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Op-Ed | Swiss Watch Sparkle Could Be a Fickle Friend

While Swiss watch sales are in better shape than they were a year ago, Richemont and Swatch should be wary of thinking the recovery is assured.
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By
  • Bloomberg

GENEVA, Switzerland — Swiss watch sales are finally shining like a diamond-encrusted timepiece. But don't get carried away thinking the sparkle is assured.

After a decline in April, exports have risen for each of the past three months, according to the Federation of the Swiss Watch Industry. Even exports to the US registered growth in July.

Swiss watch sales are certainly in better shape than they were a year ago, but so are the valuations of the watch makers Richemont and Swatch.

Their price earnings ratios are near to ten-year highs. That's partly because of a collapse in earnings. But it also reflects optimism about the strength of the luxury rebound.

This time around, the industry's year-on-year comparison was particularly undemanding, since Swiss watch exports fell 14.1 percent in July 2016. From here, comparisons become progressively more difficult. While the recovery is gaining pace it's still fragile, and demand is vulnerable to a fresh bout of nervousness among consumers or any events that deter Chinese tourists from travelling.

What's more, both Richemont and Swatch have their own issues to contend with. Richemont's highly regarded head of watchmaking, Georges Kern, recently resigned to become chief executive of Breitling. Swatch, meanwhile, is at risk from the decline in demand for lower-priced timepieces as smartwatches gain traction. Exports of watches priced below 200 Swiss francs ($207.2) plunged in July.

With Swiss watch exports now increasing for four months out of five, there are hopes that the industry is finally turning the corner.

But this won't be a straight line improvement. With valuations as pricey as a top-of-the-range Rolex, any hiccup in demand could easily dull investors' newfound love of bling.

By Andrea Felsted; editor: Jennifer Ryan.

The views expressed in Op-Ed pieces are those of the author and do not necessarily reflect the views of The Business of Fashion.

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