Cautious mood at Basel watch fair

At the end of Baselworld 2014 last week, the organisers of the week-long watch show hailed the event as a success because it had attracted around 150,000 visitors, many of whom were overseas buyers.

But the record turnout at the world's biggest watch fair in the Swiss city of Basel may not translate into another year of bumper sales for the Swiss watch industry, virtually the sole supplier of luxury timepieces which are desired in almost every corner of the planet.

Figures recently released by the Federation of the Swiss Watch Industry showed that Swiss watch exports rose to a new high of 21.8 billion Swiss francs (S$31 billion) last year, when the turnout at Baselworld 2013 hit a record of 122,000 visitors.

But the increase in watch shipments was just 1.9 per cent above the level in 2012, when exports jumped 10.9 per cent over the previous year. This slowdown has partly led to a more cautious mood among buyers at Baselworld 2014, observers say.

While there were more visitors this year, it was noticeable that the number of novelties dished out appeared to be fewer than the past year.

"Market expectations for Baselworld will be prudent this year," Citigroup luxury goods analyst Thomas Chauvet was quoted as saying in Financial Times as the fair kicked off. "The mood is unlikely to be bullish after a disappointing 2013 performance for the Swiss watch industry."

Consulting firm Deloitte, which is upbeat about prospects for the Swiss watch industry, said in a study, Time for the Future, that watch executives were "cautious about the next 12 months" as customers, in particular the Chinese, had cut back on their spending given the still-shaky global economy.

Despite the bigger turnout, the number of Singapore buyers at Baselworld 2014 seemed smaller this year - and their stay was shorter. At least one major retail chain is said to have trimmed its orders at this year's Baselworld, where up to 80 per cent of global sales of luxury timepieces are sealed.

But Michael Tay, executive director of The Hour Glass, Singapore's biggest watch retail chain, cautioned against reading too much into the orders. They are "indicative but not definitive" of the industry's performance ahead, he pointed out. He added that some of the cutbacks were because many of the brands had yet to deliver 2013 orders.

Sales at The Hour Glass were up for the nine months ended December 2013. Though profits were squeezed, the firm is likely to wrap up its financial year ended March 2014 with record sales.

Even so, Mr Tay said that demand for luxury timepieces remained uncertain. "The outlook is not great, but there's still business to be done. It will be a year of consolidation and rebalancing of sales."

Singapore's Swiss watch imports bounced back from a dip in 2012 to post a one per cent increase to 1.14 billion Swiss francs in 2013. However, the Republic's position among Switzerland's top 10 export markets has slipped from seventh to eighth.

Shipments to Singapore in the first two months of 2014 fell 3.7 per cent year on year to 163.2 million Swiss francs.

Reflecting the mood of caution at Baselworld 2014, a number of brands are thinking of cutting prices this year - a significant change in an industry where price hikes are de rigeur.

Said Swiss watch brand Zenith's chief executive Jean-Frederic Dufour in Financial Times: "Lots of watchmakers are pulling prices down a bit to make sure they are competitive. This trend was already there (at Salon International de la Haute Horlogerie or SIHH) in Geneva, and I can imagine that Baselworld will confirm it."

Observers say that the prices of complicated timepieces at the show were more down-to-earth than before, with some of the tourbillons priced as low as 80,000 Swiss francs.

Even exhibitors who have not overtly slashed prices juggled their collections towards less-expensive watches.

There were also fewer glitzy timepieces on display; there was a return to simplicity and more focus on timeless and classical pieces, in part to cater to the preferences of Chinese customers.

Many analysts are still expecting the industry to grow between 6 and 8 per cent this year, roughly in line with the long-term average. Already, Swiss watch exports have jumped 7 per cent in January-March.

"After a year of consolidation at a very high level, the sector is again showing signs of a marked increase in the value of exports, in line with forecasts," said the Federation of the Swiss Watch Industry.

Shipments to Hong Kong, the biggest market, expanded 5.1 per cent after a 5.6 per cent decline last year. Exports to China, which slid 12.5 per cent last year, inched up 0.6 per cent in the first two months of 2014.

This article was published on April 12 in The Business Times.

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