“In or out of the EU” was the simple question asked of the UK electorate on 23rd June 2016. The answer sent shockwaves throughout the UK political establishment and the country’s economy the very next day. If the second-most popular relative search term on Google UK on 24th June is anything to go by (“What is the EU?”) a few people were checking what they had actually voted out of. Although on holiday at the time, I watched from a safe distance in Switzerland as the political order in country I was born in slowly unravelled. At the time, the impact on the Swiss watch industry was not my most pressing concern and, two weeks later, the country is still experience the after-shocks of the decision, with no clear way forward.
The “Leave” campaign relied on fomenting populism and even went as far as dismissing the opinions of experts, almost all of whom predicted a negative impact on the UK economy if the country voted to leave the EU. Even before the results were official, however, the pound had already begun its slide to a 30-year low and as soon as the stock exchange opened, British banks lost up to a third of their value. The former could be construed as good news for the luxury sector in general. As Bulgari’s CEO Jean-Christophe Babin had already told the Economist ahead of the vote, it could boost tourist sales for the brand.
That is all well and good, as long as the tourists keep coming. Qing Wang, Professor of Marketing and Innovation and Director of the Warwick Luxury & Innovation Hub at the Warwick Business School, cast some doubts on this.
"Brexit will also have an adverse impact on the image of Britain being an open and welcoming place for tourists and businesses from emerging countries like China. Many Chinese businesses and investors have considered Britain the gateway into Europe and a country with political stability and a well established and transparent legal framework. This positive image of Britain’s 'soft power' has been extremely important for Britain trading with the emerging markets like China.
"However, in the aftermath of the EU referendum, Chinese businesses now have to reassess their international strategies against the significantly reduced influence of the UK on Europe and the increased uncertainty and risk in Britain itself."
But the home market is not made up entirely of tourist sales and Swiss exports to the country, including watches (which accounted for 5.4% of the total watch exports from Switzerland last year), have suddenly become a lot more expensive for the local population. Industry observer René Weber from Vontobel estimates that the Richemont group generates around 5% of its sales in the UK and that the country accounts for around 3% of sales of the Swatch Group, both of which will suffer from the currency exchange impact. And this is not the news that big groups and watch brands want to hear from one of the better-performing markets in this challenging year.
While the currency and stock exchange impact is measurable directly and immediately, the medium to long-term outlook will remain uncertain as long as the UK Parliament remains in deadlock. “Nobody know which model the UK will use for its future cooperation with the EU,” explains René Weber. “There will be a two-year negotiation period [Editor’s note: if and when the UK invokes Article 50 to notify the EU of its intention to leave] and up to now there is no idea in which direction the UK wants to go!”.
