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(Bloomberg) -- Just as a four-year slump in Chinese demand for Swiss watches shows signs of ending, sales in the U.S., the next-largest market, have wilted.
Swiss watchmakers have been caught off-guard as demand keeps sinking this year in the U.S., which is key for Rolex, LVMH’s TAG Heuer and Richemont’s Baume & Mercier. That’s raising concern that consumers there are inundated with too many gadgets or that the country is losing appeal as a shopping destination for tourists.
This week brought bad news for those who expected a rebound after the November presidential elections, often a catalyst for a sales spurt in the past. A report showed shipments to the U.S. fell 26 percent in February, and Movado Group Inc., which gets half its revenue from that market, said the downturn is forcing it to cut jobs in Switzerland. Though the U.S. economy is growing, the World Travel and Tourism Council has warned that President Donald Trump’s policies could curb visitor numbers while a strong dollar holds down their spending power.
“It’s really challenging,” Ricardo Guadalupe, chief executive officer of Hublot, another LVMH-owned brand, said at the Baselworld trade fair, the industry’s largest gathering. Hublot’s U.S. revenue was flat last year as shoppers preferred to buy watches costing $6,000 to $15,000 when previously they were snapping up models for $12,000 to $25,000. “I think it’s a matter of tourism issues. I don’t know if it’s a Trump effect, but they’re less keen to go to the U.S.”
Hublot’s CEO forecast the U.S. market will shrink again this year, saying that competition from the Apple Watch is also weighing on the lower end of the Swiss watch market. Tourists account for about half Hublot’s revenue in cities such as New York, Miami and Los Angeles.
Movado has forecast a 10 percent drop in earnings as U.S. retailers cut orders after a weak Christmas season. The company, which leads the U.S. market in what is known as the “lower-end” $300 to $3,000 price segment, plans to cut as much as a quarter of 200 jobs in Switzerland, according to a person familiar with the situation. Chief Financial Officer Sallie DeMarsilis said the company’s in talks to reduce the number of eliminations.
The U.S. was dethroned about a decade ago as the top market for Swiss watches as demand from China boomed, but the North American market is still an important destination for timepieces. More than a tenth of Switzerland’s watch exports went to the U.S. in 2016, even as shipments to that country declined 9 percent, the steepest drop in seven years.
“The U.S. is a difficult market,” Mondaine CEO Andre Bernheim said in an interview. “We always read that unemployment there is relatively low and that the economy is going well, but on the other hand, there seems to be a consumer blockage.”
The industry’s worst nightmare for the U.S. market is that Americans -- especially millennial shoppers -- aren’t just temporarily reining in their spending on high-end timepieces but no longer see Swiss watches as objects of desire. It’s a potential paradigm shift that makers of other big-ticket items, including cars, have also started to examine.
“U.S. consumers are probably a bit more pragmatic when it comes to luxury goods,” said Zuzanna Pusz, an analyst at Berenberg. “Should the U.S. show a prolonged decline, people may start worrying about whether consumption of Swiss watches is changing, but we would need to wait longer to see the real evidence of that.”
Most watchmakers say they’re confident the downturn is cyclical, not structural.
“For the high segment, America is still there,” said Thierry Stern, chairman of Patek Philippe, whose watches occasionally can command millions of dollars in auctions. “They’re cautious, but they’re willing to spend money for the right product.”
Swatch, which makes watches under 18 brands including Tissot and Longines, is banking on an eventual post-election bounce. Trump’s policies could help the Swiss industry by boosting consumption, Swatch Chief Executive Officer Nick Hayek said last week.
“The intention to produce more in the United States and to reinforce the middle class is fantastic to us in the watch industry,” Hayek said. “It’s a healthy middle class that’s making us grow. If his means are the right method, I don’t know, but his intentions are not bad.”
Tissot, the official timekeeper of the National Basketball Association, plans to add 200 to 300 locations to its sales network in the U.S. this year.
“I’m really optimistic for the U.S. market,” Tissot President Francois Thiebaud said. “In my 38 years at Baselworld, every four years at election time in the U.S., I can see a slowdown. I have the feeling now, market growth will improve.”
Longines, which sells watches for about $1,500 to $7,500, is focusing on partnering with retailers rather than adding more of its own stores in a market where its revenue fell more than 10 percent last year.
“We will not give up the U.S.A.,” said Walter von Kaenel, head of Longines.
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