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Vontobel research - Interview with René Weber

Vontobel research Interview with René Weber

The editor-in-chief of GMT magazine quizzes René Weber, Senior Analyst Luxury Goods at Vontobel, on the state of the watch industry.

In which situation do you think the watch industry is after one year of negative growth?
The negative growth has even accelerated and we have seen Europe turning negative as well. The decline in Europe was very much driven by fewer Chinese tourists (for example in Switzerland the number of Chinese visitors was -17% in the first semester) because of the terror attacks but also with the refugee stories playing an important role. On the other hand Hong Kong continued with its strong decline (Swiss watch exports till July -27%) with inventories still on the high side. I would use the term „still weak“ and there are no signs of recovery yet! Due to the strong decline I expect some companies, especially independent watch component suppliers, to react with short-time work and probably some reduction in employee numbers as well. New product launches will continue to play an important role and as we have already seen this year, there will be more focus on the entry price level of the brands; or even pushing from precious metal to steel watches, like Piaget did recently. In terms of M&A, I believe that we will not see any transactions but for independent watch component producers mergers could be an option.

Why are there brands which still perform very well despite the current difficulties?
I believe there are not a lot of brands which still can show positive growth, but obviously there are brands which have a smaller decline than others. I think this is mainly driven by the Hong Kong situation, with the brands having a small China/HK sales share having not the same problems as the other ones. For example Hublot had just 12% of its sales in Greater China, whereas for Swiss watch exports it was 23% in this region in 2015. Also TAG Heuer has a smaller share, whereas for brands like Omega and Cartier this share is more in the region of 25%.

When do see you some improvement coming for the watch industry (what horizon/what parameters) ?
We clearly expect an improvement in the second-half year, but the third quarter will still see a double-digit decline. Our expectation in Swiss watch exports for the full year (-6%) looks after the July figures (-14%) rather optimistic and probably a high-single-digit decline is more realistic. The Hong Kong inventory problem will need at least another six months to be solved, but we expect an improvement in Europe with tourism coming back. Also the US had a surprisingly weak first half of 2016  and we also see a better demand in the second semester. This more positive outlook is also supported by the weaker comparison base one year ago. One important point is the development of the currencies with the UK benefitt

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