — are Japanese.

* Hong Kong is the world’s largest watch exporter in volume.

* Southeast China has become a major production center of inexpensive digitals and quartz analogwatches, and is the largest single exporter of digitals to the U.S.

* Competitive pressure in the low-end watch market is building in India, Thailand, Taiwan, Malaysia and Singapore. South Korean watchmakers, such as Samsung, are moving into Western Europe and eyeing the U.S.

* Japan and Hong Kong manufacturers produce components for other watchmakers, including the Swiss. Among them are such mid- and higher-priced brands as Seiko, Lassale, Jean Lassale, Jaz Paris, Lorus, Citizen, Citizen-Elegance, Noblia, Noblia Spirit, Casio, Ricoh, Juvenia, Universal Geneve and Sharp.

Japan: The quartz revolution that spawned the electronic watch also created, in large part, the modern Asian watch industry.

Japan had a small domestic watch industry for 100 years, but the quartz watch turned it into an international power-house. Realizing the potential of quartz watch technology, Japan enlisted the top talents in its electronics and semiconductor industries. It also invested heavily in automation, computers and industrial robots for watch production. And it stressed mass production of a limited number of standardized movements and modules.

These factors also helped Japanese watchmakers:

* Low-cost labor gave their watches a competitive edge in the world market in the early 1970s.

* The government encouraged the development of a few giant watch corporations — primarily Hattori Seiko, Citizen, Orient and Ricoh — unlike Switzerland, which had hundreds of small, independent firms with little government help.

* Protectionist trade policies ensured strong domestic sales and led to vertical growth because firms produced everything they needed rather than buy from outside suppliers.

By the mid-1970s, the Japanese were breathing down the necks of the Swiss — then the leading watchmakers. And by 1980, the Swiss slipped from top watch exporter to the U.S. to fourth (behind Japan, Hong Kong and Taiwan).

Hong Kong: The watch industry in Hong Kong had an inauspicious beginning — a few small shops making cheap cases, dials and bracelets in the late 1950s and early 1960s. By 1968, the fledgling industry was assembling cheap mechanical movements and watches. It formed the Hong Kong Watch Manufacturers Association to bargain with overseas suppliers for better terms and to explore foreign markets. Still, it produced only 3 million watches annually.

Electronic stuhrling skeleton watch review changed that. Hong Kong had a reputation for small, labor-intensive firms that adapted quickly to changing market demands. That made it a natural production center for digital watches. The industry mushroomed almost overnight.

By the mid-1970s, light-emitting diode (LED) watches and later liquid crystal display (LED) watches were rolling off assembly lines. By 1978, Hong Kong was the world’s largest watch exporter (a title it still held a decade later), shipping some 49.4 million watches — mainly digitals — as well as components, bracelets and clocks.

Eastward ho!: As Asia invaded the low-and mid-priced markets, U.S. importers and producers rushed to the Orient to make or buy watches, leaving domestic watch production at its lowest point ever.

Two of the most aggressive and successful Asian brands in the U.S. and world markets are Hattori Seiko and Citizen, Japan’s best-known watch names. Seiko entered the U.S. market in the 1960s, Citizen in the 1970s. By 1988, Citizen sold 2.5 million watches here annually and Hattori Seiko, an estimated 5 million just in its mid-priced Seiko and Pulsar brands.

Overall, Seiko was the world’s biggest producer until 1988, when Citizen took the top spot by producing 113 million watches.

There was other evidence of Asia’s growing influence in the U.S. and global watch market:

* In the mid-1970s, Stelux Manufacturing Co., one of Hong Kong’s biggest and best-known watch manufacturers, bought Solvil & Titus, a leading Swiss luxury brand, and controlling interest in BulovaWatch Co. (Stelux sold its Bulova interest to the Loews Corp. in 1979).

* The Hong Kong Watch Manufacturers Association in 1982 launched an annual watch and clock fair to showcase members’ products.

* In 1986, in a belated acknowledgment of watchmaking’s eastward shift, the Basel, Switzerland, watch show — the world’s largest and most important — officially welcomed exhibitors from Japan and Hong Kong. (Earlier, Asians sold their wares from hotel suites in Basel.)

Competition: But Asian watchmakers had problems, too. Sometimes the problems came from other Asian watchmakers, sometimes from their own products.

In the late 1970s, the Japanese suffered from increased competition from Hong Kong and falling prices in the lower-end of the watch market.

In response, the Japanese shifted to almost-completely automated production to save money and moved to a higher niche in the market. Seiko, for example, bought the Swiss-made Jean Lasalle luxury watch line in 1980. Citizen launched its upscale Noblia line in the mid-1980s. The major firms also diversified — Hattori Seiko into pocket TVs, computers, printers and shavers; Citizen into computers and office equipment.

Maintenance of high-volume production caused another serious problem. A gray-market in Seikos developed in the late 1970s and continued through the end of the 1980s. (Gray-market goods are brand-name items made for foreign markets, but imported to the U.S. by unauthorized dealers and sold at prices below those of authorized dealers.)

Many mass-merchandise stores carried such watches, promoting them at so-called discount prices. The gray-market in akribos xxiv watch reviews was so extensive it forced down prices, intensified competition and led some jewelers to reduce or even abandon watch sales in disgust.

Price-cutting: Hong Kong watchmakers had their own problems. Watchmakers multiplied as demand for digitals grew, but then many tried to get a bigger slice of the global market by cutting prices. That plus rapid developments in electronic watch technology created what Roger Tsui, current president of the Hong Kong Watch Manufacturers Association, calls a time of “vicious competition.” Even the largest firms had trouble keeping up.

Albert Gazeley, executive director of Stelux, recalled those years in a recent interview with the South China Morning Post: “The key was to make the most up-to-date model at a competitive price. If we brought out a model at $1 each [factory price], the competition brought it out a week later at 50 [cents] and a better model at $1. It went on like that for several years.”

In the early 1980s, the LCD boom collapsed under a world glut of cheap digitals and cut-throat competition. Some of Hong Kong’s biggest watch firms declared bankruptcy. But others survived, even prospered, by switching to cheap quartz analog watches.

History repeated itself in 1985. Production of quartz analog watches soared, prices fell and new competition surfaced from nearby Asian countries. Hong Kong’s competitiveness wilted under inflation, higher wage and materials costs and a chronic labor shortage.

Many Hong Kong manufacturers took the same path the Japanese followed earlier — upgrading quality. They now produce mid-price quartz analogs for overseas clients and components for watchmakers in Switzerland, Japan and elsewhere. They didn’t give up on digitals. Instead, they shifted digital production to China, which has an abundant labor supply and low wages and capital investment costs.

Developing industries: Watch industries have begun to develop in other Asian countries also.

China is a major producer, making 4.7 million units in 1987 alone. And it’s become a major exporter as more Japanese and Hong Kong firms set up shop there. In fact, China was the third largest exporter of digital watches to the U.S. in 1988, after Hong Kong and Japan.

Watch industries are developing also in South Korea, Taiwan, Malaysia, Thailand, India and Thailand. Two examples:

* In 1987, Titan Watch Ltd. built a $51 million plant in its native India to produce 2 million quartz analog watches annually. The plant first used movement kits from France Ebauches SA (which owns 6%), but now makes its own movements.

* In 1988, Dilok Mahadumrongkul, the watch and clock distributor of Citizen in Thailand, set up a firm to make 1 million watches and 300,000 clocks annually with imported components. About 80% of the timepieces will be exported to the U.S. and Europe; the rest will remain in Thailand.

IN U.S., WATCHES BOOM, BUT NOT FOR JEWELLERS

Americans bought 125 million to 150 million watches in 1988, everything from cheap refrigerator magnets with digital displays to diamond-studded luxury timepieces. That’s up considerably from only 43 million watches in 1969.

But even as U.S. sales grew by leaps and bounds, watches and clocks became a smaller part of jewelers’ total sales. At the same time, the remnants of the U.S. watch production industry virtually disappeared.

U.S. production: The demand for digital watches in the 1970s produced a brief boom in U.S. watch production. In 1969, for example, U.S. watch production totaled 17.7 million. By 1977, production totaled 31 million watches, most of them digital. But aggressive price-cutting and a global glut of cheap digital watches burst the balloon. Many small manufacturers and marketers went out of business because they couldn’t compete financially or couldn’t develop an adequate distribution system.

Many nonwatch firms — such as General Electric, Texas Instruments, Gillette and Fairchild Industries — also tried their luck with digitals. They all failed because they didn’t understand watch production and marketing. They thought watches could be sold in the same way as pocket calculators — which a year or two earlier enjoyed immense success in the market. Like pocket calculators, digital watches started at a fairly high price but dropped dramatically as production soared and production expertise grew. While it was possible to sell calculators through almost every conceivable retail outlet, this wasn’t possible with watches.

At the same time, rising costs led other manufacturers to go off-shore to low-cost, labor-intensive production centers in Asia. Timex, for example, shifted most of its production and assembly operations to Taiwan, Singapore and the Philippines. The result: U.S. watch imports mushroomed from 58.1 million units in 1980 to 210 units last year.

By 1988, all that remained of the U.S. watch production industry were some Japanese-run assembly operations in California, a Swiss-run assembly operation in Pennsylvania and small Timex operations in Arkansas and Connecticut.

Jewelers’ sales: Industry experts estimate U.S. watch and clock sales total at least $2 billion annually, and some say as high as $5 billion. (Major vendors in this hotly competitive market don’t like to reveal results of their market surveys). But watches and clocks account for only about 12% of jewelers’ sales, down from 17.9% in 1969.

Why? Many jewelers reduced or dropped their watch and clock departments when discount and off-price retailers stepped into the market. Jewelers and Better Business Bureaus warned consumers that off-price retailers used huge markups to allow for markdowns, and that the discount prices weren’t much different from jewelers’ regular prices. But consumers still flocked to discount houses.

The fodder for much of the off-price watch market was gray-market goods (brand-name items made overseas for foreign markets but imported here and sold at discount prices by unauthorized dealers.)

Off-price retailing of watches got a major boost in 1980 when K mart, the nation’s second-largest retailer, added gray-market Seikos to its jewelry department. Other mass-merchandisers followed suit. By 1984, gray-market watches had become a $100 million market in the U.S.

Efforts increased in the mid-1980s’ to dam the flow of gray-market watches. Watch firms, the American Watch Association and Jewelers of America were among the founding members of the Coalition to Preserve the Integrity of American Trademarks. COPIAT lobbied aggressively against the U.S. Customs Service, which allowed the entry of gray-market goods if the trademark owner was a U.S. firm or had a U.S. outlet. But in 1988, the U.S. Supreme Court ruled in favor of the Customs Service.

Counterfeit watches: Counterfeiting also affects jewelers’ watch sales. Consumers buy fake watches at bargain-basement prices, thinking they’ve bought the real thing for much less than they’d pay a jeweler. But that creates two problems: consumers end up with a watch of little value and also take away business for jewelers dealing legitimately.

Some watch vendors have started to fight back to protect their names and their profits. Rolex, for example, now spends more than $1 million annually to find and prosecute watch counterfeiters.

And as a whole, the watch industry persuaded Congress in 1984 to pass the Trademark Counterfeiting Act, which makes trafficking in phony timepieces a criminal offense.

The American Watch Association also battles counterfeiting, working with individual watch firms, the Watchmakers of Switzerland Information Center and other trade groups. In addition to lobbying, AWA funded three major investigations of bogus watch trafficking. The most spectacular was “Operation Watchcase,” which uncovered a counterfeit watch network, resulted in scores of arrests and recovered tens of thousands of bogus watches in 1987.

In 1988, AWA, WOSIC and Jewelers of America initiated a successful program built around a phone number (1-800-333-FAKE) to report suspected watch counterfeiters. AWA also produced a video warning TV viewers about fake watches, helped to develop a model state law making making counterfeiting a felony and pushed to erase weaknesses and toughen seizure provisions in the Trademark Counterfeit Act.

Repair service: As watches and clocks started to claim a smaller share of jewelers’ sales, so did repairs. For generations, jewelers and watch repairmen were virtually synonymous. In fact, many jewelers entered the jewelry industry as operators of small watch repair shops.

But from 1969-1989, the number of watchmakers in the U.S. labor market dropped from 30,000 to about 12,000. While every jewelry store once had its own watchmaker, 37% of those polled by JC-K in 1989 had none.

One reason is the smaller role that watches play in jewelry-store sales. Another reason is technological advances such as quartz watches, which need few repairs. Wages also can be blamed. In late 1988, the approximate starting salary for a watchmaker was $10,000 to $12,000.

Yet jewelers say watch repairs are a valuable service. As a result, watch repair trade shops and factories have increased, serving jewelers who no longer offer the service themselves.

Other changes: The U.S. watch market has witnessed a number of other changes in the past 20 years.

The advent of electronic digital and analog watches, with their precise timekeeping, led to great emphasis on marketing and styling. As yuppies began to prosper in the 1980s, advertisements across the U.S. promoted watches as fashion accessories first, and timepieces second.

A pioneer in this marketing concept was the Swatch, the trendy, inexpensive, Swiss watch introduced in the early 1980s.

In 1986, clothier Benneton licensed Bulova Watch Co. to produce a line of fashion watches. It was part of a fast-growing trend toward designer name timepieces. By 1989, watch and clocks bore the names of prominent designers and even leading automotive products such as Ferrari, Jaguar and Harley-Davidson.

Luxury watches ($300+) also became a growth market in the U.S. in the latter 1980s, despite rising gold prices and the devalued dollar.

Nonwatch accessories: Some watch firms even expanded into nonwatch fashion accessories. Movado offered products ranging from handbags to glasses. Bulova has a line of 14k jewelry and launched the Buly line of tote, backpack and gym bags in trendy colors with clocks affixed to the outside.

Cartier opened several in-store boutiques and reportedly considered licensing its Piaget watch name for various accessories.

Ironically, Swatch, which helped to launch the trend, is getting out of the fashion accessories business. Swatch officials said the experiment was unsuccessful and that the firm now will concentrate on its core business of watch and watch accessories.

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