Are things slowing down in the luxury watch industry? It certainly looks that way since legendary watchmaker TAG Heuer has cut jobs in both production and management. This 150-year-old brand isn’t the only maker of fine timepieces feeling the pinch.
Even the market for luxury items isn’t recession-proof, as the French champagne and fashion company LVMH has discovered. According to Jean-Claude Biver, head of LVMH’s watch division, sales in the industry grew by only 2.7% in the first eight months of 2014, a disappointing figure when growth of 4% to 6% had been predicted for the year.
The TAG Heuer brand has reacted to the bad news by axing 46 employees permanently and putting another 49 on hiatus until the end of this year. These cuts will deeply affect the Swiss TAG Heuer sites at La Chaux-de-Fonds and Chevenez, which currently employ a total of 600 workers.
TAG Heuer is not the only luxury brand affected by the diminished demand for fine watches. Cartier has been forced to cut working hours for 230 of the employees at one of the brand’s Swiss factories.
So what’s the reason for the weak demand for Swiss timepieces? Financial analysts Kepler Cheuvreux blamed the downturn on slow business in Hong Kong, which is responsible for about 20% of fine watch sales. The firm also cut growth predictions for the Swiss watch business from 5.5% to 3.5%.
Biver agreed on the problems lying with Hong Kong, citing political unrest in the city that has discouraged tourists, especially well heeled ones, from visiting the area and patronizing its retailers of luxury goods. As Biver told Reuters, “We have seen fewer Chinese, and particularly wealthy Chinese, coming to Hong Kong and this of course affects the industry.”
LVMH has been sufficiently alarmed about the situation in Hong Kong to cancel plans to open a new shop for Heuer’s sister brand Hublot in the city. This is despite the fact that sales for Hublot have risen more than 10% this year. Another problem for Swiss watchmakers has been a government crackdown on the giving of expensive gifts in China, another factor cutting into the sales of high-priced watches. Biver has stated that TAG Heuer would be concentrating more on watches priced between $1,275 and $5000 (USD) in the future, rather than more expensive models.
The tension in Asia caused luxury stocks to fall this week with several major brands suffering significant drops. Swatch stocks fell 2%, LVMH was down 1.5% and Richemont, owner of Cartier, dropped 1.7%. In addition, Italian fashion group Prada announced that there would be fewer new stores opening due to flat revenue growth.
Business will probably pick up when the economy improves, or the unrest in Hong Kong calms down. For now, the Swiss watch industry could really use a busy and lucrative holiday season.