Global Deflation Watch-----Swiss Watch Exports Plunging

By Corinne Gretler at Bloomberg

Swiss watch exports had their biggest decline in six years in October, led by a 39 percent slump in shipments to Hong Kong, the industry’s largest market.

Shipments declined 12 percent to 2 billion Swiss francs ($2 billion), the Swiss customs office said in a statement Thursday. Adjusted for fewer working days, the drop was 7.6 percent. Exports to the U.S. dropped 12 percent.

“2015 has been one to forget for the watchmakers,” said Jon Cox, an analyst
at Kepler Cheuvreux in Zurich.

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Hong Kong’s lead against the U.S. is eroding seven years after becoming the world’s biggest marketplace for Swiss watches. The industry is pulling back in the island city, with TAG Heuer shuttering a store there in August. Richemont, , the maker of Cartier jewelry and IWC timepieces, has said its sales declined in October on weak watch demand.

Swatch shares traded 1.7 percent lower at 361 francs as of 9:06 a.m. in Zurich. Richemont was little changed at 77.75 francs.

“Hong Kong’s share is likely going to remain somewhere above 10 percent in the medium-term after being over 20 percent a year ago,” Cox said. “It is never coming back to where it was.”

The month had a challenging year-earlier comparison as exports rose 5.2 percent in October 2014, one of the biggest gains of that year. Watch shipments, which make up about a 10th of Switzerland’s total exports, have declined 3.2 percent in the first ten months of 2015.

New Models

“The data would suggest prudence about Swatch,” wrote Luca Solca, an analyst at Exane BNP Paribas in a note to investors. The watchmaker will find it harder to fight inventory build-up due to the difficult wholesale watch market and a significant number of new models the watchmaker is introducing, Solca said.

Competition from Apple Inc.’s smartwatch has also weighed on low-end brands of timepieces. Fossil Group Inc., a U.S. watchmaker, saw its stock slump 37 percent Nov. 13 after saying fourth-quarter sales may decline as much as 16 percent amid competition with wearable technology.

The 11 percent surge in the Swiss franc from a year ago has eroded the industry’s profit margins. The industry has begun to cut jobs to adjust for a drop in demand. Richemont said on Nov. 16 that it’s cutting 85 positions at watch-dial maker Stern Cadrans, shifting some employees to other sites.

Source: Swiss Watch Expors Fall Most in Six Years on Hong Kong Drop - Bloomberg

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