Business News: When Will The U.S. Bounce Back?

January 26, 2018

At the SIHH salon held last week in Geneva, where 35 luxury watch brands exhibited, Swiss watch executives celebrated last years rebound in Swiss global watch sales and the prospect of a continued recovery this year. Swiss watch exports jumped 3% in 2017, ending a two-year slump, and are expected to grow at least another 3% this year. But there is a stain in the Swiss watch industrys rosier scenario. A big one: Switzerlands second largest watch market, the United States. Swiss watch exports to the U.S. fell for the third consecutive year in 2017, down around 4%. (Official data will be released Jan. 30.) Its a worry, says Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry. Not only is the export data, which reflects sell-in to retailers, down. But the U.S. sell-through data that Pasche sees is down, too, he told Hodinkee at SIHH. Its difficult, he says. Even in good times, the U.S. can be tough going for Swiss watch brands. The U.S. is a difficult market for watches because its a large market, says Montblanc CEO Nicolas Baretzki. A few huge brands basically own that market.? One brand in particular dominates the luxury-watch segment from $5,000 and up, with a market share that exceeds 50%. In the U.S., you have a monster in front of you, says Jean-Marc Pontrou, CEO of Roger Dubuis. Its Rolex. So, you are already sharing half the cake. Pontrou extends the analogy: You are very hungry, but you say to your friends, Well, we can only have half the cake today, he says, with a laugh.? Making things even tougher these days, Pontrou says, are a number of disruptive forces at work in the U.S. market, like e-commerce, the gray market, second-hand-watch sales, the disappearance of smaller retailers, smartwatches and more. Its very complex, he says. Perhaps no one at SIHH knows that better than Alain Zimmerman, CEO of Baume & Mercier. The U.S. is Baumes top market. Its challenging, he says. The mood of the U.S. consumer is wait-and-see. They are holding back.? Holiday Cheer Sales in Q4 2017 were up for many brands, including the likes of Patek Philippe, Rolex, and Cartier. Yet, there may be a light at the end the tunnel. American retailers at SIHH had a blockbuster holiday sales season, the best in years, many said. The evidence is anecdotal; there is no public data for retail watch sales in the U.S. But the reports of a surge in sales at the very top of the price pyramid were unanimous. Retailers who last year bemoaned the sorry state of the U.S. watch market were beaming this year. Sales of power brands in the $10,000 and up segment, like Patek Philippe, Rolex, Cartier, and Audemars Piguet, led the charge, retailers said. Cartiers emphasis on iconic brands last year, like the Tank (which celebrated its 100th anniversary) and the Panthre, paid off, retailers said. One sign of better demand: there were shortages of steel Rolex models by December, retailers say. But it wasnt just the big-name brands. Jared Silver, president of Stephen Silver Fine Jewelry in Redwood City, CA, only sells watches from small, independent brands, like Laurent Ferrier, Ressence, and MB&F, which exhibit in SIHHs Carr des Horlogres section. He carries 11 brands, has an average watch sale of $48,000, and had super sales in 2017, he said. Sales of brands in the $5,000 to $10,000 segment were also good, retailers said, but not as strong as those at the top. Mood Swing Wempe New York president Rudy Albers says American customers showed an improved mood in 2017. Retailers cited Americas strong economy, record stock market, low unemployment and the passage of the tax reform bill as factors behind the year-end buying surge, which continued through the week after Christmas. Some retailers noted that during the 2016 holiday season, wealthy clients were hesitant to buy due to the surprise election of Donald Trump. Whatever their political leanings, clients were cautious about making big purchases because of the element of uncertainty about the incoming administration. In 2017, all the good economic news brought people off the sidelines and into the stores. The mood in the USA in 2017 was better than in 2016, Rudy Albers, president of Wempe Jewelers in New York City, said. They were in a mood to buy.? The economy is booming, wealthy clients are making money, and they decided to celebrate, said Joe Turchiarolo, watch buyer at Liljenquist & Beckstead in the Washington, D.C. area.? A. Lange & Sohne is still doing well, according to CEO Wilhelm Schmid. Others offered another explanation: that the continuing political uncertainty surrounding the Trump administration and the conflict with North Korea created a live for today attitude that encouraged luxury purchases. Whatever the case, retailers said the strong finish to 2017 made them optimistic about the U.S. luxury watch market for the year ahead. They expect the impact of the tax reform bill to kick in this year, with higher corporate earnings, and more and bigger bonuses, which should boost luxury watch sales.? Wilhelm Schmid, CEO of A. Lange & Sohne, confirmed that his customers in the U.S. had a good 2017. He described their inventory of Lange watches as squeaky clean and predicts another good year this year. Weak Dollar Cycle Bulgari's newly-renovated New York City flagship boutique. Another factor that will help is the weaker U.S. dollar, says Bulgari CEO Jean-Christophe Babin. He predicts the weak dollar will bring travel retail business back to the U.S. The U.S. market is 75% domestic and 25% tourist, Babin says. One of the reasons for the erosion over the last two years has been less Latin Americans, less Russians, and less Chinese buying in the U.S. They bought elsewhere, Babin says, because of the strong dollar. That hurt sales in key tourist destinations like New York, Miami, and Los Angeles. Now that we are in a weakening dollar cycle, we see the return of foreigners in the U.S. buying luxury products again, because prices are competitive compared to the rest of the world, which was not the case in the last two years. I think 2018 will be a good year for the U.S.? Whether the rebound in watch sales at the top of the American market trickles down to the under-$5,000 segment this year remains to be seen. Well know more in March when the rest of the Swiss watch world gathers in Basel for the Baselworld show.