At Geneva’s annual luxury watch fair this week, Vincent Malissen was delighting in the intricacies of a gleaming timepiece from Vacheron Constantin, one of Switzerland’s most prestigious watchmakers.
The price starts at 288,000 euros.
However, when it came to confirming whether that pricing, equivalent to US$334,000 at current exchange rates, would hold by the time the watch went on display next year, Malissen, a marketing manager for the brand, threw up his hands in a gesture of “who knows?”
Photo: AFP
So goes the angst of Swiss watchmakers, many of them reeling from the abrupt scrapping of a currency cap by the Swiss National Bank on Jan. 15. The move sent the Swiss franc soaring, making exports like watches a good deal more expensive and pressuring companies to increase prices or book lower profits.
The currency shock has the Swiss companies especially perplexed because the country is the leading exporter of luxury watches and the sector was already feeling the effects of slowed sales to wealthy buyers in China and Russia, as well as competition from a new batch of smartwatches.
The country, home to 8 million, is also a top competitor in areas like pharmaceuticals, machinery and chemicals. With exports expected to dip, UBS last week cut its growth forecast for Switzerland for this year to 0.5 percent from 1.8 percent.
Photo: Reuters
The Swiss National Bank for more than three years had pegged the franc to the euro mostly to protect Swiss exporters against a weakening of the euro, but the sudden reversal of the policy of preventing the franc from appreciating beyond 1.20 euros caused the currency to spike as much as 30 percent. It remained high this week, trading at about 1 Swiss franc per euro.
The chorus of complaints against the central bank’s U-turn was led by Nick Hayek, chief executive of Swatch Group, the world’s largest watchmaker, who said last week the decision was “a tsunami: for the export industry and for tourism, and finally for the entire country.”
Its ripple effect has been felt far beyond Switzerland. Some currency brokerage firms in London and New York, unable to cover the franc’s unprecedented volatility, have closed or been pushed close to collapse. In Poland, the authorities are studying how to support borrowers who took Swiss franc-denominated mortgages, in the belief that a Swiss investment guaranteed not only favorable rates, but also stability.
Photo: AFP
However, nowhere are the gyrations of the Swiss franc more directly felt than among the Swiss watch industry, which exports more than 90 percent of its timepieces, while maintaining a largely domestic cost base because of its reliance on the appeal of a “Made in Switzerland” label.
Switzerland recently toughened its label protection rules to ensure that at least 60 percent of the value of a Swiss product would be generated within the country.
In the industry’s most rarefied precincts, timepieces with highly complex movements that require years to develop and assemble can cost more than US$2 million even without diamonds.
At Patek Philippe, a timepiece introduced in October to honor the brand’s 175th anniversary has an esoteric chiming mechanism and a perpetual calendar; it took seven years to develop and costs US$2.6 million.
On the more modest end, a new Cartier model that leaves the moving parts exposed and is housed in a ghostly 47mm case of 18-karat white gold starts at US$150,000.
Even before the Swiss franc’s rise, watchmakers faced other challenges. Based on preliminary estimates, the worldwide sales growth of Swiss watches tapered to about 2 percent last year, compared with 22 percent in 2010.
Last week, Richemont, parent to brands like Cartier, Vacheron Constantin and Piaget watches, reported that sales rose almost 4 percent to 3.05 billion euros in the fourth quarter. However, the announcement was eclipsed by the Swiss currency shock, which sent Richemont shares plunging 16 percent that day and a further 7 percent the following day. Shares in Swatch also slumped, although both companies this week recouped a small part of their stock market losses.
Even if the mood was less ebullient at the watch show in Geneva this year than in past years, executives insisted it was too early to calculate the impact of a stronger franc on earnings.
Some sounded defiant.
lain Bernard, president of the Americas for Van Cleef & Arpels, said the company had “no plans to change anything,” as far as the pricing of watches was concerned.
“At least when we get tired of talking about watches, we’ll have something else to talk about,” he joked.
Other watchmakers said that deep-pocketed buyers of luxury watches rarely focused on pricing.
“When you set a watch at, say, US$600,000, the fact that you come to US$650,000 or US$680,000 doesn’t change much,” said Richard Mille, founder and chairman of the Richard Mille brand. “I’m not going to create myself any headache that I don’t deserve.”
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