Switzerland is the home of many watch brands, and of most of the luxury ones.
On January 15 2015, the Swiss National Bank (SNB), decided to remove the currency cap on the Swiss Franc (CHF) which kept the CHF artificially low against the Euro (EUR). Investors buy CHF because they consider it as safe haven currency. Because the SNB suddenly will cease the practice of “printing” CHF to buy Euros to support the cap, the CHF appreciated significantly. Before the move by the SNB, CHF:EUR was hovering around 0.80. On January 15, CHF:EUR went past 1.17. As of the writing of this post (January 21 Manila time), CHF:EUR is trading at around 1.0. See CHF:EUR quotes here
This is bad news for the Swiss since exports comprise around 70% of their GDP. Swiss made watches, who many people think are already expensive, will now even be more expensive. Shares of Richemont (CFR:VX latest stock quote) and the Swatch group (UHR:VX latest stock quote), the two largest Swiss watch conglomerates, fell with the SNB move.
I’m sure there will be many raised eyebrows when these Swiss watch companies complain that higher prices will hurt their sales. Aren’t arbitrary price increases part of the Swiss luxury watch industry playbook? Many Swiss brands have increased their prices significantly in recent years in an effort to make their watches more aspirational and exclusive. This time the SNB went ahead of the brands and raised their prices for them. Will a price increase mean something to a customer who is already willing to pay US$100k for a watch?
To be fair, there are Swiss watch brands that are relatively affordable (e.g. the “Swatch” line of watches). There are also inexpensive “Swiss Made” watches that are not really made in Switzerland, but source their watch movements from the country. These two groups may suffer from the CHF rise, as their target market are more price-conscious.
On January 20, IWC (International Watch Company, a brand of the Richemont group), held an invitation only party. This celebration was part of the Salon International de la Haute Horlogerie (SIHH) event. The CHF was probably a hot topic.
The SIHH event, which runs from January 19 to 24, will see Swiss watch brands unveil their new timepieces. Based on recent trends, these new timepieces will probably come with higher prices. High pricing will still be a strategy of Swiss luxury timepiece makers. Perhaps, they just want to do it in their own time.
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Finance, M.D. thefinancemd.com 