Business of Fashion and McKinsey have collaborated on five annual State of Fashion reports analysing the global fashion industry and the trends shaping it. This report is part of a special-edition series and takes a deep dive into fine jewellery and watches over a five-year time horizon. Through extensive executive interviews, analysis of public and private companies, and proprietary insights, the report identifies six seismic shifts that will shape value pools in the fine jewellery and premium to ultra-luxury watches industries through 2025. The shifts cover a variety of perspectives ranging from consumer behaviour to business models to the products themselves. Additionally, the report spotlights watchlist trends on the horizon, with uncertainty around timing and level of impact to the industries, that industry players should continue to observe as they further materialise over the next years.
Bringing the sparkle back
With combined annual sales of more than $330 billion, fine jewellery and premium to ultra-luxury watches are an important part of the global luxury economy. Not only do these sectors make a meaningful contribution to business, but they also represent significant cultural assets that have for centuries reflected human preoccupations with creativity, symbolism, and self-expression, while being grounded in advanced technical know-how. Yet today, both the jewellery and watches industries find themselves at an inflexion point.
As uncertainty caused by the COVID-19 pandemic rippled across the globe and short-circuited demand, the fine jewellery and watches industries suffered revenue declines of 10 to 15 percent and 25 to 30 percent, respectively, putting further strain on slow-to-adapt players and crystalizing emerging trends in the market. Physical retail’s closure for extended periods revealed cracks in the jewellery and watches industries’ slow transition to digital—which lags far behind other luxury categories—with online sales representing 13 percent of the global market for fine jewellery and just 5 percent for watches. Meanwhile, the abrupt halt to global travel stifled fine jewellery and watches purchases made by consumers on trips abroad, which accounted for some 30 percent of the prepandemic market.
While there is little doubt that the market will continue to present tough conditions for both the jewellery and watches industries, the next five years also offer significant opportunities for players to rewrite the rule book across products, distribution models, and engagement strategies. Those that anticipate or at least embrace the changes in the marketplace can participate in setting a new gold standard.
2025 industry outlook
Between now and 2025, we expect the jewellery and watches industries to rebound from the COVID-19 pandemic and grow globally at 3 to 4 percent per year (fine jewellery) and 1 to 3 percent per year (watches). We expect demand to increase from younger consumers as well as in domestic markets amid continuing restrictions on international travel and the rise of domestic duty-free zones in China. Already the biggest regional market, accounting for 45 percent of global fine jewellery sales and 50 percent for watches, sales in Asia are set to expand even further, with China leading the way. Looking forward to the next five years, we expect branded fine jewellery sales in Asia to grow 10 to 14 percent annually, while watch sales in Asia will grow up to 4 percent per year.
Looking forward, we expect the global fine jewellery market to be more branded, more digital, and more sustainability-focused than ever before. For a market that has often historically been known as the opposite of those attributes, the path to 2025 is poised to send waves of change throughout the industry. On the forefront, branded fine jewellery will be on the rise, with an expected compound annual growth rate (CAGR) of 8 to 12 percent from 2019 to 2025. This means that branded fine jewellery will grow approximately three times faster than the total market. Because price points in branded fine jewellery can be around six times higher than for unbranded products, competition between established luxury jewellery brands, fashion brands, and new direct-to-consumer (DTC) companies will heat up as players compete to win customers who are turning toward brands that reflect their distinct points of view.
Many branded players will also find themselves well positioned for the expected growth of online sales; however, emerging DTC players will apply pressure and give established players a sense of urgency to move quickly. Global online fine jewellery sales are expected to increase from 13 percent to 18 to 21 percent of the total global market by 2025. The move toward online, however, must be carefully considered by jewellers to not discount the importance of humanizing digital experiences. Consumers will expect the same level of customer service and attention to detail online as they do in stores, and with about 80 percent of fine jewellery purchases still made in stores in 2025, seamless connectivity between channels will be paramount (Exhibit 1).
Meanwhile, we expect sustainability to play an increasingly important role in buying decisions. Purchases influenced by sustainability practices will triple in the years ahead, presenting an opportunity for the industry to make real, tangible strides toward important environment and social imperatives. To show consumers that they are credible and sincere about driving environmental and social progress, companies will need to establish more traceability and transparency in their supply chains and move beyond the performative marketing that has plagued the industry in the past.
In the premium to ultra-luxury watches industry, a comparatively slower growth rate of 1 to 3 percent per year compared with branded fine jewellery (8 to 12 percent per year) between 2019 and 2025 is a symptom of structural weaknesses that will dominate business agendas in the short to medium term. Shifting consumer demand will require brands to fundamentally rethink their go-to-market strategies. As a result of this and a broader reshuffle of deeply embedded market dynamics, approximately $2.4 billion in revenue will transfer from retailers to watchmakers, as DTC business models take centre stage. This will fundamentally upend the industry’s current structure and require brands to build client-serving capabilities, while multibrand retailers search for new ways to add value.
As brands forge closer relationships with their customers, they will also find opportunities to double-dip in the revenue pool by engaging in pre-owned sales. Driven by younger consumers in addition to collectors and cost-conscious shoppers, as well as an increasingly trustworthy and transparent supply by digital marketplaces, the pre-owned watch market is set to become the industry’s fastest-growing segment, reaching $29 to $32 billion in sales by 2025. With digital pre-owned marketplaces currently dominating, brands must urgently decide how they want to participate.
Finally, established midmarket players, mainly in Switzerland, will be squeezed at both ends—at the bottom by smartwatches, digitally native brands, and fashion players and at the top by a shift in demand to higher-value segments—and will subsequently risk foregoing $2.5 billion in revenue by 2025. Incumbents must breathe new life into both their products and brand narratives if they are to stem this revenue erosion (Exhibit 2).
Six seismic shifts in the fine jewellery and watches industries
The special-edition report presents three seismic shifts for the fine jewellery and premium to ultra-luxury watches industry (Exhibit 3).
The three seismic shifts shaping the fine jewellery industry are as follows:
1. Online magic. Fine jewellery sales are usually associated with bespoke services, quiet environments, and the reassuring presence of an expert close at hand. The challenge of replicating these elements in the online space arguably has slowed the category’s digital growth. That is now starting to change, with online set to account for 18 to 21 percent of the market by 2025. The onus is on brands and retailers, therefore, to create compelling propositions that connect the human—the emotion, customer service, and sense of magic—with the digital screen.
Online has allowed us to broaden demographics, geographics, and attract customers that might not have come to Christie’s before.Rahul Kadakia, Christie’s head of jewellery
2. Buying into brands. To many, the words “fine jewellery” are often synonymous with a Tiffany blue box or a Cartier red box. To others, they conjure up De Beer’s historic “A Diamond Is Forever” marketing campaign. Despite the prominence of these icons, branded jewellery remains the small minority of the market, making up only 20 percent of revenue. But looking forward, brands are on the rise. Branded jewellery will reach 25 to 30 percent of the market in 2025, and the dollars at stake are big—$80 to $100 billion are on the table.
It’s the biggest potential we have right now. Fine jewellery is one of the highest-growth categories we have, if not the highest.Michael Burke, chairman and chief executive of Louis Vuitton
3. Sustainability surge. Fine jewellery purchases influenced by sustainability considerations are poised for dramatic growth. By 2025, an estimated 20 to 30 percent of global jewellery sales will be influenced by sustainably minded consumers. Traditionally seen as a risk-mitigation topic, leaders must now also embrace sustainability to win the trust of younger consumers and carve out a leadership position in a previously slow-to-act industry.
Younger consumers really care about corporate social responsibility.Lelio Gavazza, head of sales and retail at Bulgari
The three seismic shifts shaping the watches industry are as follows:
1. The DTC shakeup. Offline retail has been the life source of the watches industry for decades, with multibrand retailers owning the customer relationship. But as consumers demand to interact more directly with brands and expect better online shopping opportunities and brands aim for higher margins, watchmakers will grow their DTC channels and take control of the customer experience through a dynamic omnichannel approach. This will be a challenge for both brands and retailers, as $2.4 billion in annual revenues are set to transfer from multibrand retailers to brands by 2025.
DTC will be a challenge for a lot of companies. They are not store operators and, perhaps more importantly, they have not historically been consumer-facing, and so need a very different set of skills to manage those direct conversations.Thomas Baillod, cofounder and CEO of B2B watch database Watch Distributors Directory
2. A new era for pre-owned. Once the preserve of private dealers and small-scale retailers, the second-hand watch market is joining the mainstream. Not only that, it is set to become the industry’s fastest-growing segment, reaching $29 to $32 billion of sales by 2025. Brands must work hard to capitalise on this shift, and digital platforms need to sharpen their business models in an increasingly competitive environment.
The market has great potential—if brands with a rich history focus on leveraging pre-owned to showcase their brand’s heritage, you can have an interesting market.Michele Sofisti, ex-CEO of Girard-Perregaux
3. The midmarket squeezed. Amid intense competition from digital-native players, fashion brands, and the fast-growing smartwatch category, the traditional watch midmarket is under rising pressure. Many of the segment’s customers, meanwhile, are “trading up” into the luxury segment. If they do not react now to revitalize their segment, we expect traditional midmarket brands could decline by $2.5 billion in revenues by 2025.
Lower barriers to entry due to a rise in online retailing and digital marketing are favouring the entry segment.Silas Walton, CEO of pre-owned watch platform A Collected Man
While there is little doubt that the market will continue to present tough conditions for both the fine jewellery and premium to ultra-luxury watches industries, the next five years also offer significant opportunities for players to rewrite the rule book across products, distribution models, and engagement strategies. Those that anticipate and embrace the changes in the marketplace can take advantage of the glimmers of light that will exist amid a cloudy recovery period.
Download State of fashion: Watches & jewellery, the full report on which this article is based (PDF–48MB).