Is Going Green a Sustainable Profit Model for the Watch Industry?
‘Buy less and buy better’ has been the mantra for sustainable living for over a decade now. However, the current watch industry heavily relies on convincing consumers to buy more, and the industry doesn’t hesitate to spend hefty marketing money on it.
The luxury watch industry is poised nicely to reduce their production while increasing price per unit and they still can hit the profit margin they desire. Although the market is leaning toward more production and lower prices.
“If they curb volume and increase prices and therefore focus on growth in value, analysts think it would cost them a few EBITDA margin points, but the profitability would still be very high,” says Stephane JG Girod, professor of Strategy and Organizational Innovation at IMD Business School for Management.
A report by the World Wide Fund (WWF) published in 2018 concluded that the watch industry “does not meet good environmental standards.”
The watch industry has shown signs of improvement since then. For example, IWC, a reputable watch brand, now uses 100% renewable energy for its operations. It is also a ‘carbon-neutral’ certified company for the last 5 years. They regularly publish an annual sustainability report which is the first of its kind in the watch industry.
Several other watch brands have followed a similar trend. Chopard has started to use sustainable materials for its watches. Furthermore, they will use proprietary Lucent Steel for their watches which is made of 80% recycled steel. Brands like Nardin and Panerai have also started to focus on sustainable products, packaging and charitable partnerships.
With that said, the number of watch brands joining the same footprint is very limited. Moreover, the concerning fact is that WWF contacted fifteen watch brands for the pre-assessment call in 2018 among which only 6 replied positively.
Let’s try to find out the reasons.
Business Secrecy
The business model of watch brands (especially luxury brands) lies on the pillar of ‘secrecy’. Extreme rivalry among brands and fear of losing market share are the reasons behind the secrecy. If you carefully observe the way brands connect to the public and press you will see that they have stellar selling and advertising campaigns that are mostly product-based.
If they want to adhere to sustainability practices the communication to the public would have to be information-based. At this point, watch brands are reluctant due to the ‘secrecy’ concern. A marketing approach definitely dampens the credibility of sustainable programs.
Limitations of Watchdogs
Industry watchdogs are heavily funded by the top watch brands. This in turn makes them hesitant to take any action. The Responsible Jewelry Council (it includes watch brands as well) is a good example of such a type of watchdog.
When Russia invaded Ukraine different organizations, businesses and governments lessened ties with Russia. However, RJC was deliberate to exclude Alrosa, the Russian mining giant. The newly appointed executive director of RJC, Melanie Grant, recently said to the press that the watchdog can now banish members fairly quickly if they bring the organization into discredit.
Keeping the above reasons aside, the problem still persists. Because of the consumers’ passion for the watch industry, the question of sustainability hasn’t been at the forefront for many years. This is progressively transforming though.
For example, according to Deloitte’s 2022 survey, consumers in Switzerland are evenly divided between those who value sustainability and those who don’t care. According to the same study carried out this year, watch brands are now seriously considering sustainability. The increasing demand from consumers for sustainable products is a trend that watch brands cannot ignore. Furthermore, according to industry analysts, the profit margin is not impacted by this changing landscape in any way.
The Science Based Targets Initiatives (SBTi) was founded in the year 2015. The goal was to help businesses lower their carbon impact by offering guidance and support. Given the current rate of production, the watch industry finds it impossible to comply with the strict standards set forth by the initiatives.
“I do not think brands can continue to grow in volumes and meet SBTI targets and reach net zero,” says IMD’s Girod.
“However, using a combination of methods: carbon capture, regenerative agriculture and ecosystems plus intensifying and pushing the boundaries of recycling, they can considerably reduce the negative impact. Will it be sufficiently fast and go sufficiently far is the question” he added.
Considering all the facts, buying less and buying better is a great starting point for now.
