Swatch Group chairman Nicolas Hayek didn’t mince words when he heard about the Swiss National Bank’s surprise Jan. 15 decision to remove its three-year cap on the franc.
The decision is a “tsunami,” he said in a statement, and portends disaster for the watch industry and the “entire country.”
If Hayek seems emotional, it may be because the Swiss franc hit a record high after the move, soaring 30 percent against the euro. It has since fallen, but at press time it was still up more than 10 percent against the dollar and the euro compared with Jan. 14.
As the franc continues to soar, some watchmakers worry their costs will soar with it.
The currency volatility “is a disaster,” says Amarildo Pilo, president of Pilo & Co., an independent watchmaker in Geneva. “I’m a specialist in the medium to high end. How can I be in that position if material [costs] are double?”
But if watchmakers charge higher prices, that might mean lower sales.
“We are very anxious about the consequences in the Swiss watch industry,” says Federation of the Swiss Watch Industry president Jean-Daniel Pasche. “We fear negative effects on our exports.”
The franc’s rise was the No. 1 topic at the 25th edition of the Salon International de la Haute Horlogerie, which took place shortly after the currency shift. Talk at the Geneva fair was filled with unconfirmed rumors of canceled orders.
“If [retailers want] an excuse not to buy right away, [the announcement is] perfect,” says Jean-Marc Jacot, CEO of Parmigiani Fleurier. “The momentum of this announcement was very bad for us. But for the national Swiss bank, you can imagine the watch show was not their first priority.”
Other observations from watch industry veterans at SIHH and elsewhere:
All watchmakers are in the same boat.
If there is one mitigating factor here, while no watchmaker seems particularly happy with the situation, at least they all have to face it together. “We will survive because all of the competitors are Swiss franc–based,” says Daniel Riedo, CEO of Jaeger-LeCoultre. “The problem is the same for everybody.”
It might not matter for the very high end.
“If you increase the price 5, 6, 7 percent, what’s the difference for the consumer?” Jacot asks. “Instead of buying the watch for $10,000, he will buy the watch for $10,800. And what’s the difference?”
But it could matter to margin-sensitive retailers, at least psychologically, he says.
Prices are unlikely to rise in the United States.
Because of the strength of both the U.S. dollar and the U.S. economy—at least compared with the rest of the world—America could be spared any price increases.
“The dollar zone will not ever [have a] price adjustment,” says Jérôme Lambert, CEO of Montblanc. “The good thing is [the U.S. is] safe with the price.”
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Longtime industry consultant Steven Kaiser, president of New York City–based Kaiser Time Inc., believes manufacturers won’t jeopardize their one promising market.
“I would advocate not doing it,” he says. “With the way sell-through has been, the resistance in all parts of the market, I don’t think raising prices is a recipe for success.” Of course, this will mean watchmakers will take a margin hit, but “if you don’t sell, you don’t get any margin.”
Overseas is a different story.
“We will probably have to rework our price positioning in certain countries—mostly in the eurozone,” Lambert says.
He isn’t alone: According to reports, in the days following the announcement, Cartier said it was raising prices in the eurozone, and Rolex announced it was boosting prices in Japan.
Singapore residents so anticipated a price increase that there was a rush on Rolexes in local stores, according to the country’s newspapers.
(Additional reporting by Victoria Gomelsky)