What comes after 17, 22 and 25? If forecasts are correct, the answer is 27, these being Swiss watch exports in billions of francs since 2020: a sequence that has taken many observers by surprise. With increases of 31% (2021), 12% (2022) and between 7% and 8% based on figures for the first 11 months of 2023, another record year, Switzerland’s watch industry has been doing more than play post-pandemic catchup, at least until mid-2023. But are macroeconomic headwinds cause for concern, with persistent inflation, high interest rates and impaired economic drivers, in particular in China?
According to the latest survey by The Mercury Project, which measures not exports but retail sales to end customers in the main markets, “the party isn’t over yet”. Its consolidated figures for the first ten months of 2023 show “prolonged positive growth”. While not at pre-pandemic levels, these are still historically enviable increases, confirmed by the results published by Richemont for the quarter ended 31 December 2023. Group sales were up 8% at constant exchange rates to €5.6 billion and trading for the nine months to end December increased by 11% for a group that is sitting on €7 billion (+23%) net cash.
Soft landing
Despite the 1% drop in third-quarter sales, year-on-year at actual rates, for its watch brands — more than offset by the 6% gain made by its jewellery division —, Richemont’s performance beat expectations and this was reflected on the stock market. After the Swiss conglomerate reported its third-quarter numbers, its share price jumped almost 10% in morning trading. The previous day, it had been 25% down over six months. Not that Richemont was the only luxury behemoth to have seen its share value take a plunge. At mid-January, shares of LVMH, Kering and Swatch Group had all tanked by more than 20% over six months. Only Hermès (-6%) and Movado (+2%) fared slightly better. Knowing that share prices trade in anticipation of future events, this downward trend sets the tone.
With surging stock prices a thing of the past, the watch industry looks to be entering a period of normalisation. Is this a good thing? More measured growth would certainly relieve employment pressure in a sector whose workforce, in Switzerland, grew by 7.3% in 2023 compared with one year earlier to reach 65,000 people, a first for more than half a century. Markets, on the other hand, are far from overheated and this cyclical lull in activity is seen as a brake on growth, although prospects remain positive in view of certain regions’ potential. Shipments of Swiss watches to China, for example, gained around 8% in 2023 but are still 6% down on 2021. Tourism is also well behind the 155 million Chinese travellers who in 2019 spent $255 billion overseas. One thing is for sure: with growth poised to return to its historical average, the Swiss watch industry is coming in for a soft landing.
