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Verbatim – Citi Group: March Swiss Watch Exports, ticking...

Verbatim – Citi Group: March Swiss Watch Exports, ticking along nicely

Thursday, 29 April 2010
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Christophe Roulet
Editor-in-chief, HH Journal

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The Swiss watch industry has enjoyed a third consecutive month of growth after 14 months of decline, with exports up 33% in March including +36% in watches (February +14%, January +3%, CY09 –22%). This is the strongest month for more than a decade, albeit it was helped by a very soft comparative (–27%). The two-year cumulative growth rate improves to +6%, another positive. As seen in January and February, exports continue to benefit from exceptional recovery in Asia, the US and the Middle East.

Upper end price segment now driving growth

After 16 months of negative trend and for the first time in more than a year, the higher price points have outperformed the lower priced segments, with the SFr 500-3,000 segment up 45% and the SFr 3,000+ segment up 40%. The SFr 0-200 and SFr 200-500 segments have recorded –7% and +7% growth, respectively. A sustained recovery of the higher end segment would primarily benefit Richemont.

Asia, the US and the Middle East driving growth

Analysis of key markets shows:

  • continued boost from key Asian and Middle Eastern markets, confirming the trend observed since December, particularly in Hong Kong (+68%), China (+90%), Singapore (+91%), Taiwan (+102%), UAE (+137%) and Saudi Arabia (+45%);
  • continued momentum in the US (+56%) since February after 16 months of negative trends;
  • continued weakness in Japan albeit turning positive (+2%);
  • the possibility of difficult times ahead for key European markets, particularly France (–4%), Italy (+3%), and the UK (+4%), although • • the rates of growth are improving slightly relative to Jan-Feb.
Swiss watch industry outlook: more to come

The Federation of the Swiss Watch Industry indicated that “the recovery is clearly confirmed” with 1Q10 industry growth of 17% and “a return to the levels recorded in 2007.” This is consistent with our possibly conservative forecast of high single digit watch industry growth this year. At the Basel Watch Fair last month (18-25 March), most industry executives have expressed their confidence in achieving double-digit revenue growth, at least in the first half of the year.

The combination of improving economic conditions, financial wealth and consumer sentiment, lower inventory levels in the trade, retail capacity withdrawal and a much softer basis of comparison until November 2010 should support demand for Swiss watches. In light of relatively conservative consensus forecasts in hard luxury (UHR and CFR in particular), we think these highly operationally geared P&Ls could demonstrate stronger-than-expected earnings recovery.

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