Global watches and jewellery industry to return to steady growth after double-digit declines
LONDON — Today, The Business of Fashion (BoF) and McKinsey & Company released The State of Fashion Watches & Jewellery Report, which examines six major shifts in the industry and the forces that are expected to transform the market in the post-pandemic period.
Key findings include:
- After suffering double-digit revenue declines amid the pandemic (fine jewellery at 10 to 15%, watches at 25 to 30%), both industries are poised for steady growth through 2025
- Further moves to direct-to-consumer channels in the watch market will transfer $2.4 billion in annual revenues from retailers to brands by 2025
- Resale is set to be a strong area of growth for watches – the pre-owned watch market is expected to reach $29 to $32 billion in sales by 2025, more than half of the 2025 first-hand market size
- Online sales and brands are expected to drive outsized growth in fine jewellery, with 18 to 21% of sales expected to be generated online by 2025 (9 to 12% CAGR from 2019 to 2025) and branded jewellery to grow to 25 to 30% of the global fine jewellery market (8 to 12% CAGR) in the same time frame
- Fine jewellery purchases influenced by sustainability considerations are poised for dramatic growth with an estimated 20 to 30% of global sales in 2025
- Asia will further expand its share of the global market, becoming even more important for fine jewellery and watch brands – yet a significant part of watch sales will be local instead of travel purchases
With combined annual sales of nearly $330 billion, fine jewellery and watches are an important part of the global fashion economy. However, they suffered significant revenue declines in 2020 amid the pandemic. An estimated 30% of global purchases of fine jewellery and watches were made on international shopping trips, which were severely disrupted in 2020, hitting the top and bottom-line of key players.
And while luxury apparel and leather goods were able to capitalise on the surge in online shopping, the pivot to digital for fine jewellery and watches was much less pronounced. Online sales accounted for approximately 13% of the market for fine jewellery and just 5% for watches in 2019, representing a significant growth opportunity for brands to capitalise on emerging trends and changing consumer priorities.
The Watches & Jewellery Report analyses activity in these sectors up until 2025, focusing on fine jewellery, defined as pieces priced over $360 containing precious metals or gems, and premium to ultra-luxury watches, meaning those priced over $180.
Intelligence and predictions from the report have been gathered through executive interviews, analysis of private and public companies, market intelligence and consumer surveys. Case studies and interviews with leaders from fine jewellery and watch brands in the report feature François-Henry Bennahmias, Chief Executive of Audemars Piguet, Cyrille Vigneron, President and Chief Executive of Cartier, as well as leaders from Breitling, Seiko, Watchfinder, Christopher Ward, Hodinkee, Chow Tai Fook, Christie’s, Mejuri, De Beers Jewellers and Shaun Leane.
The publication is the first in a series of special edition reports that BoF and McKinsey & Company will release complementing their annual State of Fashion reports.
Industry Outlook
After suffering double-digit revenue declines due to the pandemic, both the fine jewellery and premium to ultra-luxury watch industries are poised for steady growth through 2025, though growth in the watches segment will be significantly slower than that of fine jewellery.
Travel retail will continue to face an uphill battle as travel between the main shopping regions of Asia, Europe and the United States are not expected to fully recover until 2024. Instead, brands will need to focus on domestic customers to help fill the void, particularly in China, where over half of the affluent consumers who bought a watch in the latter half of 2020 did so domestically.
The Asian market already accounts for an estimated 45% of all branded fine jewellery sales and 50% of premium to ultra-luxury watch sales. Looking ahead to 2025, appetite for jewellery and watches in this market will remain above the global average with sales of fine jewellery expected to grow between 10 to 14% each year from 2019 to 2025, while sales of watches will grow between 2 to 4% each year.
Major shifts in the watch market
The watch industry ($49 billion in 2019) is dominated by a small group of luxury and ultra-luxury brands, many of which are based in Switzerland, and make up 78% of the industry’s retail value. Between 2019 and 2025, the watch market is expected to grow 1 to 3% per year, driven largely by luxury and ultra-luxury brands who will continue to dominate the market, and by the Asian market which will outpace growth in other regions to remain the most important market to watchmakers.
1. DTC Shakeup
Offline retail has been the life source of the watch industry for decades, with multi-brand retailers owning the customer relationship. But as consumers demand better online shopping experiences and brands aim for higher margins, watchmakers will grow their direct-to-consumer channels and take control of the customer relationship through a dynamic, omnichannel approach, as $2.4 billion in annual revenues are set to transfer from retailers to brands by 2025.
2. Mid-Market Squeeze
The traditional mid-market for watches is feeling pressure from both sides. At the entry level there is intense competition from digital natives, fashion brands and the fast-growing smartwatch category, and at the higher end many customers are trading up to luxury. Mid-market brands must revitalise their brand narratives to differentiate themselves, refine their product offerings and create more intimate connections with consumers, or risk foregoing revenues of up to $2.5 billion by 2025.
3. Pre-Owned Profits
Once the preserve of private dealers and small-scale retailers, the pre-owned watch market has become increasingly attractive thanks to digitisation, which turned it into the industry’s fastest growing segment. The market is expected to reach $29 to $32 billion in sales by 2025, which will be more than half the size of the first-hand market. Brands must work hard to capitalise on this shift, and digital platforms will need to sharpen their business models in an increasingly competitive environment.
Major shifts in the jewellery market
The fine jewellery market ($280 billion in 2019) will grow by 3 to 4% per year between 2019 and 2025, reaching total annual sales of between $340 to $360 billion. This growth is attributed to several factors identified as major shifts in the sector including a surge in growth of branded fine jewellery and a new era of digital transformation for the industry as customers become more comfortable buying jewellery online.
1. Buying into Brands
Despite the prominence of some of fine jewellery’s biggest players, with their iconic brand identities and global reach, sales of branded fine jewellery still account for just 20% of the market. But by 2025, brands are set to take a bigger slice from the unbranded segment, growing to represent between 25 and 30% of the market. Those able to convert consumers to branded jewellery will share in the spoils of the collective $80 to $100 billion up for grabs.
2. Online Magic
Fine jewellery sales are traditionally associated with a bespoke service and magical in-store experiences that do not easily translate online. With online jewellery purchases surging since the pandemic, the onus is now on brands and retailers to better understand the relationship between physical and digital channels to develop experiences that capture more of the online fine jewellery market. With online sales expected to grow from 13% to 18 to 21% of the overall market between 2019 and 2025, $60 to $80 billion are at stake.
3. Sustainability Surge
Fine jewellery purchases influenced by sustainability considerations are poised for dramatic growth. By 2025, an estimated 20 to 30% of global fine jewellery sales will be influenced by sustainability considerations from environmental impact to ethical sourcing practices. But leaders in a previously slow-to-act industry must look beyond sustainability as a factor in risk mitigation and embrace it as an opportunity to build brand equity by pursuing responsible business practices.
Imran Amed, Founder and CEO of The Business of Fashion, said: “The pandemic has hit the watches and jewellery market hard. But over the next few years, we will see the industry bloom as customers continue to make the transition to online purchases, the Asian market continues to grow and brands adapt to changing consumer values and preferences. It will not be an easy journey, so the prize will go to those who are able to innovate and iterate at scale."
Achim Berg, Senior Partner with McKinsey & Company, said: “The impact of the global pandemic on the fine jewellery and watch industries has made necessary changes more apparent. Even though we predict that the industries will rebound and experience strong, stable growth, players need to become more digital, strengthen their direct business and have a strategy for the pre-owned market. The next five years present significant opportunities to capture market share for brands that excel in meeting new consumer needs.”
Download the report here.
ENDS
NOTES TO EDITORS
Citations
Any citations from the report should reference ‘The State of Fashion Watches and Jewellery Report’.
For press enquiries, please contact:
Max Tobias, Camron PR for The Business of Fashion
Dominic Baumann, Head of Communication for McKinsey Switzerland
ABOUT THE BUSINESS OF FASHION
The Business of Fashion is a next-generation media company recognised around the world for its authoritative, analytical point of view on the $2.5 trillion global fashion industry. Serving members in more than 125 countries, BoF combines independent, agenda-setting journalism with practical business advice, online learning, career-building tools and immersive events and experiences designed to open, inform and connect the global fashion community. www.businessoffashion.com
ABOUT MCKINSEY & COMPANY
McKinsey & Company is a global management consulting firm committed to helping organizations create Change that Matters. In more than 130 cities and 65 countries, our teams help clients across the private, public and social sectors shape bold strategies and transform the way they work, embed technology where it unlocks value, and build capabilities to sustain the change. Not just any change, but Change that Matters – for their organizations, their people, and in turn society at large.