Editor’s Note
This week’s financial reports from Richemont and the Swatch Group reveal significant headwinds for the Swiss watch industry, with Richemont’s Specialist Watchmakers division posting a notable sales decline. The results underscore the ongoing market challenges facing even the sector’s largest players.
Two of the largest publicly traded companies handling Swiss watches, Richemont and the Swatch Group, announced their respective financial results this week. Frankly, the content was severe. Richemont, the Swiss luxury conglomerate that owns Vacheron Constantin, Jaeger-LeCoultre, and Panerai, reported that sales in its Specialist Watchmakers division decreased by 7% in the first quarter of the fiscal year. Considering the impact of currency fluctuations such as the strong Swiss franc and weak US dollar, sales in Richemont’s watch division plunged by 10% year-on-year.
The Swatch Group, which owns brands such as Omega, Tissot, Blancpain, and Breguet, recorded an 11.2% sales decline in the first half of the year from the beginning. The strong Swiss franc and high dependence on the Chinese market have dealt a significant blow to the company. In addition to this situation, Swiss watch export statistics for June show that shipment value decreased by 5.6% to approximately CHF 2.2 billion, and the number of units shipped also decreased by about 10%. Based on this data, it is clear that the situation surrounding the Swiss watch industry is entering a downturn. Consumer and retailer attitudes remain cautious, and the phenomenon that Vontobel analyst Philippe Bertschy calls “luxury fatigue” (a decline in satisfaction from purchasing luxury goods and a deterioration in consumer psychology) is spreading, making the industry outlook more pessimistic.
Wars continue in the Middle East and Ukraine, and China’s real estate crisis still significantly impacts consumers in what was once the largest market for Swiss watches. In the United States, now the largest single-country market for Swiss watches, permanent trade policies and tariff levels that directly affect the final amount consumers pay remain frankly unclear. Whether it’s a $1,500 Mido or a $50,000 Audemars Piguet, since it is not essential for daily life, the decision to buy another watch is easier when consumers feel they can “predict their economic situation six months later.” During the pandemic and its immediate aftermath, demand and interest in luxury watches surged to unprecedented levels, prompting most brands to simultaneously increase production and raise prices.
Now, a reaction is beginning to appear. Cautious buyers are hesitating to purchase or considering other spending options. According to the Federation of the Swiss Watch Industry (FHS), shipments of high-priced models over CHF 3,000 (approximately ¥550,000) decreased by 9.2% in June. This price range was at the core of the industry’s “premiumization strategy” of offering low-volume, higher-priced models. The FHS also reported significant declines in June in four of the top five markets for Swiss watch exports, including the United States, Hong Kong, and Japan. Furthermore, while total export value for the entire first half of the year was down only 0.1% to about CHF 13 billion, this was largely boosted by a surge in shipments to the US in April as retailers built up inventory due to concerns about tariff hikes.
In response to this industry slowdown, the usual summer collective vacation period, which is just beginning, looks significantly different this year. Many of the estimated 65,000 people working in the Swiss watch industry have already taken considerable vacation. From brands under Richemont and Sowind to independent suppliers providing parts and components, companies across the industry are utilizing the so-called “short-time work” system. This government-supported system aims to avoid permanent staff reductions by temporarily reducing employees’ working hours and wages.
The Swatch Group, which is particularly affected by the downturn in the Chinese market, is taking an exceptional approach and avoiding the introduction of short-time work. Despite a sharp drop in pre-tax profit for the first half from CHF 204 million the previous year to CHF 68 million, the Swatch Group stated in its report:
Swatch indicates it wants to maintain production facilities and personnel to be ready to respond when needed, although it is unclear whether demand will recover. Even after wholesale sales in China plummeted by 30% in the first half, the company remains optimistic. Swatch states that the United States, Japan, and India still have significant growth potential and expects inventory levels among retailers in China to decrease further (increasing future replenishment demand). Meanwhile, this summer, it plans to launch a new product that uses artificial intelligence to allow customers to design their own custom Swatch. It remains unclear whether this new Swatch can help revive Swiss watch exports in the CHF 200-500 price range, which recorded a 24% decline in June.
Interestingly, the FHS reports that watches in the CHF 500-3,000 price range, including Swatch Group’s Mido, Certina, and Tissot, were the only category to record positive growth in exports last month. This price range showed a 16% year-on-year increase, standing out as all other price ranges turned to decline. Also, Swiss watch exports to mainland China reversed in June, recording a 6.1% increase, seemingly putting an end to the continuous decline. Vontobel analyst Philippe Bertschy suggests this may be a sign that the Chinese market is beginning to stabilize. Furthermore, Richemont’s financial report also contained bright spots for the Swiss watch industry.
The company emphasized that sales at its jewelry maisons, including Cartier and Van Cleef & Arpels, have achieved double-digit growth for three consecutive quarters, with an 11% increase in this period as well.
Additionally, some bright signs were seen from Richemont’s Specialist Watchmakers division. Sales grew in all regions except Japan and Asia-Pacific, and the pace of sales decline in China is slowing. Furthermore, the company reported that Richemont’s watch sales across the Americas, including the United States, achieved double-digit growth during this period.
Considering Richemont, the Swatch Group, and various reports on Swiss watch exports in June, the future performance of the Swiss watch industry can be said to depend heavily on the trends of the US economy and consumer purchasing power in the American market.