In an unexpected twist, Swiss luxury watchmakers are turning to government support to combat a downturn that is shaking the foundations of the prestigious industry. As brands such as Girard-Perregaux and Ulysse Nardin actively participate in a state program aimed at preserving jobs, the luxury watch sector faces a challenging reality. The Sowind Group, which owns these two renowned names, has reported that around 15% of its workforce is now on furlough due to dwindling demand.
Recent statements from Patrick Pruniaux, chairman and CEO of Sowind Group, underscore the gravity of the situation. “It’s a small watch crisis so far, slightly disconnected from the economy,” he commented at a recent industry event, while acknowledging the considerable challenges ahead. This current predicament follows a period of unparalleled growth for the sector during the post-pandemic phase, where consumers enthusiastically purchased high-priced watches.
The stimulus program allows the Swiss government to cover up to 80% of employee salaries during periods of short-time work. This initiative is vital for preventing permanent layoffs within industries like watchmaking, which has faced significant constraints as demand plummets. Over 40 watch component manufacturers in the Jura region submitted applications for this aid over the summer, marking a dramatic rise from the mere five applications at the beginning of the year.
Data from the Swiss Observatory for the Economy reveals a stark reality—wholesale watch exports saw a 2.4% decline in value in the first seven months of this year. This downturn primarily results from a significant drop in consumer spending in key markets, particularly China. The luxury watch segment, which enjoyed three consecutive years of record exports, now grapples with reduced orders from retailers who are adjusting to the changing buying habits of consumers.
Notably, it is the brands that position themselves at lower price points that are feeling the most severe impact. In contrast, prestigious names like Rolex and Patek Philippe have demonstrated remarkable resilience during this downturn. However, even industry giants such as Richemont and Swatch Group have recorded substantial sales declines, particularly in the Chinese market.
Looking ahead, Pruniaux remains cautious, indicating that the recovery may be slow and only partially realized by 2025. Forecasts suggest that Sowind’s sales may remain stagnant or even decline further in 2024, a stark contrast to the almost 10% growth seen in the previous year and a near doubling of sales in 2022.
As industry leaders gathered at the Geneva Watch Days event, many expressed a sense of optimism despite the current climate. Georges Kern, CEO of Breitling, noted that companies are making considerable adjustments as they respond to the market dynamics. Some suppliers, in an effort to manage finances, have opted for extended shutdowns of six to eight weeks. “Managing growth effectively is crucial,” Kern explained, highlighting that Breitling projects slight sales growth this year, aided by a recent resurgence in US market demand.
On the other hand, Jean-Christophe Babin, CEO of LVMH’s Bulgari, articulated a more cautious outlook, anticipating ongoing challenges stemming from the Chinese market. Nevertheless, the brand’s focus on the relatively stable women’s watch sector allows for some flexibility in production and inventory management.
Meanwhile, Oris CEO Rolf Studer expressed hope in containing the sales decline to single digits this year. The company faces challenges not only from a decline in demand but also from the strengthening Swiss franc, which tightens profit margins and raises prices for potential buyers. As Studer wisely pointed out, “Consumers are unlikely to invest in luxury timepieces if they anticipate financial uncertainty in the near future.”
This turn of events serves as a pivotal moment for the Swiss watch industry. As companies seek to adapt to changing market conditions, the necessity of support mechanisms becomes apparent. The hope lies in the adaptability of these luxury brands and their ability to navigate through this period of challenge, as they find ways to retain their skilled workforce and cultivate consumer interest once again.
