Tur­bu­lent time for Swiss watch­mak­ers in China

The China Post - - WORLD BUSINESS - BY NATHALIE OLOF-ORS

Swiss watch­mak­ers are fac­ing tur­bu­lent times in one of their top mar­kets, as the al­ready shrink­ing lux­ury sales in main­land China are com­pounded by the re­cent de­val­u­a­tion of the yuan.

Global fi­nan­cial mar­kets are still reel­ing from the main­land Chi­nese cen­tral bank’s sud­den de­val­u­a­tion of the yuan ear­lier this month, which al­lowed the cur­rency to plunge nearly 5 per­cent against the Amer­i­can dol­lar in a mat­ter of days.

In Switzer­land, the move rat­tled the Alpine coun­try’s lux­ury watch­mak­ers, who have al­ready seen their once boom­ing sales in China take a hit as Bei­jing be­gan to crack down on cor­rup­tion in the coun­try by ban­ning ex­trav­a­gant gifts like pres­ti­gious watches to public of­fi­cials.

Even be­fore the yuan move, Swiss watch ex­ports to China had con­tracted nearly 40 per­cent in July.

When the yuan de­val­u­a­tion was an­nounced on Aug. 11, in­vestors were clearly brac­ing for the worst, re­call­ing the im­pact on watch sales when Switzer­land’s cen­tral bank in Jan­uary let the Swiss franc float and sent it soar­ing.

Shares of Swiss lux­ury goods gi­ant Richemont, which owns brands like Cartier, Pi­aget and IWC, im­me­di­ately shed more than 4 per­cent of their value af­ter the Chi­nese cur­rency cut.

The world’s big­gest watch group Swatch, which car­ries brands like Tis­sot, Longines and Omega, saw its stock price plunge 3.9 per­cent.

But so far there is no in­di­ca­tion the yuan de­val­u­a­tion will cause the same level of havoc for the watch in­dus­try as the move by the Swiss cen­tral bank did ear­lier this year, in­dus­try in­sid­ers say.

When it sud­denly stopped ar­ti­fi­cially hold­ing down the value of the Swiss franc, al­low­ing the cur­rency to soar 20 per­cent against the euro in a mat­ter of hours, the im­pact on watch sales was felt im­me­di­ately, Jean-Claude Biver, lux­ury gi­ant LVMH’s watch guru, told AFP.

“But to­day, we are not feel­ing the same ef­fects from China’s de­val­u­a­tion,” he said, ex­plain­ing that the Swiss watch in­dus­try would be able to ab­sorb any ris­ing costs linked to the main­land Chi­nese cen­tral bank’s move.

And both an­a­lysts and the watch­mak­ers them­selves have warned against over­re­act­ing, in­sist­ing the yuan de­val­u­a­tion will not have a big im­pact on sales and could even im­prove them.

Swatch for in­stance said it viewed the move as “pos­i­tive” since it would likely stim­u­late con­sump­tion, and in­sisted there were no plans to hike the brand’s prices in China.

While the yuan de­val­u­a­tion makes it more ex­pen­sive to im­port lux­ury goods into China, it also pushes down costs on­site.

For a com­pany like Swatch, which em­ploys around 2,600 peo­ple in China, mainly in its mar­ket­ing, sales and client ser­vices di­vi­sions, that could mean big sav­ings.

Still, the im­pact of China’s de­val­u­a­tion is dif­fi­cult to quan­tify, an­a­lysts say.

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