The Swiss watch business is doing more than just ticking along. It is expanding rapidly, and demonstrating how Asia is surpassing the US as the home for the very rich.
The industry had a splendid Christmas. Exports, some 95% of the market, rose by 14% to 1.43 billion Swiss franc (Rs5,145 crore) in December, according to the Swiss Watch Industry Federation. That growth came despite a mediocre year in the US. Revenues rose there by 6%. In contrast, sales in Hong Kong grew by 18%. That made it the largest market, ahead of the US.
The watch makers are profiting from the global trend to ostentatious luxury. But they also show one way for how high-cost European producers see off cheap Asian competition.
The Swiss watch industry didn’t simply move up-market. It moved the market. They turned their products into lifestyle accoutrements, a little like fine Bordeaux wine. Former US president George Bush Sr reportedly wore a cheap Asian-made, quartz-powered Timex. But his populist successor Bill Clinton went for a high-end Swiss mechanical number.
In this part of the luxury business, more expensive is better. Revenue from watches costing more than 3,000 Swiss franc rose by 25% in December, while the segment for watches priced below 300 Swiss franc increased by only 10%.
The global economy seems to be slowing, but, as yet, the industry isn’t worried. Swatch AG, the largest watch manufacturer in the world and owner of the high-end Omega and Breguet brands, says strong Asian demand would keep sales growth in double digits at least through the first half of 2008.
That is about as far ahead as the companies can see. Orders are placed far in advance for top-end timepieces, so demand could still fall in the second half of the year. At least for now the industry’s biggest problem remains a shortage of quality parts and labour.
Only time will tell if it can stay that way.