By Mary Hanbury

A year ago, the central display in the Fossil store on New York’s Fifth Avenue was full of jewel-encrusted watches from Switzerland. Today, such watches have disappeared and in their place are the smooth-faced “smartwatches” that connect to a user’s phone and allow them to pick up a call directly from their wrist.

“We are told these are the key products we should introduce to customers,” said Kristen Hamue, an eager sales assistant who joined Fossil a month ago.

Watches, along with fridges and cars, are the latest consumer product to go ‘smart’ and traditional watchmakers are finally coming to terms with this by creating their own versions of the computerized watch.

“We have stopped selling Swiss watches,” said Justin Link a watch specialist at the Fossil Fifth Avenue store. “We now have 25 electronically connected accessories and will have 100 by the end of the year. This is the future of the company,” he said.

The new displays at Fossil are just one sign of the sea change that has swept through the global watch industry in recent years. The rise of so-called ‘wearables’ is one part of the story. At the same time, traditional watch companies are being hit by a mix of seemingly unconnected forces – currencies, China’s crackdown on corruption and an overall dip in luxury sales – converging to wreak havoc on the market.

This is proof that even the most staid industries such as watches can be thrown into turmoil, and in this case, for reasons outside of its control.

Luxury goods sales are down. The super and aspirational rich are starting to exercise more caution with their spending habits and tighten their belts; indicative of a larger economic problem, that consumers lack confidence in the economy.

The computerized watch market is currently dominated by Apple, which along with Samsung, accounted for 8 out of every 10 global shipments of smartwatches at the end of 2015. For the first time, these watches overtook the luxury market and were up by 316 percent in one year.

Graph 1

“Smartwatches are cannibalizing the traditional watch industry. Everything is going smart,” said Neil Mawston, executive director at Strategy Analytics and an expert in wearable technology.

Traditional watch companies have been slow to react. Tag Heuer was the first to release it’s own version of the smartwatch last year and since then others have followed suit, often out of necessity.

At the moment, companies selling mid to lower range priced watches, such as Fossil and Swatch, are suffering the most. They have similar price points to smartwatches so appeal to similar customers.

But the high-end luxury watch companies have their own battles to fight and are falling victim to other forces beyond their control: currencies and internal Chinese politics.

In January of this year, the Swiss National Bank de-pegged the franc from the euro. This was the biggest single-day move of a wealthy country’s currency in the past forty years. The value of the franc soared instantly, killing their ability to sell goods overseas.

Swiss watch exports suffered because of this and in the past 12 months have been in steady decline. By March this year they had slumped by 17 percent, the biggest drop since the recession and the forth-consecutive quarterly fall.

Graph 2

“The environment is difficult. The global economy is not strong and people are buying less luxury products,” said Philippe Pegoraro, statistics chief at the Swiss Watch Federation.

The decline in March was mostly driven by a 37.7 percent decrease in exports to Hong Kong, Switzerland’s biggest customer.

China’s slowing economy has made the population more price-conscious. Given that Mainland Chinese travellers represent 25 percent of spending on luxury goods, three quarters of which is spent abroad, when demand drops here, it sends shockwaves through the entire market.

The Chinese government’s crackdown on bribery has only exacerbated the problem and since they launched the three-year campaign, shipments of Swiss watches slumped. Beijing also strengthened custom controls making it harder to sneak goods across the border and put an annual cap on spending outside of the country to ensure more money is spent on domestic products.

But for those who are still buying luxury goods, the countries in which they do so is changing. The recent terrorist attacks in Europe and the strength of the U.S. dollar has meant that Chinese travellers now favor Japan, Australia and South Korea as tourist destinations. This has created an abundance of merchandise in the U.S. and Europe and driven their prices down.

So-called ‘gray’ market dealers are cashing in on this and buying watches on the cheap, selling them with 30 percent discounts, and undercutting the brick and mortar watch dealers.

“It’s terrible, sales are down across the market for all brands. The availability of gray market goods is driving prices down, collectors are looking for value like they haven’t before, brands are rising their prices and the dollars just aren’t there,” said Scott Hickey a marketing director at Cellini Jewelers in New York.

Smaller jewelers are already feeling the pinch and though larger brands are expected to come through this relatively unscathed, the signs of strain are beginning to show.

In Switzerland, 1,000 of the 60,000 workers employed in the watch industry have lost their jobs in the past twelve months. Parmigiani and Ulysse Nardin have cut jobs. Maurice Lacroix, a brand that makes 90,000 watches a year, has been seeking a buyer since July, and other larger brands are building up cash piles to protect themselves.

Morale is down. A Deloitte survey of 50 different executives across various Swiss watchmaking companies, showed 41 percent of them had a negative view about the industry’s prospects for the next year, a substantial increase from the previous 15 percent who had a negative outlook when they took the survey back in 2013.

But others remain positive and believe that the market for high-end watches will always be there simply because of its status.

“If you are really looking for a Swiss watch you have to get one.”

“The whole point is to rub it in the face of your friends,” said Paul Swinand, an equity analyst at Morningstar.