(Mar 19): The Swiss watch industry has survived lickings before, but Rolex, Omega and Cartier now face a combination of economic punches putting them back on their heels.
The industry was just adapting to the downturn from political protests in its largest market, Hong Kong, when the coronavirus outbreak hit. Now China’s economic slowdown threatens to engulf the rest of the world. Meanwhile, the strong Swiss franc, surging gold prices, and store closures are set to saddle companies like Swatch Group AG and Richemont with higher costs.
Rolex shut down all its plants in Switzerland for at least 10 days starting Tuesday. Richemont has been offering price cuts of as much as 49% for second-hand Cartier timepieces in a one-week special offer on its vintage resale site, Watchfinder. Watch fairs in Basel and Geneva have been cancelled. Swatch has prepared a special-edition Omega for the 2020 Tokyo Summer Olympics, which many believe will be cancelled.
The first half will probably be the worst ever for the modern luxury-goods industry, Sanford C. Bernstein’s Luca Solca said. That threatens employment in Swiss watchmaking, which supports 59,000 people and accounts for almost a tenth of the country’s exports. To make matters worse, many workers live across the border in France, and may be staying home in containment efforts or because many border crossings have closed.
“This scenario is worse than in 2008, as there doesn’t seem to be any offset – other than possibly a quantum of solace from online,” Solca wrote.
Swiss watch exports fell the most in eight months in February, with shipments to China and Hong Kong slumping 52% and 42% respectively, a report showed Thursday. The decline is set to worsen this month as the epicentre of the disease shifts to Europe, which now has more diagnosed cases than China.
Both Swatch, which makes Breguet and Longines, and Richemont, whose brands include Vacheron Constantin, have lost about a third of their value this year. On Thursday, Swatch shares gained as much as 6.1% as Chairwoman Nayla Hayek indicated the company hasn’t lost hope.
Stay Positive
“2020 will certainly be a difficult year worldwide,” she said in the company’s annual report, released Thursday. “We will remain positive in our outlook despite all the obstacles.”
Swatch said it plans to spend as much as 500 million francs ($745 million) this year on research, new products, production capacities and the sales network. Last year the company finished the 220 million-franc construction of a new headquarters in Biel, a giant honeycomb-like structure designed by Pritzker-prizewinning Japanese architect Shigeru Ban.
The luxury-goods industry’s first-quarter revenue will slump more than 30%, Rene Weber, an analyst at Bank Vontobel AG, estimated.
“Demand will suffer in a way we’ve never seen before,” he said. “The main question is how long it will last.”
On Thursday, Swatch’s Tissot brand plans to unveil a smartwatch, according to Le Temps. That comes four years later than first planned. In the meantime, competition from Apple Inc. has decimated demand for low-end timepieces.
The crisis has already taken its toll on smaller watchmakers. RJ Watches SA, an independent Swiss watchmaker known for timepieces featuring characters like Pac-Man, filed for bankruptcy last month.
“There are likely to be heavy losses, particularly for smaller players,” said Jon Cox, an analyst at Kepler Cheuvreux. “There will be casualties.”
