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BUSINESS

Chinese demand fuels Swiss watch success

The Swiss watch industry is in rude health, the latest figures show, with exports leaping once again last month and watchmakers set to notch up a record year thanks to hungry Chinese consumers.

Chinese demand fuels Swiss watch success
Mohammad Fahmi Mohd Shah (File)

Despite the strong Swiss franc punishing exporters, not to mention the effect of the global debt crisis, the demand for Swiss watches hit a peak in October, putting smiles on the faces of the country’s 600 watchmakers.

Data from the Federation of the Swiss Watch Industry (FH) showed exports rose to 1.9 billion Swiss francs ($2.0 billion), up 18.6 percent on the same month last year.

“The upwards trend is clearly continuing … and shows no signs of weakening,” the trade body said.

While Switzerland only represents two percent of the global market in terms of volume, with 26 million watches sold last year compared to China’s 671 million and Hong Kong’s 419 million, it remains the top world exporter in terms of value, enjoying a more than 50 percent market share, analysts at Bank Vontobel said.

Swiss watch sales were worth $15.5 billion, exceeding both Hong Kong at $7.5 billion and China at $3.1 billion.

About 95 percent of watches costing more than 1,000 Swiss francs were meanwhile produced in Switzerland.

The world’s top three watchmakers are also Swiss: Swatch, with a 17.4 percent market share in 2010, followed by Rolex (14.7 percent) and Richemont (14.7 percent). French luxury brand LVMH ranks fourth with a 5.5 percent share, Vontobel said.

The domination of Swiss watchmakers in the luxury watch sector was underlined by the October figures, which showed exports of watches priced upwards of 3,000 Swiss francs recording the strongest increase, soaring by 25 percent.

The apparently insatiable appetite of Asian consumers is a major factor in its success, with sales to Hong Kong jumping 18.7 percent and to China 67.8 percent.

Experts at Cygnus Business Consulting expect China to surpass Japan as the number one buyers of luxury goods.

“It is widely thought in China the possession of luxury goods factors a lot in judging a person’s social status”, they said, adding that China’s growing purchasing power was contributing strongly to the demand for luxury products.

Swiss watches are included in that trend and companies have begun investing heavily in China.

The Swatch group, whose brands include Omega and Tissot, sells 49 percent of its watches in Asia according to Vontobel, and is about to open a hotel in Shanghai with a shop showcasing its timepieces.

“It’s not enough that the Chinese have more money, they must also spend it” on Swiss watches, said Jean-Daniel Pache, president of the FH, who said they were attracted by Swiss quality and design.

2011 will be a “record year,” with sales topping 17 billion Swiss francs, he added, while predicting continued growth next year.

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BUSINESS

Clock ticking on Swiss watches’ raw materials from Russia

Diamonds shine brightly at this year's Geneva watch fair but the sanctions slapped on Russia could soon force the Swiss watch industry to produce more subdued designs.

Clock ticking on Swiss watches' raw materials from Russia

Russia is a major supplier of diamonds, gold and other precious metals to the luxury watchmakers exhibiting at Watches and Wonders, one of the world’s top salons for the prestige industry.

The Russian group Alrosa — the world’s largest diamond mining company — was hit by US sanctions within hours of the Kremlin-ordered invasion of Ukraine on February 24.

According to US Treasury figures, it accounts for 90 percent of Russia’s diamond mining capacity, and 28 percent globally.

And while trade between Switzerland and Russia is modest, gold is the chief import, ahead of precious metals such as platinum followed by diamonds not mounted or set, according to the Swiss customs office.

Compared to other sectors of the Swiss economy, “watchmaking was a branch that was less affected than others by supply problems in 2021”, Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, told AFP.

But that may no longer be the case, he acknowledged, adding that it was hard to assess the repercussions for the watch industry at this stage.

“There are obviously reserves. Afterwards, we will have to see, depending on how long the conflict lasts,” Pasche said.

The booth of Swiss luxury watchmaker and jeweller Piaget at Watches and Wonder

The booth of Swiss luxury watchmaker and jeweller Piaget, owned by Richemont group, photographed on the opening day of the Geneva salon. (Photo by Fabrice COFFRINI / AFP)

Recycled gold and palladium
The Swiss luxury giant Richemont owns the Cartier and Van Cleef & Arpels jewellery firms, plus eight prestigious watch brands, including Piaget and IWC.

The group took the lead on Wednesday, saying all its brands have stopped sourcing diamonds from Russia.

The move will create a lot of work on the supply chain to find responsibly sourced, quality diamonds from elsewhere, Richemont chief executive Jerome Lambert told a press conference.

Gold supply is of less concern. For a decade or so, Richemont has been sourcing recycled gold for watchmaking, bought from industry and the electronics sector.

For palladium, used for instance for wedding and engagement rings, the group decided “ahead of the sanctions” to switch to suppliers specialising in recycled palladium, Lambert said.

Draining the stocks
At Patek Philippe, one of the most prestigious Swiss brands, the firm’s president is counting on his stockpile to ride out the storm.

“Luckily I produce in small quantities,” said Thierry Stern, who represents the fourth generation of his family at the company helm.

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC,

Watches made with titanium and ceramics are displayed at the booth of luxury Swiss watch manufacturer IWC, on the opening day of the Watches and Wonders Geneva show. (Photo by Fabrice COFFRINI / AFP)

“So I don’t feel any difference yet,” he told AFP. For 2022, Patek Philippe plans to manufacture 66,000 timepieces.

“And if I can’t find certain stones, I can always do engraving,” said the head of theĀ  brand, which relies on a wide range of disciplines including ceramics, marquetry and enamel.

H. Moser, a niche brand producing 2,000 watches a year for wealthy collectors, struck much the same tone.

“Purchases are made in advance. For example, for the casings that I want to make in 2023, I have already bought all the gold I need,” said boss Edouard Meylan.

“But maybe in six months’ time some of our suppliers will call to push back the deadlines because they haven’t received the materials,” he admitted.

Concerns over raw materials “will drive up prices, of course”, said Jon Cox, an industry analyst with the Kepler Cheuvreux financial services company.

However, compared to other sectors, luxury firms have more leeway to pass on costs to customers, he added.

At the Watches and Wonders salon in Geneva, where 38 brands are exhibiting until Tuesday, the displays are brimming with diamonds, reflecting the “generally upbeat mood” of the industry this year after a prosperous 2021.

However, given the war and its repercussions, “I imagine product development will move to more subdued luxury goods”, Cox said.

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