Watches of Switzerland defies recession with strong demand for luxury brands
Watches of Switzerland defied the growing gloom surrounding consumer spending, predicting that sales will rise by around a fifth this year as buoyant demand continues to meet the scarcity of supply.
The group’s 171 stores in the UK and US sell brands such as Rolex, Patek Philippe and Breitling, with an average price of around £6,000.
Sales for the year to May 1 rose 40% to £1.23billion as consumers spent savings that had accrued during the lockdowns. Pre-tax profit nearly doubled to £126m.
Shares of Watches of Switzerland have almost halved this year on concerns about the effect of an impending cut in spending on products that are both expensive and entirely discretionary.
But chief executive Brian Duffy said while the group was “conscious” of the macroeconomic environment, there was no indication yet of a slowdown in demand.
“Our average sale price is around £6,000 so this is clearly a higher income demographic who are less affected by cost of living pressures but more aware of asset valuations” , he said, adding that watches were increasingly seen as an investment or an heirloom. rather than just consumer goods.
Supply is also constrained by the skilled nature of watchmaking and its concentration in a single country. “The luxury watch industry is a microcosm, it’s a very conservative Swiss industry that has been producing below demand for a few years now,” Duffy said.
“The number of people registered with us is many times greater than the number of products we have to sell to them,” he added. About three-quarters of watch sales relate to products for which there is a waiting list.
Geographical factors also helped Watches of Switzerland. It is not present in Russia or China, where demand has been more fragile, but has largely benefited from its expansion on the American market.
Sales in America have grown from 19% of the company’s total in 2019 to 35% now, increasing by nearly half in the year just ended. Duffy predicts they will overtake UK sales in 2026 or possibly sooner.
HSBC analysts said there was “a clear growth supercycle in the US market”. Luxury watch ownership per capita is only 40% of UK levels, partly due to a relative lack of dedicated outlets.
The company is in the early stages of its expansion in Europe, with stores set to open in Ireland, Sweden and Denmark this year.
Beyond the uncertain economic outlook, the only real hot spot was travel retail. From the start of 2021, it is no longer possible for tourists to reclaim sales tax on items purchased in the UK but then taken out of the country.
Watches of Switzerland has renegotiated its store at Heathrow Airport to reflect its expectation that tourism-related sales will not return to pre-Brexit levels due to the change.