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Look both ways
Economy

Look both ways

Tuesday, 30 August 2016
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Christophe Roulet
Editor-in-chief, HH Journal

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4 min read

Watchmakers may feel they need eyes in the back of their head if they are to keep tabs on Hong Kong while not letting Uncle Sam out of their sight, particularly since the United States has become the main market for Swiss watch exports, and looks set to hold on to this position for the remainder of 2016.

In these trying times, watch manufacturers may feel like sending out a search party in the hope of finding news likely to bring a note of optimism to a season that has proved dismal, if not downright disastrous. Unfortunately, there are no glad tidings to be had from Swiss export figures for July. Despite the favourable evolution of Switzerland’s foreign trade, which gained 2.4% in real terms for the period in question, the watch sector isn’t out of the woods yet, plummeting 14.2% during that month.

In other words, while it’s green lights all the way for the country’s main export sectors which continue to surf a positive trend that began in the second half of 2015, confirmed by the Swiss Federal Customs Authority, the Alpine nation’s watchmakers are treading water with shipments sliding 11.1% between January and July 2016. Coming after last year’s decline in exports of 3.2%, the hope of a brighter future seems dimmer for more than one.

© Re Up
Asia struggles

Showing no signs of improvement, Hong Kong continues its nosedive and recorded a 32.7% drop in July. This brings the decline for the first seven months of the year to 27.5%. For the same period, Switzerland’s watchmakers observed a 13.5% fall in shipments to China. For reasons which have already been amply documented, Greater China is no longer able to fuel watchmakers’ fantasy of an empire on which the sun of growth never sets, to paraphrase Charles V. Making matters worse, Chinese nationals’ reluctance to travel to Europe’s main tourist destinations, mainly because of the fear of terror attacks, is penalising sales in those regions.

While it's not all rosy – a presidential election campaign does nothing to boost consumer confidence – latest figures are still encouraging.

Europe provided little comfort: France was particularly hard-hit as exports tumbled 27.8% in July, sliding 17.6% since January. The United Kingdom is the only European market to have made any kind of headway by gaining 13.4% in July (-2.6% between January and July). Watchmakers can thank the Brexit vote which pushed down the value of sterling: after peaking in December, the UK currency lost 20% against the Swiss franc. This leaves watch manufacturers in the same predicament as in early 2015, when the Swiss franc was unpegged from the Euro, and the choice of either cutting margins or increasing prices, bearing in mind that the latter option isn’t without risk.

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Help from Uncle Sam

The much-needed good news came from across the pond. While it’s not all rosy – a presidential election campaign does nothing to boost consumer confidence – latest figures are still encouraging. The United States has reported 1.2% economic growth for the second quarter 2016, driven by a 4.2% increase in consumer spending. Taking into account that growth for this period was slowed by overstocking, a first since 2011, economists are more than confident for the remainder of the year. In conclusion, with a 10% drop over the first seven months of the year, the United States put in a better showing than watchmakers’ Asian markets. In July, the US even overtook Hong Kong as the number-one export market, and provided growth remains stable is expected to hold on to this position for the rest of the year.

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In this context, campaigns directed at America clearly take on new significance. Omega, for one, is extending its coverage with new points of sale. Chopard has plans to significantly strengthen its presence. Seiko, which opened on Madison Avenue in 2014, now has a second store in Miami. And the list could go on. Watchmakers seeking good news these coming months should be looking to the American continent.

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