Vontobel forecasts 8% growth for the Swiss watch industry in 2010

The outlook for the Swiss watch industry these coming months is both good and bad, according to the Swiss private bank Vontobel. Asia ex Japan represents an exceptional growth factor for the industry although it’s unlikely that growth will continue at the same pace as early in the year. According to statistics from the Federation of the Swiss Watch Industry, Hong Kong, the biggest export market for Swiss watches, progressed by 31.6% over the first five months 2010, China by an astounding 95.6%, giving the country third-place ranking, Singapore (6th) by 49.9% and Taiwan (11th) by 56.3%.

2011 on the same lines as 2010

“This is a logical development,” comments René Weber, an analyst with Vontobel who specialises in the watch industry. “This region was quickest to emerge from the 2009 financial crisis. The situation should return to normal, especially as the base effect won’t be so positive, in the fourth quarter in particular. Given the almost complete lack of growth in Europe, other than Russia, as the region makes up for last year’s collapse; the fact that growth in the United States is still weak, and that Japan will remain negative despite a slight improvement, we can expect a less buoyant second half-year.”

After posting 15.8% growth for the five months of January to May 2010, Vontobel forecasts that the Swiss watch sector will drop below the 10% mark between July and December. The bank is forecasting an average of 8% growth for the twelve months of 2010 that will continue into 2011. “I’m not expecting any great changes next year,” René Weber confirmed. “The Asia region will continue to drive the industry. There could be some good surprises from Europe but that will depend mainly on tourist influx, possibly boosted by a weak euro. As it stands, the single currency has lost over 10% in the space of a few months, and this is weighing on margins as companies, which can only increase their prices once a year, have only partially offset the depreciation of the euro against the Swiss franc. In short, I forecast between 5% and 10% growth in 2011.”

Vontobel recommends luxury

According to Weber, all the main players, the likes of Swatch, Richemont and Rolex, are still well-positioned and are gaining market share. “Power changed hands smoothly at Swatch and the group shouldn’t suffer any backlash from the death of Mr Nicolas Hayek. The mid-range segment performed well last year and the group, with brands such as Tissot and Longines, benefited from this. Its exposure to Asia, where it makes 40% of its sales, is another major asset. Richemont, which is also strongly positioned in Asia which accounts for 35% of its revenue, should benefit from the rebound in the high-end segment over recent months. Rolex, in contrast, makes less than 30% of its sales in Asia and is more dependent on the North American market.”

It’s hardly surprising, in this light, that the Zurich bank should continue to back the luxury sector, as the launch of a new product, the Vontobel Fashion & Luxury Basket, confirms. This tracker certificate covers a basket of stocks that includes Bulgari, Hermès, LVMH, Polo Ralph Lauren, Swatch and Richemont. The bank’s analysts noted a range of factors, such as the doubling of global wealth since 1997, the status-symbol value of luxury products, affluent consumers’ desire for exclusivity, and the barriers to entry that make it harder for newcomers to break into the market. Says the bank: “Demand for luxury goods is cyclical. However, a difficult global economy reinforces prospects for growth in this sector.”