Swiss watch exports grew at a respectable 2.9% in value in the first quarter of 2019 to 5.13 billion Swiss francs. (The amount is the same in U.S. dollars.)
But slap a giant asterisk on that figure. That's because exports to one country accounted for almost all of the first-quarter growth.*
That country, surprisingly, was not one of Switzerland's Big Three watch markets. Au contraire, exports to #1 Hong Kong rose a piddly 0.1% in the January-March period. The next two top markets, USA and China, rose by 2.6% and 3.4%, respectively.
No, Switzerland's monster market of 2019 so far is Great Britain, where exports jumped by an eye-popping 52%.*
The reason, according to the Federation of the Swiss Watch Industry, which releases export data, is Brexit. On March 29, the UK was scheduled to withdraw from the European Union. In the run-up to that event, UK retailers stocked up on all manner of goods including Swiss watches fearing shortages resulting from delayed deliveries after Brexit due to a new customs regime at the British border.*
As a result, UK retailers accounted for 89% of the entire CHF 134.7 million jump in export value over the industry's robust 2018 first-quarter performance. (Export data represents watch shipments from Swiss companies to their subsidiaries and agents around the globe, not sales to consumers.) *
The British data distortion worsened as the Brexit deadline approached: February exports to the UK rose 58% versus the previous February; March exports were up 76%.*
How bad was the distortion? If first-quarter exports to Britain had been like Hong Kong's essentially flat Swiss global exports would have less than 1% instead of nearly 3%.
Global uncertainties are making any client on the planet more cautious."
Jean-Christophe Babin, Bulgari CEO
Retailers Cautious

What's clear is that the performance of the top three markets more accurately reflect the state of the Swiss watch market: slow growth in the face of an unstable global economic environment.*
Last year, the Swiss watch industry turned in its best performance in six years, with exports rising 6.3% in value. No one in the industry predicts that kind of momentum this year. That's because growth slowed significantly in the second half of 2018, as the red-hot Hong Kong and mainland China markets cooled off and geopolitical factors (Brexit, stock market turmoil, U.S.-China trade tensions, U.S. government shutdown) heated up.
Global watch retailers are seeing business cool down after a strong 2018.
Geopolitical factors continue to hurt the business climate. Bulgari CEO Jean-Christophe Babin, in an interview with HODINKEE at Baselworld in late March, cited Brexit, U.S.-China tariff tensions, and the impact of the price of oil on Middle East markets as challenges facing luxury goods companies. "Those global uncertainties are making any client on the planet more cautious," Babin said.
Hence, the FH forecasts slower growth for 2019. "For the near future, there is a lot of uncertainty," said FH president Jean-Daniel Pasche at Baselworld. "Therefore, our optimism is restrained. The Swiss watch sector should be able to maintain growth [in 2019] but slightly more modestly."
Some Swiss insiders think this year's growth will be a lot more modest than last year's 6.3% -- more like 2%. Brexit notwithstanding, they note that the industry faces very difficult comparisons with the first half of 2018, when exports grew by 10.6%.*
Few Hot Spots

One reason is that there are few global hot spots at the moment. Swiss watch executives cite two: China and the U.S., both of which have growing economies. "Outside of that, there are not a lot of markets with real growth potential," says Flavio Pellegrini, president of Europe and the Middle East for the Movado Group.*
Nor is either of the hot spots exactly on fire, watch-wise. There is growing concern in some Swiss circles about China. The Chinese economy is slowing down, noted one Swiss watch executive, who requested anonymity. "Chinese consumers account for more than half the purchases of Swiss watches by value," he said. "The Chinese government wants to repatriate that money. They want consumers to buy at home. That has hurt the watch business in Europe." And in other markets where Chinese travel.*
Pellegrini agrees. "Europe is still working on the China cylinder," he told HODINKEE at the Movado Group Summit in Davos in March. "The last few years showed that the Chinese tourist is a very risky customer to bank on. Depending on the exchange rate, maybe they decide to go to Dubai or the U.S. or to the UK because the pound was down due to Brexit. So, it's not a sustainable business for [local] retailers."*
As for the U.S., no sell-through data for the first quarter was available. However, most retailers HODINKEE talked to at Baselworld indicated that they were satisfied with first-quarter sales. The 2.6% rise in exports for the first quarter, against a very strong Q1 in 2018, indicated that the U.S. market was on track to expand after a strong 2018 (+8.2%). That was the first increase since 2014.
LVMH (which owns Zenith and TAG Heuer, along with a few other watch brands) posted 9% growth in Q1 2019, though that is largely due to strong jewelry sales.
Luxury Laggards

There is no publicly available watch sales data for Q1 from Swiss firms. The only hint came from LVMH, which owns TAG Heuer, Hublot, Zenith and Bulgari. Sales in its Watches & Jewelry division increased 9%, the company said. It does not break out sales by product or brand. However, LVMH stated that the growth "was driven by the performance of its jewelry," without mentioning watches.*
LVMH chief financial officer Jean-Jacques Guiony told financial analysts on April 11 that "the jewelry business is doing better than watches. Watches has been under pressure for some time." He cited a slowdown in spending on watches by Chinese consumers, which has not recovered compared with other LVMH luxury categories. All other LVMH luxury goods categories (wines & spirits; fashion & leather goods; perfumes & cosmetics) increased between 12% and 20% in the first quarter. Jewelry sales were up by low double-digits, Guiony said. He gave no guidance on watch sales, but they clearly lagged behind all the other categories. *
People say, 'Exports go up and up, and sales go down and down.'
Yves Vulcan, Darwel SA CEO
Bulgari's Babin is not optimistic about the Swiss watch business for this year. "I think Swiss watches are at risk," he told HODINKEE, noting their underperformance versus luxury in general. In 2019, "Watches will underperform the rest of luxury again," Babin predicts. Whatever increase the luxury sector has in 2019, Babin said, "watches will grow by one-third of that."
Rich Get Richer

It is expected that in 2019 the disparity in performance between the biggest, strongest brands and the rest will only grow more dramatic.
A final point, related to a different kind of Swiss watch distortion: Whatever growth Swiss watch exports post this year, they will to a large extent belong to a relatively few, strong, global brands. More and more, in the Swiss watch industry, the rich get richer. "People say, 'Exports go up and up, and sales go down and down,'" Yves Vulcan told HODINEE at Baselworld. Vulcan is owner and CEO of Darwel SA, the Lausanne-based media agency, which has been for decades the official PR arm of the Baselworld Swiss Exhibitors Committee. "There are eight brands that make up 80% of the market," he says, exaggerating slightly. (Morgan Stanley puts the number at 18.) "And 300 brands fight for the rest." **


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