Swatch upbeat as fashion sector recovers, luxury surges

By

Sandra Halliday

Published
Jan 30, 2018

It was good news all the way from Swatch on Tuesday as the watch giant said it expects "very positive" growth this year. This follows rising sales and a 28% profits surge in 2017 as demand for Swiss watches rose globally.

And Swatch benefitted in particular as its more affordable and more fashion-focused Tissot and Swatch brands won market share. In fact, 2017  saw its basic and mid-range offer doing much better than it has in recent years. And that really matters to the company because it’s such a big player in the market (around two-thirds of the Swiss watches that wholesale for under CHF200 come from the group.) 

While higher-end watches are also selling well and actually saw the strongest increase for the group last year, the growth at the lower end of the price scale must be satisfying for CEO Nick Hayek. It’s the lower end that has suffered most from the decline in the fashion watch sector as consumers use their smartphones as timepieces. 

Of course, the industry has been through a bruising period across the price scale as it navigated changes in consumer behaviour, as well as the impact of wearable technology and a downturn in Chinese shoppers.

But those Chinese consumers are now helping Swatch mount a comeback and it said that it expects good growth this year through its own stores and websites, as well as through multi-brand retailers that stock its labels. It’s targeting a high-single-digit sales rise overall for 2018.

THE NUMBERS

That’s the future, but what about last year? The return to growth in 2017 after two tough years saw net sales rising 5.4% to CHF7.96 billion (€6.86 billion) on a reported basis, or a rise of 5.8% currency-neutral. Importantly too, growth speeded up in the second half (the H1 rise was only 1.2%) and that holds out the potential for more sales rises this year. In fact, December was its second best month ever.

The group hasn’t reported a profit rise for four years but this time said its operating income rose 25% to CHF1 billion and the operating margin rose to 12.6% from 10.7%. Net income rose 28% to CHF733 million. 

Apple may now be the world’s biggest watch brand, but Swatch’s brands are doing well. Omega is heading towards CHF3 billion in sales annually while Longines is close to CHF2 billion and Tissot has already topped CHF1 billion, Hayek told Bloomberg. He also said Harry Winston could reach CHF1 billion within four years.

The company is upbeat on future sales, as mentioned, even though it still doesn’t sell through globally dominant e-tailer Amazon. It’s in talks with the company but Hayek said the sticking point is Amazon not agreeing to Swatch’s insistence that it does more to fight counterfeits.