Feedback from our Annual Swiss Watch Investor day in Geneva
We hosted our 3rd Annual Swiss Watch Investor day in Geneva last week. Feedback
from the event was that whilst the industry is undergoing a consolidation phase there
remains optimism on a rebound. However, this rebound will still take some time, with a
recovery more volume driven and average selling price under pressure. This is because
new demand is coming from the upper middle class Chinese consumer rather than the
very high end.
Price positioning is a key industry question; new products at the "entry" level
Prices within hard luxury are aligned globally. However, following significant price/ mix
shifts over the last few years there has been a gap at retail left at ~CHF 5,000 price
point where there is currently high demand. Our UBS Evidence Lab work shows that
Cartier watches have just 11% of SKU's below €7,500 currently suggesting more work
ahead. We are seeing stronger trends in the export data at the lower price points with
CHF500-3,000 up +4.9% in August versus CHF3,000 down -14.4%.
Swiss watch export data for August -8.2% shows further caution from retailers
Retailers remain overstocked and this ongoing inventory pressure is reflected by latest
August Swiss watch export data as wristwatches declined -8.2%. By region, Hong
Kong remains soft at -28.7%, while Mainland China improved +29.1% supported by
better retail trends. Europe recovered slightly at -5.4% helped by the UK +23.5% (July
+13.4%), while the US remained difficult -12.4% (-14.7% in July).
How much of a risk is the Apple Watch?
Our analysis suggests that the Apple Watch/ wearables are a tangible threat at the
entry price point. UBS Evidence Lab commissioned a proprietary survey of 6,336
smartphone users across the US, UK, Germany, mainland China and Japan in March
2016. The results indicated that the first generation of Apple Watch still has further to
run to be materially attractive, with 57% of people surveyed unlikely to purchase an
Apple watch, although this is an improvement from the 62% in our last survey in
September/October 2015. There may yet still be further risk in our view that the
second-generation Apple Watch can improve consumer perceptions further and we see
this as an overhang for Swatch through 2016.
Top 10 Takeaways :
1. The Swiss watch industry is currently in a consolidation phase but there is a belief it will rebound
2. There is big demand potential from the middle class Chinese consumer but at a lower price point. The industry is starting to respond to this but it is leading to negative mix.
3. Tourism spending is now starting to enter an easier comparison base with the long term trend seen at +3-5% p.a.
4. Online is an opportunity for hard luxury
5. Brick and mortar distribution remains important but driven by larger multibrands and monobrand stores with independents losing traction
6. The Apple watch would be second to Rolex in the Swiss watch industry
7. Rolex is the strongest brand within the industry
8. UK market and Switzerland are now recovering along with Mainland China
9. The US consumer remains a core area of focus despite recent volatility
The second hand market remains strong