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Watchmakers see only modest 2014 growth as Chinese and Russian buyers hang back

Source: Reuters - Thu, 27 Mar 2014 17:27 GMT
Author: Reuters
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* High-end brands see low single-digit sales growth

* Demand for top notch watches in China hit

* Russia tension affecting consumer sentiment

* Brands raise prices in Russia to make up for weak rouble

* Signs of timid recovery in Europe

By Silke Koltrowitz

BASEL, Switzerland, March 27 (Reuters) - Swiss watchmakers say a slowdown in their important Chinese market, and political tensions in Russia that could affect wealthy consumers' spending there, are likely to result in only modest sales growth this year.

As the watch industry's biggest trade fair opened in Basel on Thursday, executives from some of the best-known brands said they expected only single digit percentage gains.

In particular fast-growing China sales have been stalled by a government crackdown on graft, and the custom of giving expensive gifts.

"This part of the market is gone and it's not coming back," said Luc Perramond, head of Hermes' watch unit. "But we can target wealthy Chinese who buy for themselves. Their number is increasing every year."

Perramond said he expected "moderate" sales growth in 2014. Executives of Swatch Group brands echoed comments by group CEO Nick Hayek forecasting single-digit or, for the lower price tags, low double-digit growth this year.

Independent high-end watchmaker Patek Philippe expects sales to grow about 2 percent this year, in line with last year, Chairman Thierry Stern told Reuters, and Ulysse Nardin's CEO Patrik Hoffmann said growth should be in low single digits.

Overall, Swiss watch exports rose a meagre 1.9 percent to 21.8 billion Swiss francs ($24.62 billion) last year, much less than in 2012 and 2011 after a 5.6 percent drop in its top market Hong Kong and a 12.5 percent fall in No.3 market China.

Exports to Hong Kong have picked up this year, rising 5.1 percent by the end of February, in a sign that retailers are ordering again, but they were only up 0.6 percent to China.

Marc Hayek, who heads Swatch Group's high-end brands Breguet, Blancpain and Jaquet Droz, said the situation in mainland China had improved slightly over the last months. "Sales are broadly flat this year," he said.

Swatch's lower-priced brands Tissot and Longines have not been hit by the anti-graft campaign and still see high single-digit to low double-digit growth in China, their top executives said.

RUSSIAN WORRIES

Political tensions between Russia and the West are affecting consumers' morale and may weigh on sales if the current situation continues, as Russians are big buyers of costly timepieces, executives said.

"There's a lot of uncertainty, it's a worry, people are more cautious on spending," said Breitling's Jean-Paul Girardin.

The United States and the European Union have agreed to work together to prepare possible tougher economic sanctions in response to Russia's annexation of Crimea from Ukraine

"If the conflict only lasts three months, it's not a problem, but if it drags on, we'll end up feeling the pinch," said Jean-Claude Biver, head of LVMH's watch unit.

The sliding rouble prompted Swatch Group, which generally keeps a lid on prices to gain market share, to go ahead with a price hike of 6 percent in Russia, said Swatch's Breguet and Longines boss Walter von Kaenel.

Ulysse Nardin, which generates about 25 percent of sales in Russia and neighbouring countries, increased prices in Russia by as much as 29 percent, Hoffmann said.

"Demand in Russia itself is not down, rather the opposite because the Russians feel powerful at the moment, but there's a lot of uncertainty in adjacent countries," he said.

In terms of value, Russia only ranks No.15 for Swiss watch exports, but like the Chinese, Russians buy a lot abroad.

However, executives said they saw signs of a recovery in domestic demand in Europe.

Hermes' Perramond said he saw a timid improvement in Germany and southern Europe, an observation shared by Breguet's Hayek.

President of Tissot Francois Thiebaud said the brand was seeing double-digit growth in Europe, in part because it had not increased its prices.

"Customers are better informed and more cautious today. They notice if price tags don't reflect the true value," he said.

Patek Philippe, which makes 45 percent of its sales in Europe, said it was important not to neglect local customers by concentrating too much on tourists.

"If you only want to sell to Chinese tourists, it won't work. In our Rue du Rhone boutique (in Geneva), we have fixed quotas on how much can be sold to tourists," Stern said. ($1 = 0.8855 Swiss Francs) (Editing by Sophie Walker)

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