The Strategist

Swiss Watch Exports Fell to Its Lowest Level Since 2009

10/20/2015 - 15:03

Swiss Federal Customs Administration has recorded a record since 2009 quarterly drop in Swiss watch exports. Experts believe it is the result of several reasons: strengthening the franc, reducing demand in China and, unlikely as it may seem, competition from Apple Inc.

According to the Federal Customs Administration of Switzerland (AFD)’s data, published today, Swiss watch exports fell in the third quarter of this year by 7.2%, which was a record quarterly decline since 2009. Approximately 10% of all Swiss exports fall on watches exports. Since the beginning of year - according to the Federation of the Swiss watch industry - exports fell by 2% to 15.8 billion Swiss francs.

The reduced exports associated with several causes. One of them is strengthening of the Swiss franc relative to other world currencies, which, of course, is not good for Swiss exports in general (according to AFD, it decreased by 5%, and the only area of growth production became jewelry and bijouterie). In addition, decline in demand in China and Hong Kong, rapidly spreading across the region, has become a scourge for the entire luxury industry. Deloitte’s report, published in September, suggests that the reduction of interest has been noted in Singapore, South Korea, and Taiwan. And the September drop in exports to the US (18%) was the most significant in the last five years.

As previously stated Rene Weber, an expert at Bank Vontobel AG in Zurich, "data on exports to China may occur shocking at first sight, but the thing is that we have to compare with extremely high exports last year. Chinese tourists traveled to Europe and bought Swiss watches - it shows the growth of tourism in Europe". Problems with exports to China started back in 2012, when the Chinese government began to fight with bureaucrats spending on luxury goods. This year, slowing of the Chinese economy added to the problem along with the recent devaluation of the yuan, which could affect sales in the coming months. Reducing the supply of Swiss watches in Korea took place after the outbreak of the virus MERS - that, according to Mr. Weber, reduced the number of tourists from China among other things.

Finally, another important factor is the emergence of so-called “smart” watches. Of course, iWatch or other similar gadgets are impossible to compete with brands such as Vacheron Constantin and Girard-Perregaux. In fact, they do not even aim to such a goal. Yet watch brands of cheap and middle segment probably should have already felt the effect of the “smart” watches appearance, all the more that Apple formally and definitely challenged Swiss companies with releasing a deluxe version of its iWatch in collaboration with the French fashion house Hermes.

Swatch Group shares fell 2.1%, and Cie Financiere Richemont SA - 1.6%.