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A Swiss flag float on June 5, 2015 above Lake Lucerne in Rutli meadow considered as the birthplace of Switzerland. According to the legend, it was in the Rutli Meadow in 1291 where representatives of the original Swiss cantons, Schwyz, Uri and Unterwalden, took an oath to protect one another from the great threat of the era, the Austrians. Now, each August 1st (the reputed date of the Rutli oath) Switzerland celebrates their independence and courageous beginnings. AFP PHOTO / FABRICE COFFRINI (Photo credit should read FABRICE COFFRINI/AFP/Getty Images)

Analysts forecast 9% decline for Swiss watches in 2016

A new report by Macquarie Group, a provider of financial, investment and funds management services, forecasts a 9% decline in Swiss watch demand and exports in 2016. 

Macquarie states it has reviewed its expectations for Swiss watch demand for the remainder of 2016, following July’s Swatch Group profit warning and the decline in Swiss watch exports in H1 2016 versus H1 2015.

A statement from the report reads: “Based on the latest business tendency survey from ETH Zurich KOF with Swiss watch manufacturers, we estimate 2016 will see a 9% decline in Swiss watch demand with exports declining by the same amount. We believe Switzerland, about 10% of global Swiss watch demand, is aligned with the trend recorded outside the country.”

Looking ahead, Macquarie anticipates ‘mild growth’ for Swiss watch exports over the next seven years, likening this slower market growth to ‘what was seen during the 1970s Quartz Crisis’.

While it believes the Swiss watch market will return to growth in 2017, Macquarie does not expect the same level of recovery recorded in 2009-10 during the global credit crunch.

The company’s report also suggests that the trend for smartwatches could mimic the impact of Quartz watches on the trade as seen in the 1970s – albeit at a slower pace.

“We believe smartwatches are becoming a real competitor to traditional watches as shown by the number of smartwatches overtaking in volume terms (c30m units) the number of Swiss watches already in 2015,” states the report.

“We also believe a V-shaped recovery is unlikely due to the absence of an acceleration in demand from any of the key clientele, which was the case with Chinese demand in 2010.”

Reviewing recent figures from Swatch Group and Richemont Group, Macquarie has broken down the future of Swiss watch exports into three possible scenarios, concluding that current consensus expectations are factoring in “too optimistic an evolution of sales and/or margins for the next five years for both companies”.

Its scenarios are as follows:

The Good. Macquarie’s bull case scenario in which its estimates the impact of a V-shaped recovery in demand that to some extent would be similar to what was seen in 2010. This scenario is based on acceleration in demand already in 2H 2016. After the acceleration phase, growth stabilises at +4%.

The Bad. This is its base case scenario and the one on which its published estimates are based on. It is based on 2016 to decline 9% and a slow recovery thereafter similar to what was seen in the ‘70s during the Quartz Crisis. The medium-term rate is seen to stabilise at 3%.

The Ugly. Macquarie’s bear case scenario in which 2017 will be negative again, less than 2016 though, as a demand recovery takes longer. After that, demand growth remains weak with a stabilisation in the medium term at 1.5%.

 

Read more in the next issue of WatchPro.

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