The latest analysis provided by the Federation of the Swiss Watch industry notes that the second quarter of 2023 brought intriguing developments to the Swiss watch market. This also follows some recent comments from an industry titan regarding the industry’s present and future which sent shockwaves through the share prices of several of the largest luxury conglomerates.
One notable trend is that the majority of revenue still comes from watches targeting consumers with relatively stable disposable income. No surprise there. Even amid macroeconomic fluctuations, Swiss watch enthusiasts continue to invest in these timepieces. This enduring demand provides a reassuring pillar for the Swiss watch industry.
However, a sense of uncertainty emerged as we ventured into the second half of the year. Results suggest that the cautious optimism prevailing until now may face challenges. Over the past decade, the Swiss watch industry demonstrated remarkable resilience. It rebounded consistently during challenging economic periods, reflecting the timeless appeal of Swiss craftsmanship. Now, let’s zoom out to the broader European economic landscape. Johann Rupert, the leader and controlling shareholder of luxury conglomerate Richemont, highlighted the impact of ongoing inflation on European consumers. He noted that some European households are dedicating a higher percentage of their income to basic necessities than they have in the past decade. This pinch on consumer budgets is causing concern. Following Rupert’s comments, Richemont shares experienced a sharp decline, as did shares of other luxury sector companies like LVMH, Kering, and Prada, following HSBC’s decision to lower price targets. This reaction underscores the sensitivity of the luxury market to economic shifts.
Luxury sales surged during and after the pandemic as consumers, buoyed by low interest rates and pent-up savings, indulged in luxury watches, handbags, and jewelry. However, as central banks raised borrowing costs to counter inflation, Rupert noted that disruptions are expected to persist. “We cannot expect that after 10 years of excesses, we’ll return to normality in a year or two. It’s going to take longer,” emphasized Rupert. The luxury market, like the global economy, is in transition as it adapts to changing economic conditions.
The Swiss watch market continues to shine with stability and a devoted customer base. Nevertheless, inflationary pressures and shifting consumer behaviors pose challenges. The luxury sector must navigate these uncertainties and innovate to thrive in this evolving marketplace. Europe’s struggle with inflation serves as a reminder that the luxury market’s resilience will be tested as it moves forward.
For a comprehensive analysis of the Swiss watch market in the second quarter of 2023 and the broader European economic impact, I can also suggest the latest issue of “Tendances” magazine by the FHS.