As Luxury Watch Sales Slow, One Retailer Speeds Up

A stellar performance at Watches of Switzerland can’t be taken as a sign of a wider recovery for the travel-dependent industry

By Carol Ryan

Plunging tourist demand for luxury watches hasn’t held back one specialist retailer—quite the opposite. Unfortunately, there is little chance that its larger peers can mimic the performance.

Shares in Watches of Switzerland, a multi-brand seller taken public by buyout firm Apollo in June 2019, rose 22% in morning trading Tuesday. The company increased its sales and profit guidance following remarkably strong sales to date during its second quarter, which ends on 25 Oct. Sales for the first 10 weeks of the period are up 20% compared to the same weeks of 2019.

The company has experienced the same collapse in international business seen across the luxury-goods sector. Sales made to tourists and in Watches of Switzerland’s airport stores shrank to less than 10% of total revenue in the current quarter, down from one-third this time last year.

Exports of Swiss watches fell by 12% year over year, according to the Federation of the Swiss Watch Industry. / PHOTO: ARND WIEGMANN/REUTERS

Yet it is making up the difference, and then some, by selling to locals. This isn’t the case for the wider market: In August, exports of Swiss watches fell by 12% year over year, according to the Federation of the Swiss Watch Industry.

Watches of Switzerland’s footprint and focus are advantages for now. The company only has stores in the U.K. and U.S., where it has courted local customers. 

Even in more normal times, sales to Chinese nationals were under 10% of the total, compared to as much as 40% for a major luxury brand. Large listed watchmakers Swatch and Compagnie Financière Richemont, which owns Vacheron Constantin, are both taking a heavy hit in their empty European and Hong Kong boutiques now that the Chinese aren’t traveling.

Local clients are still keen to spend on the right brand. Watches of Switzerland makes around 60% of its sales from three of the best in the industry: Rolex, Patek Philippe and Audemars Piguet. 

Long waiting lists for these companies’ products keep a floor under demand. As all three manufacturers are privately owned, Watches of Switzerland is the only way for investors to get exposure to their healthy sales growth.

Of course, a retailer will never achieve the same margins as a big luxury watch manufacturer—one reason why Watches of Switzerland’s shares trade at 20 times next year’s earnings, compared to 36 times for Richemont. 

The retailer’s high exposure to the U.S. market may also be a drag as political turbulence rises ahead of the November election. 

Yet other listed companies in the Swiss watch business will struggle to show the same resilience in this crisis.

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