It’s either feast or famine in the Swiss watch industry, or so it seems. When exports are up and it’s rosy all round, we’re told the industry’s on a high. The slightest dip, and it’s doom and gloom. Anything in between is a “transitional” phase. If we stick to this manacheistic view, 2018 belongs very much to the first category. What other industrial sector as mature as watchmaking can boast a 6.3% rise in shipments (to CHF 21.2 billion), as official figures for the twelve months of last year confirm. In other words, Switzerland’s watch industry has succeeded in making up for the previous two years’ soft patch and returned to virtually the same level observed in 2015.
So is it safe to take the champagne off ice? Maybe not. While there is definitely a positive vibe, there’s no losing sight of reality. Coming back to the numbers, both for exports and for the branch’s major players, we can see that growth peaked in early 2018 and has been losing pace since. As the Federation of the Swiss Watch Industry (FH) noted last week, “growth [in exports] was particularly strong during the first half of the year (+10.6%), but slowed to +2.3% in the second half.” Results, just published, for the publicly-listed groups reveal a similar tale. While 2018 was effectively a record year for LVMH, with revenue rising by 10% to €46.8 billion and profit from recurring operations hitting €10 billion for the first time (+21%), business wasn’t as thriving at the end of the year as at the start. This is particularly true for the group’s Watches & Jewelry division which, after recording a 20% increase in sales for the first quarter 2018, fell to 7% for the fourth quarter. Total Watches & Jewelry sales for 2018 came to €4.1 billion (+12%).
It’s a similar picture at Swatch Group, which ended its 2018 financial year with net sales of CHF 8.475 billion, up 6.1% in line with Swiss exports. Even though the Habillage production sites were working at full capacity (with bottlenecks resulting in late deliveries to Longines and Omega in particular), the group notes that “business slowed in the last three months of the year under review. The month of December in particular was slow, due in part to the very high comparison basis.” Richemont’s latest results at December 31st 2018 are for the third quarter of its 2018/2019 financial year. They show that sales by its Specialist Watchmakers inched ahead by just 1%. The biggest drivers were the Jewellery Maisons (Cartier and Van Cleef & Arpels) which progressed by 9% and, even more so, new acquisitions Watchfinder and Yoox Net-A-Porter in online distribution. Richemont ended the quarter with a turnover of €3.9 billion (+25%).
"Cautious optimism" for 2019
All of which prompts this analysis from the FH: “The signs of stagnation, economic indicators and continuing uncertainties at many levels suggest that the right approach to 2019 is cautious optimism. Watch industry exports are expected to continue to grow, but at a more modest level”, which it forecasts at around 4% for the year. Currently, all eyes are on Asia which accounted for 53% of Swiss watch revenue last year, and specifically China, the third market for exports, up 11.7% in 2018. The country’s 6.6% economic growth in 2018 is the slowest in three decades – and this is the official figure, to be taken with a certain amount of caution. The country is also embroiled in ongoing trade-war tensions with the US. China’s government will be hard-pressed to maintain its growth rate, and this will have repercussions on Hong Kong, a trading hub for the watch industry. There’s little cause for joy in Europe either, the final destination of one-third of Swiss watch exports, which fell by 2.9% last year. Between France’s “yellow vest” protesters, Brexit in the UK, political instability in Italy under a coalition government and uncertainties as to national cohesion in Spain, the situation is hardly conducive to growth.
The stock market has already taken sides. On publication of its results last Thursday, Swatch Group’s share price took an instant hit and dropped 5%, accentuating the more than 30% slide in value over the past six months. The trend is similar for Richemont shares, down 20% since July whereas Switzerland’s blue-chip stock market index lost just 3% over the same period. Again over six months, LVMH shares fell by 7%; for Hermès and Kering, the figure is -4%. Knowing that financial markets anticipate trends, 2019 could well be one of those “transitional phases”.