With a State of Fashion special edition, BoF and McKinsey show 6 disruptive trends that will shape the jewelry and watch industry until 2025
Author: House of Eden
Special Edition: In addition to the five annual State of Fashion Reports, launched by the renowned management and strategy consultancy McKinsey in cooperation with Business of Fashion, they are now also launching a special series on the jewelry and watch industry. On the basis of expert interviews, analyzes of private and public companies as well as professional findings, it predicts six future-oriented trends in consumer behavior, business models and products by 2025:
- Online magic
- Shop in brands
- Sustainability boom
- Direct-to-customer upheaval
- Era of the used
- Pressure by the middle segment
What makes jewelry and watches so interesting anyway?
With combined annual sales of more than $ 330 billion, fine jewelry and high-end watches are an essential part of the global luxury economy. However, apart from their economic added value, it is their harmony with the demands of New Luxury that makes them so interesting. Luxury jewelry and watches are at the cutting edge of quality, values and innovation. As a significant cultural asset, they represent a centuries-long history of creativity, craftsmanship, symbolism and self-expression, while trends like lab diamonds promote progressive, technical know-how at the same time.
Bring Back the Sparkle: Responses to COVID-19
Why is the splendor of the dazzling industry now at a crossroads? COVID-19 has promoted mindfulness. Also with regard to financial resources. Coupled with a global feeling of insecurity, the resulting reluctance to buy dampened demand. The consequence: sales declines of 10 to 15 and 25 to 30 percent put the watch and jewelry industry under intense pressure. At the same time this illustrates the urgency of the emergence of new market trends and business models.
Digitization instead of physical retail. Locality instead of glamorous travel memories. And a clear challenge. The conversion of the jewelry and watch industry to digitization is far behind that of other luxury categories: Online sales only make up 13 percent of the global market for jewelry, for watches even only 5 percent. In contrast, it is a full 30 percent of the pre-pandemic market, that was made through purchases on trips abroad.
The pre-pandemic normal has clearly been postponed. A disruptive realignment is needed, which in turn will bring challenges in the next 5 years. However, it can also bring about clear competitive advantages and a modernization of the industry. Under the motto "Bring Back the Sparkle", McKinsey analyzed trends in order to offer market participants the opportunity to rewrite the rules governing products, sales models and engagement strategies. Those who anticipate changes in the market, position themselves agile, resilient and competitive in order to set a new gold standard.
According to forecasts, the jewelry and watch industry will recover in 2025. Fine jewelery will grow by 3 to 4 percent per year worldwide, premium watches by 1 to 3 percent. This development is favored by disruptive trends that are also emerging in the superordinate luxury segment: younger consumers such as millennials and Gen Z are advancing to increasingly relevant consumers with high demand. In domestic markets too, demand will increase, given the ongoing restrictions on international travel.
Record sales in China make Asia the world's largest market with a 45 percent share of global jewelry sales. Even, pre-COVID. By 2025, however, brand jewelry sales are expected to grow by a further 10 to 14 percent, while watch sales will increase by up to 4 percent per year.
While the jewelry sector has so far been considered more traditional, by 2025 it should be more brand-oriented, more digital and more sustainable than ever before. Thus ushering in a fundamentally new era of fine jewelry. With an annual growth rate of 8 to 12 percent, branded jewelry will increase the most. More precisely, about three times as fast as the overall market. The result: An intensification of competition between established luxury jewelry brands, fashion brands and new direct-to-consumer (DTC) companies in order to compete for individualized, opinionated customers.
In view of the boom in online trading, DTC providers are moving into focus. Anyone who wants to position themselves well for the expected growth will have to quickly adapt the conditions of digital business models: The forecast implies that the global online sale of fine jewelry will increase from 13 percent to 18 to 21 percent of the total world market. The challenge here is the humanization of the digital experiences. Companies and jewelers must demonstrate customer service as well as attention to detail in order to do justice to consumers. At the same time, the importance of a seamless connection between online and offline is increasing.
Top trend: sustainability
Sustainability is becoming the decision maker when it comes to purchasing decisions. Indeed, purchases influenced by environmentally friendly practices are expected to triple in the coming years. Credibility for the ecological and social commitments of the company can be created through more traceability and transparency within the supply chains.
Source & Copyright by McKinsey analysis
The growth of the watch industry in the high-end sector is comparatively slow: only 1 to 3 percent per year. A sign of structural weaknesses and thus an impetus for rethinking the prevailing go-to strategies. Strategically as well as operationally. It takes market dynamics that adapt to changing consumer demand for DTC business models. If brands can adapt this, around 2,4 billion US dollars in sales will be transferred from retail to watchmakers. As a consequence, this means fundamental structural changes within the industry, which require the development and maintenance of customer relationships on the brand side and challenge multi-brand retailers to look for new ways of adding value.
Driven by millennials as well as Gen Z, collectors and generally conscious consumers, the sales of used goods will experience a boom. More precisely, it will be the most violent boom in the industry and therefore the fastest growing market in the segment. Means: A turnover of 29 to 32 billion dollars. The focus is likely to be on digital marketplaces. Why? Trustworthy verifications and transparency! Established medium-sized companies see themselves threatened by the winners of the pre-owned market. On the one hand through digitization and on the other hand through the pursuit of luxury.
Source & Copyright by McKinsey analysis
Overview of the 6 trends
The six trends are examined in more detail below - with context, quantitatively and supported by expert voices.
1. Online magic
The purchase of a valuable piece of jewelry is associated with personalized services, a calm and sophisticated atmosphere as well as the presence of an expert. In view of the future-oriented developments, it is now important to replicate this expectation online. Brands and retailers need compelling, customized offers and digital experiences to transfer emotions, customer service and the magic of a renowned jeweler on the screen. According to Rahul Kadakia, head of the jewelry department at the auction house Christie's, this change has the potential to generate new demographic as well as geographic bandwidths and win customers.
2. Buying in brands
Iconic Tiffany Blue and a small red box from Cartier are synonyms for fine jewelry for many. And of course a wish at the same time. But despite the prominence of some brands, Fine Jewelery only makes up a small share of the market: only 20 percent of sales. This proportion is expected to increase by 2025 to 25 percent by 30 - whereby in monetary terms it is 80 to 100 billion dollars. The chairman and CEO of Louis Vuitton, Michael Burke, considers fine jewelry to be one of the fastest growing categories in the luxury market. And thus declares their potential as well as the promising opportunity to bid for shares.
3. Boom in sustainability
Purchases based on sustainability issues are growing dramatically. The reason for this is that younger consumers are demanding ecological as well as social responsibility from brands - especially luxury brands. Responsible buyers are expected to generate 20 to 30 percent of jewelry sales by 2025. Companies that do not follow this mega-trend will not be competitive in the future.
4. Direct-to-customer upheaval
By 2025, $ 2,4 trillion in annual sales will move from the multi-brand retailers to the brands. The reason for this is the DTC upheaval. While offline retail, which represented several brands, was for a long time the center of the watch industry, customers are increasingly demanding interaction with the brands themselves. The desire: offline and online shopping opportunities such as flagship stores as part of a dynamic omnichannel approach that will bring customer experiences to a new level. Shopping as an experience with emotional value - New Luxury. Companies that have not previously operated DTC but want to increase their margins must face this challenge and proactively address customer needs.
5. Era of the used
Jewelry and watches stand for storytelling, longevity and timelessness. Already used - pre-owned or rather pre-loved - Therefore, buying pieces at auction makes no more than sense. They tell a rich story and represent the legacy of a brand in its filigree details as well as precious, everlasting stones and precious metals. The market is finally recognizing this potential more and more and ushering in the era of the used vehicle. Making it mainstream-compatible. It will become the fastest growing segment in the industry, with sales of $ 29 billion to $ 32 billion by 2025. Note to Brands: In order to benefit from this shift, it is essential to digitize business models in order to survive within the increasingly competitive environment.
6. Pressure by the middle segment
The rise in online trading and digital marketing is creating low entry barriers for the entry-level segment of the watch industry, says Silas Walton (CEO "A Collected Man"). The intense competition from digital native players, fashion brands as well as the growing smartwatch category also puts pressure on the traditional medium-sized watch market. Instead of aspiring to move into the luxury segment like many medium-sized brands, brands should react and try to breathe new life into their segment. If they do not, McKinsey expects sales to decline by $ 2025 billion by 2,5.
The extent to which the six trends will revolutionize the industry remains open. However, it is clear that there are many challenges that have to be overcome within the next few years. Nevertheless: The difficult conditions also imply significant opportunities for companies to rewrite their strategies, business models as well as their DNA. They represent important know-how in order to meet the developments of the next few years as an agile, resilient and competitive company. Anticipation and adaptation are therefore promising success factors for sustainable companies.
Download the full report "State of Fashion: Watches and Jewelry " here.