The Fight to Save the World’s Biggest Watch Show
(Bloomberg) -- Originally published by Joe Thompson on Hodinkee.
For the second year in a row, the big story at Baselworld, the world's largest watch and jewelry show, was the show itself. Last year, when the number of exhibitors dropped by 50 percent, Baselworld was fighting for its life.
It still is.
All the leading indicators at the 2019 show, held from March 21 to 26 in Basel, Switzerland were down: the number of exhibitors was down 20 percent to 520; visitors were down 22 percent to 81,200; and media representatives were down 12 percent to 3,300.
The smaller, sparser show was a shock to many visitors. "Welcome to Baselworld Lite," the U.S. brand manager of a Swiss brand said as I approached his booth.
We were in a downward spiral. The whole format of Baselworld has to be changed.
– MICHEL LORIS-MELIKOFF, BASELWORLD SHOW DIRECTOR
There is one huge difference, though, between this year and last year. This year Baselworld has a new management team determined to radically revamp the show for the digital age. They introduced some changes this year. The big ones come next year in a fierce bid to save the 102-year-old show.
Whether the new team can do that depends on decisions that Swiss watch CEOs make over the next few weeks about whether to return next year. Show management is pitching not just current exhibitors, but the 1,000 that left over the past three years.
As an incentive, Baselworld announced on the last day of the show a new price structure that will reduce fees for exhibition space by 10 percent to 30 percent next year.
The 2020 show has cleared one crucial hurdle: The show's two top anchor brands – Rolex and Patek Phillipe, without whom it cannot survive – have indicated that they support the new management's long-term plans and will return. Patek Philippe president Thierry Stern told HODINKEE during the show that Patek Philippe will be back. And, in a major show of support, Rolex signed on for four more years during this year's show, exhibitors reported.
The vote of confidence by Switzerland's two most prestigious watch brands will reassure smaller firms, who still rely on the show for a large percentage of annual sales, and will certainly be back. So will long-time show supporter Chopard, sources say.
(So far, no brand has made any public statement about the 2020 show. Show director Michel Loris-Melikoff, at the closing press conference, said the fair would have no comment about which brands would return. He said he would leave it to the brands to make any announcements.)
Rolex and Patek are great gets for Baselworld 2020, for sure. But, for Baselworld to rebound, it needs to hold onto other top brands already there and lure back defectors. One measure of the problem is that only 85 Swiss watch brands exhibited this year versus 175 two years ago.
The decisions for players big and small will be based on several factors.
Chief among them are the dramatic changes planned for next year. "We were in a downward spiral," Loris-Melikoff said during the show. "The whole format of Baselworld has to be changed."
The new management's new concept is to transform Baselworld from a classic business-to-business trade fair into an "experience platform." The objective is to make Baselworld the most important event for the global watchmaking and jewelry community. That community embraces not just industry professionals, but all interested parties, including collectors, aficionados, auction houses and more. "The target is to offer all participants a digital platform with numerous information, service and networking tools throughout the year," the show said in its closing press release.
A video explaining the new concept, called Vision 2020+, was shown exclusively to exhibitors during the show in a presentation room called the "Blue Room." (The video is now available at baselworld.com.) It outlines a number of innovations that will come in 2020, like live streaming of events, seminars and conferences (e.g., a retailers' summit and CEO talks), new show areas for new products and exhibitors (e.g., smartwatches and wearables), and a multi-lateral, digital exchange platform for the community available 365 days a year.
Baselworld will also offer new services to visitors, such as an e-concierge service, allowing them to book their trips to Basel (travel, hotels, restaurants, sightseeing, etc.) through the fair.
Management envisions changes to the show infrastructure, including more open, visitor-friendly booth designs, which will be cheaper for exhibitors to construct and store.
More details will come later, Loris-Melikoff says. The 2020 show will be the first stage in what he foresees as "a three-year period of transformation" to reinvent Baselworld for the digital age.
The Cost Factor
Baselworld is notoriously expensive for everybody who attends, but especially for exhibitors. It's a major factor behind the severe exhibitor erosion over the past few years. And a major consideration on whether to return.
The Swatch Group, the world's largest watch company, which pulled its 17 brands out of Baselworld 2019, reportedly spent 40 million Swiss francs to participate in the show. (Those costs include booth space and construction fees, staffing, lodging, food, client entertainment, etc.). LVMH's four brands spend around CHF 20 million, an LVMH Group executive told me. The owner of a medium-sized brand with a booth at the rear of the second floor of the watch hall told me he spends CHF 6 million to participate. "It's a lot," he said.
Baselworld is addressing the issue with the new, reduced pricing structure for exhibition space. Effort this year to work with hotels and restaurants to prevent price gouging during the six days of the show kept a lid on prices somewhat. But many visitors remarked that, as one put it, "It's still Baselworld prices here." Inevitably, the combination of Switzerland's strong franc and the surge in demand for hotels and restaurants during Baselworld make it an expensive trip.
Exhibitors will measure the costs against various alternatives to Baselworld.
Some companies, for example, held their own exhibitions in Switzerland timed to coincide with Baselworld. The Movado Group, with its 11 watch brands, held a three-day "summit" in Davos, Switzerland just prior to Baselworld. Customers, distributors and press from 40 countries, 500 in all, attended. Chairman and CEO Efraim Grinberg told me that he used to spend $10 million to exhibit at Baselworld. He spends a bit more than $2 million on the Davos event, now in its second year. He plans to hold his own event again next year.
Likewise, the Swatch Group held an event in Zurich at the headquarters of Hayek Engineering AG during Baselworld for customers of its six luxury watch brands.
Meanwhile, at two hotels on the Baselworld fairgrounds, numerous small, independent watch brands set up shop in the hotel lobby, ballrooms and guest rooms. Observers estimated their number at more than 100 (more than the number of Swiss watch brands inside the fair!). Among them was H. Moser & Cie. CEO Edouard Meylan said it would have cost him five times as much to exhibit inside Baselworld than at the Hyperion Hotel, just a hundred yards away from the fair entrance.
The Movado Group used to spend $10 million at Baselworld. Now it hosts 500 guests in Davos for $2 million.
Another D-I-Y option is regional exhibitions. Some Swatch Group brands (e.g., Longines, Tissot, Rado and Hamilton) met with clients and press at regional events in top markets this year. Breitling CEO Georges Kern is known to prefer to launch new products throughout the year at regional events.
Next year, when Baselworld moves to the first week of May, Seiko will hold a regional meeting in March in Tokyo for its Asian clients to test the regional option. Will Grand Seiko and Seiko be at Baselworld for 2020? I asked a Seiko insider during the show. "It's a big debate in the company," he said. "The cost is very high."
Finally, there is the no-event option, adopted by most brands that have departed. "What would the world be like without Baselworld?" asked the CEO of a Swiss watch brand prominently placed in Hall 1.0, the main watch area. "The answer is easy: It's digital! Business-wise, it wouldn't change." He is a strong supporter of the show, and regrets that the Swatch Group and so many others have pulled out of it. "It's bad for the industry," he said. But he recognizes that most brands no longer need a once-a-year trade show to do business.
Is Later Better?
Next year, Baselworld and SIHH have agreed to coordinate their show dates so that buyers can attend both shows on one trip. For years, many retailers had to go to Switzerland twice in three months to source product: in January for SIHH and in March for Baselworld. In 2020, SIHH will run from April 26 to 29 and Baselworld from April 30 to May 5.
The decision has turned out to be controversial. For three reasons. One is that the later dates conflict with Ramadan, making it inconvenient for visitors from Islamic countries to attend.
Also, some exhibitors and retailers think the new dates are too late in the year. Moving Baselworld from March to May will cause supply chain problems for some and make it more difficult to deliver goods in time for the fall selling season.
And some CEOs were disturbed that they were not consulted about the decision. Asked if he had been consulted on the May date, an exasperated Swiss watch CEO replied angrily, "NOT AT ALL! Do you think I have an interest in launching novelties in May?"
Exhibitors were consulted about the idea to link the show dates, but not about the date itself, sources say. Other CEOs said they were fine with the new dates. In addition to solving the two-trip problem, the back-to-back shows will focus more media attention than ever on the watch industry, they say.
One perhaps unintended consequence of the new combined dates is that it has given new negotiating power to a group not accustomed to having much at watch shows. They are the small-batch, artisanal brands beloved by watch connoisseurs, but not traditionally by Baselworld. In Baselworld's boom times, the show assembled them in a temporary tent (ridiculously called "The Palace") erected on a lot down the street from the main fair.
Not anymore. Baselworld's new management wooed them and put them in a 25-booth space, called Les Ateliers, across from Hall 1.0, where the Movado Group used to be. They also created a new, no frills, low cost (CHF 3,500 per booth) space for even smaller watch brands and startups called the Incubator. "We have many independents and want to have more," Pascal Béchu, Baselworld's new commercial director told me.
That has set up a competition between Baselworld and SIHH for independent brands. In 2016, SIHH opened its doors to independents; 17 of them exhibited in its Carré des Horlogers section this year. Some (MB&F, Ferdinand Berthoud, Urwerk, Voutilainen, and Romain Gauthier) also exhibited at Baselworld. Others, like Moser and Hautlence, opted for the hotels. With the coordinated dates next year, independents will likely select one show. SIHH, aware of Baselworld's lower prices, is expected to negotiate rates for 2020, sources say. Which one will they pick? Says Moser's Meylan, "It depends on the offer."
All of these factors are pieces in the increasingly complicated Swiss watch show puzzle.
Baselworld wants the independents and mid-sized firms back, of course. But its fate hangs on the star brands with big booths in Hall 1.0. Said show supporter Dieter Delecate, owner and CEO of Germany's Tutima Glashütte, located in Hall 1.1 on the second level, "It all depends on what the big exhibitors decide."
During the show, there was fevered speculation about the intentions of three major watch companies, whose "power brands" draw retailers, and whose yea or nay on Baselworld 2020 will impact the show for better (if yea) or worse (if nay).
They are the Swatch Group, whose absence left a giant space at the center of this year's show; the LVMH Group, whose four watch brands (Bulgari, Hublot, TAG Heuer and Zenith) dominate the entrance to Hall 1.0; and Breitling, known to be dissatisfied with Baselworld.
Odds are that the Swatch Group will not be back next year.
Baselworld preserved the Swatch Group's giant footprint at the center of Hall 1.0 in the hope it returns in 2020.
That was the majority view of industry executives and observers I talked to. They noted that Swatch Group CEO Nick Hayek said, in a Bloomberg interview a week before Baselworld opened, that the group would not return to the show. "There is no need for it anymore. They world has changed," he said.
More evidence: exhibitors said that the Swatch Group Baselworld booths had been destroyed and recycled. Others argued that Hayek would lose face returning after his public criticism of the show when he announced the group's withdrawal last July.
But others noted that many retailers were unhappy that they had to lose a day in Basel to go to Zurich for Omega and the other Swatch Group brands. Some clients did not go. Retailers also detected some dissension in the Swatch Group ranks about the decision: some brands managers wanted to be in Basel, they said. Another factor: Hayek had called for changes to the show and the new management team was making them. If he likes the Vision 2020+ proposals, Hayek could return without losing face, saying that his withdrawal forced necessary changes to the show.
Show director Loris-Melikoff has not given up on the Swatch Group. He noticeably preserved the Swatch Group's footprint in Hall 1.0; no exhibitors were in that space at the show. Instead, he created a Central Plaza, containing a restaurant, a new press center and meeting areas. All of that easily can be moved should Hayek change his mind. At the show's final press conference, Loris-Melikoff said of the press center, "I cannot guarantee it will be in the same location. You will understand why."
Baselworld's parent company has lost 300 million Swiss francs in the past two years.
As for LVMH, odds are good that at least three of the four brands will return. Each brand CEO will decide for his brand. At show's end, the CEOs of TAG Heuer, Hublot and Zenith seemed positive about the Blue Room presentation, sources said. The one holdout could be Bulgari. CEO Jean-Christophe Babin was considering holding a regional event at a Bulgari hotel in Dubai, sources said.
Expect Breitling to leave the show: CEO Kern reportedly has told his team that he does not intend to return. Show management, however, is hoping to persuade Kern to stay by making Baselworld part of the regional events Breitling plans for next year, sources say.
For Baselworld, the stakes riding on the frenzy of negotiations now underway could not be higher. That was made shockingly clear in a little noticed announcement that Baselworld's parent company, the MCH Group, made on the show's second day.
More Red Ink
On that busy Friday, MCH released its 2018 financial results. The group, which organizes 74 exhibitions, reported a 6 percent increase in sales to 522.8 million Swiss francs for the year ended December 31, but a net loss of CHF 190.4 million. (The amount is the same in U.S. dollars.)
That loss follows a loss of CHF 110.3 million in 2017.
Baselworld is not the only cause of the group's mounting losses. But it is a big part of it. "The downscaling of Baselworld 2018" was one of three factors cited for the 2018 losses. The group said it took a big hit on the depreciation of tangible fixed assets for Baselworld.
MCH said it expects further losses this year.
Ten years ago, when Baselworld had more than 2,000 exhibitors, it was MCH's cash cow. Now it's a cash killer. Pressure is on Loris-Melikoff and his team to turn things around. But that won't happen soon. The MCH board has no choice but to be patient. "They told Loris-Melikoff he can lose CHF 5 million for the next four years," a show insider told me. "They know they have to invest in Baselworld."
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