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Tough times for luxury watches

Reuters/Basel
Filed on March 20, 2016 | Last updated on March 20, 2016 at 07.14 am
Tough times for luxury watches
Aldo Magada says 2016 is complicated because people no longer have the confidence to purchase luxury watches.

(Reuters)

Competition from smartwatches is also threatening the luxury watch sector.

Swiss watchmakers are braced for another difficult year as economic woes in major markets curb consumers' appetite for pricey timepieces, industry executives said on Thursday.

Sales in Hong Kong, the biggest market for Swiss watches, have been depressed as China's economic slowdown and Beijing's anti-corruption campaign have hurt spending by mainland Chinese, which shows no signs of rebounding.

Zenith, the upmarket watch brand owned by LVMH, sells almost two out of three watches to Chinese customers.

"2016 is very complicated because people no longer have the confidence needed to simply go and buy our products," Zenith's chief executive Aldo Magada told Reuters at the Baselworld watch fair. He said he could not rule out job cuts.

As well as China's slowdown, tourism in Paris, another luxury goods hub, has been hit by the terrorist attacks in November, while Russians travel and spend less because of the weak rouble, the Ukraine crisis and the low oil price - which is also tempering luxury spending in the Middle East.

Like other upscale brands, Zenith has expanded into more affordable watches to meet the demands of more price-conscious consumers, a trend already visible at January's Geneva watch fair dominated by luxury goods group Richemont's high-end brands.

"Our product mix has changed, we sell fewer gold watches, more steel," said Magada.

Competition from smartwatches is also threatening the luxury watch sector.

Among luxury giant LVMH's watch brands, Zenith has suffered the most with a single-digit decline in sales last year, whereas TAG Heuer and Hublot generated growth thanks to their smaller exposure to China, said LVMH watch and jewellery head Jean-Claude Biver.

"The first quarter makes us think that we'll again outperform the market this year," Biver said, adding TAG Heuer was hiring staff to push ahead with its smartwatch project.

Swiss watch exports, which reflect the value of watches leaving the country but give no indication on what has really been sold to end consumers, tumbled 7.9 per cent in January year-on-year after falling 3.3 per cent last year.

"I'm hearing from peers that the overall situation has become rather more tense since the beginning of the year," said Laurent Dordet, head of Hermes' watch business.

Tissot and Longines, Swatch Group's mid-price luxury brands, had slightly negative to flat sales growth last year and see at best a slight improvement this year.

Independent high-end label Patek Philippe, so sought-after by collectors that it can grow sales by one to three per cent in good times and bad, says many luxury watchmakers made the mistake of focusing too much on China and Chinese travellers.

"They went too quickly. Now stock levels are too high everywhere," said Patek Philippe president Thierry Stern.

Shares of luxury watchmakers and their parent groups have been hit hard in the past year as sales have slowed. However, some analysts say selling may have been overdone as industry executives see some brightspots such as Japan and South Korea, which are drawing more Chinese tourists.





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