Watchmakers confront US ‘consumer blockage’

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Bloomberg

Just as a four-year slump in Chinese demand for Swiss watches shows signs of ending, sales in the US, the next-largest market, have wilted.
Swiss watchmakers have been caught off-guard as demand keeps sinking this year in the US, which is key for Rolex, LVMH’s TAG Heuer and Richemont’s Baume & Mercier. That’s raising concern that consumers there are inundated with too many gadgets or that the country is losing appeal as a shopping destination for tourists.
This week brought bad news for those who expected a rebound after the November presidential elections, often a catalyst for a sales spurt in the past. A report showed shipments to the US fell 26 percent in February, and Movado Group Inc., which gets half its revenue from that market, said the downturn is forcing it to cut jobs in Switzerland. Though the US economy is growing, the World Travel and Tourism Council has warned that President Donald Trump’s policies could curb visitor numbers while a strong dollar holds down their spending power.
“It’s really challenging,” Ricardo Guadalupe, chief executive officer of Hublot, another LVMH-owned brand, said at the Baselworld trade fair, the industry’s largest gathering. Hublot’s US revenue was flat last year as shoppers preferred to buy watches costing $6,000 to $15,000 when previously they were snapping up models for $12,000 to $25,000. “I think it’s a matter of tourism issues. I don’t know if it’s a Trump effect, but they’re less keen to go to the US”
Hublot’s CEO forecast the US market will shrink again this year, saying that competition from the Apple Watch is also weighing on the lower end of the Swiss watch market. Tourists account for about half Hublot’s revenue in cities such as New York, Miami and Los Angeles. Movado has forecast a 10 percent drop in earnings as US retailers cut orders after a weak Christmas season and some American consumers turn to smartwatches to replace timepieces in the lower-end $300 to $3,000 price segment. The company plans to cut as much as a quarter of about 200 jobs in Switzerland, according to a person familiar with the situation. Chief Financial Officer Sallie DeMarsilis said Movado is in talks to reduce the number of eliminations. “Part of it is the digital revolution that’s accelerated, and then there are other cyclical factors,” Movado CEO Efraim Grinberg said in an interview. “In the fashion category, certainly tech has been a disruptor. I dont think it’s a permanent disruptor.”
The US was dethroned about a decade ago as the top market for Swiss watches as demand from China boomed, but the North American market is still an important destination for timepieces. More than a tenth of Switzerland’s watch exports went to the US in 2016, even as shipments to that country declined 9 percent, the steepest drop in seven years.
“The US is a difficult market,” Mondaine CEO Andre Bernheim said in an interview. “We always read that unemployment there is relatively low and that the economy is going well, but on the other hand, there seems to be a consumer blockage.” The industry’s worst nightmare for the US market is that Americans — especially millennial shoppers — aren’t just temporarily reining in their spending on high-end timepieces but no longer see Swiss watches as objects of desire. It’s a potential paradigm shift that makers of other big-ticket items, including cars, have also started to examine.

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