SWISS WATCHMAKERS: Using our proprietary watch retailer survey, we analyse the industry value chain in this report and reach 3 conclusions. (1) The sell-out in HK could remain double-digit negative in 2H16 and a positive trend in 2017 is highly uncertain. (2) The inventory overbuild is worse than we anticipated. (3) The inventory overbuild is not limited to Asia. We downgrade Richemont to UP. We think watch sales could deteriorate further and earnings risk remains. We downgrade Swatch Group to UP. While a year ago we gave mgmt the benefit of the doubt on its ability to react to the new reality, its decision not to address costs and continue production above replenishment needs leave us concerned