Goodbye pandemic? The worst is certainly behind the luxury industry in general, and watchmaking in particular. However, it’s not all rosy for Switzerland’s guardians of time who are facing heightened competition from electronic watches at entry-level price points together with sluggish sales in European markets.
Proof of the former: exports of Swiss quartz watches continue their downward trend. Over the first ten months of 2021, they fell by a worrying 33% to 7.4 million units versus 2019 (2020 is not a reliable base for comparison). If we extrapolate this figure for the whole year, at 9 million units shipments of Swiss electronic watches will have been halved in barely five years. If the decline continues at this pace, it could entail a potentially damaging loss of substance for the industry.
The FH takes stock
So as to better understand the situation, the Federation of the Swiss Watch Industry (FH) recently conducted a survey into how mechanical watches and, more generally, Swiss-made watches are perceived. The 10,000 respondents represented a wide age range, from 18 to 79 years old, with an emphasis on Generations Y and Z, and came from the industry’s main markets of Germany, France, Italy, the United States, China, Japan, India and Switzerland. Their answers reveal that mechanical watches are associated with tradition, quality and reliability, have a strong image and are considered to be a sound investment. In western countries, their appeal is greater among older respondents than Generations Y and Z, for whom price constitutes an obstacle to purchase. Fortunately for makers, interest in mechanical watches remains strong among young Asians. The FH concludes that while mechanical watches can be seen as an item for older generations, they are by no means obsolete, noting that price is a decisive factor for younger generations.
Watch exports to China and the United States soar while the main European markets remain in the doldrums.
These findings partly illustrate the second difficulty currently facing the Swiss watch industry, namely the lack of an upturn in European markets. For the ten-month period in question and compared to 2019, whereas exports to China soared by 55.5% and to the United States by 27%, the main markets in Europe continued to drag their feet. Shipments to France declined by 15.7%, with similar drops with respect to Spain (-14.1%), Italy (-11.6%), Germany (-7.5%) and the United Kingdom (-6.7%). Even so, this slump hasn’t undermined what the FH terms as the sector’s “rapid recovery”. Swiss watch exports climbed by 4.8% in October and were 1.4% higher in January to October 2021 than during the same period 2019. The FH nonetheless issues this caveat: “Although the sector has returned to its pre-crisis levels on average, significant disparities remain between its various players.”
In this game of winners and runners-up, the big luxury groups have plenty to smile about and not least Richemont, which just published excellent financial results for the six-month period ended September 30, 2021. The world’s second-largest luxury group reached €8.9 billion in sales. This is 63% up on the same period 2020 and 20% higher compared to 2019. Operating profit of €1.9 billion is 331% and 67% greater than in 2020 and 2019 respectively. The group describes the performance of its Jewellery Maisons as “outstanding”, with 41% sales growth versus 2019 at constant exchange rates, while its Specialist Watchmakers have experienced, in Richemont’s words, a “robust rebound” (+10%). Unsurprisingly, the market reacted positively to the announcement with a jump in Richemont stock. Over six months, Richemont shares gained 52% and have climbed 74% since the beginning of the year.
Swatch Group sales have yet to return to pre-pandemic levels.
There’s less cheer to be had at Swatch Group. While 2021 half-year sales rose by 54% to CHF 3.4 billion compared to the previous year, they were 16% below 2019 and pre-pandemic levels. Operating margin struggled to reach 11% versus 22% at Richemont. On the stock market, Swatch Group is no longer part of the Swiss SMI blue-chip index, with share price stagnating at -1% over six months.
Across the border in France, it’s smiles all round. LVMH recorded an 11% rise in revenue for the first nine months versus 2019 at €44.2 billion. Also over nine months compared to 2019, Hermès posted 40% sales growth at €6.6 billion. Both groups’ watch businesses (and jewellery at LVMH) performed well, with Hermès reporting particularly robust growth. At LVMH, the integration of Tiffany almost tripled revenue in the watches and jewellery segment to €6.2 billion. With the holiday season fast approaching, these results bode well for a year that began slowly but could well end on a high.