Just how serious is the counterfeiting threat to the watch industry? According to a 2015 estimate, there are about 33 million fake watches out there. To put this figure into perspective, consider this – the Swiss watch industry’s annual output is about 29 million. Experts reckon the global fake watch industry is worth an estimated $1.8 billion.
“These estimations are based on the watches that have been seized. Every year we seize about 1.5 million fake watches and this is just a three or four percent of the fakes that actually exist,” says Michel Arnoux, the head of the counterfeiting department at the Federation of the Swiss Watch Industry (FHS). He is the man spearheading Swiss efforts at limiting the damage counterfeiters are doing to their watchmaking industry.“It is not just about losing revenue or market share, it is also a question of image. The damage is, what we call, an indirect damage. As an example – everyone knows Louis Vuitton is a much-counterfeited brand. So when we see a young person on the street carrying an LV bag, is the first question in our head about the authenticity of the bag? If our first thought is about the authenticity of the bag, then this is damaging for the brand,” says Arnoux.
Originally from Le Noirmont, a town in the Jura region of Switzerland, Arnoux’s father was a watchmaker. Growing up in the Jura region, it was only fair that a young Arnoux follow his father into watchmaking. “But this was the Eighties during the Quartz Crisis and my father was adamant that I don’t become a watchmaker. He said there was no future in it. So I went to university, got a degree in human sciences, but ended up working in the watch industry anyway, not as a watchmaker but in the procurement department. Twelve years ago, I was hired by the FHS to join their anti-counterfeiting department,” he recalls.
Switzerland’s fight against counterfeiting is not new, it has been raging for close to 40 years now. In the beginning, they were only fighting fake Swiss watches. It was not about the brands, but fakes that tried to cash in on Switzerland’s watchmaking reputation. Watches produced in Italy or Spain were being passed off as Swiss. “It was only in 1971 that Switzerland passed a law that described the conditions under which a watch qualifies to carry the Swiss Made label,” says Arnoux.
We know we can’t stop the production of fake Swiss watches, but we can limit their visibility. And that’s exactly what we are trying to do, especially in important markets like Dubai.
From initially faking the Swiss Made label, counterfeit watches became a problem that eventually started affecting brands and trademarks. So watch companies like Rolex and Cartier approached the federation for help. In response, a specialized anti-counterfeiting department was set up, a team that also includes lawyers and specialist watchmakers who work in a lab to investigate fake watches and their construction. Based in Bienne, this department has offices across the globe with the main overseas office in Hong Kong.
Arnoux says his department’s mandate is to limit the visibility of fake watches. “We know we can’t stop the production of fake Swiss watches, but we can limit their visibility. And that’s exactly what we are trying to do, especially in important markets like Dubai. We don’t want people selling fake watches to tourists on the streets here.
The main focus of the anti-counterfeiting department is to disrupt the supply chain, which in this case means being present in the country of origin – China. According to Arnoux, his Hong Kong team worked with the police in China and organized more than 2,000 raids in 2014. “That’s about 10 per day in China alone. We seized about 1.5 million fake watches in 2014,” says Arnoux.
After every big raid, the market for fake watches sees a dip in the following weeks before rising again. In a country like Thailand, the team concentrates on weeding out sellers and distributors.
How did China become such a big center for counterfeit production? The answer lies in the size of the Chinese domestic market, which is huge. Brands like Tianjin Sea-Gull produce millions of watches every year. Arnoux estimates that the top three Chinese watch brands produce more watches than the entire Swiss industry. Clearly, the Chinese know industrializing watch production. “The problem is that a company like Sea-Gull produces many movements. It uses them in its watches but it also ends up being in counterfeit watches,” says Arnoux.
During factory raids, the police have often found original watches from Cartier, Omega and Rolex. These watches are taken apart, the parts 3D-scanned and then replicated by CNC machines.
“With modern technology, it is not hard to replicate a lot of movement parts. These guys know exactly what they are doing. Some fake watches use genuine ETA movements, but this will end soon. But since the patents on some ETA movement designs have expired, companies like Sea-gull make clones now,” says Arnoux.
The only difference is that the counterfeiters do not have access to the same materials – the steel, alloys and ceramics that the Swiss manufacturers use. In some cases, the choice of materials used in the fakes are alarming. “In our Bienne lab, we detected hints of radiation in some of the parts that we were investigating. We eventually found these parts were made from recycled steel used in an atomic power unit,” says Arnoux.
About 98 percent of the production of fake watches is from China and Thailand. The remaining is mostly about producing fake high-end or vintage watches, which happens mostly in Switzerland, Germany and Italy. For example, regular Daytona models are faked to look like desirable Paul Newman models. Some of these watches even use genuine Rolex movements and cases. A fake Paul Newman Daytona can be sold for three times the value of the original Rolex.
And it’s not just watches that are being faked. The provenance of a watch can influence its performance in the vintage market, so it’s common now for ownership papers to be faked as well.
“We received a watch in Switzerland and were asked to confirm if it was a fake. We realized that it was a genuine watch but it was still a counterfeit because the papers were faked. The papers said it belonged to Eric Clapton. It was supposed to have a pre-sale estimate of $220,000 at the auctions. The value of the watch with real papers would have still been $80,000,” says Arnoux.
Often times, buyers of counterfeit goods justify their purchase by claiming this is a victimless crime. They claim they probably wouldn’t have spent the money to buy the original anyway. How does Arnoux respond to this sentiment? “By buying a $500 fake Richard Mille, you are not hurting this brand. But you are hurting Tissot, Seiko or Citizen, all perfectly legitimate and quality brands at that price point,” says Arnoux.
(This article was originally published in our Winter 2016 print issue)