Luxury Swiss Watch Industry Battling Double Punch
Two large threats have popped up of recent for Swiss timepiece makers. First, the Swiss franc has soared against the value of the euro and the dollar, increasing against the dollar by 12.9 percent in the last month alone. Second, the price of gold which is a key material in many luxury watches, has skyrocketed as world stock markets have plummeted.
The strength of the Swiss franc is of immediate concern for most watchmakers. The strong currency is likely to lmake the prices increase, although it’s too soon to know their extent, especially once the gold crisis enters the equation. The precious metal increased in value by 11.3 percent from July 12 to Aug. 12, climbing to a record high of $1,817 an ounce Aug. 11 and surpassing even platinum, historically the most expensive and coveted of the precious metals.
Addressing the strength of the franc, Monica Mailander Macaluso, vice chairman of Girard-Perregaux parent Sowind Group, stated, “In the last two days, the situation really worsened, because we were mainly 1:1 with the euro and very close with the U.S. dollar — and a company like ours is established in Europe and also in the United States. In one year [the Swiss franc] increased 20 percent [in strength] — and for competitiveness, as you can imagine, this isn’t the best situation. If it lasts, it will really compromise the whole industry.”
Girard-Perregaux, in which PPR became the majority shareholder last month, already has increased prices by between 7 and 10 percent over the last year. Despite this, Macaluso stated the company’s business for 2011 is “still very strong,” and numbers are approaching pre-2008 levels.
She maintains that the current strength of the franc affects everyone, but it might be a little more complicated for the Swiss watch industry — especially many of the high-end firms that produce and develop all components and movements in-house (Girard-Perregaux boasts upward of 100 variants of movements).
Then there is the issue of gold, which only adds to the pressure. Nearly 80 percent of 220-year-old Girard-Perregaux’s watch cages are comprised of gold and most of its customers, especially in the Far East, demand the metal.
Jean-Claude Biver, chief executive officer of Hublot, agreed gold is what the luxury watch consumer demands. The brand’s bestselling watch is the Big Bang gold ceramic style — a rose gold design with a black ceramic bezel that retails for $25,800.
In the past year, Biver said that Hublot’s prices have risen between 20 and 25 percent — yet the higher gold prices climb, the more gold watches Hublot sells. Biver contended that consumers are buying more gold timepieces than ever because they’re scared that in another four months the price of the watch will increase even more — and this fear has been a driving factor for sales. The rising price of gold only further reinforces the high-end consumers’ view that luxury watches are an investment.
But Biver admits he is a bit worried that he’s going to lose some of his margin when currencies such as the dollar or the euro become too weak.
“I can’t adjust my prices from one day to another. I must adjust progressively, step by step — but before I have made a full adjustment, I will have lost some margins because I can only adjust by 5 to 7 percent at a time, not 30 percent each day,” said Biver. “I will lose some, but we are ready to lose some margins because that’s life. If you aren’t ready to lose or gain margins, you can’t do business. Business isn’t stable, and sometimes margins are better, and then they are worse. We are used to that.”
His outlook today is as follows: the brand might have the best year in turnover to date, but might eventually suffer in terms of margins.
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