Geneva watch show opens in throes of banking turmoil

GENEVA (AFP): The Geneva watch fair opened Monday buoyed by booming growth in the watchmaking industry, but insiders warily eyed the banking sector turmoil, evoking painful memories of the 2008 financial crisis.

Industry professionals were upbeat on the first day of the Watches and Wonders annual fair, where 48 prestigious brands including Rolex, Patek Philippe and Cartier were showing off their new creations.

The fair, which runs until Sunday with the weekend open to the public, kicked off after two years of record gains for Swiss watchmakers.

Exports soared by 31.2 percent in 2021, after a strong rebound in sales in the United States and the Middle East.

And the return of luxury tourism to Europe in 2022 after two years of Covid disruptions pushed exports up a further 11.4 percent to 24.8 billion Swiss francs ($27.1 billion).

The growth has also continued so far this year, with exports up by another 10.6 percent during the first two months of 2023, according to statistics from the Federation of the Swiss Watch Industry.

But optimism at the Geneva fair was somewhat dampened by the angst surrounding the turbulence currently lashing the banking sector.

Switzerland — whose vibrant banking scene is a key part of the country’s economy and culture — has been rocked to the core after the government strong-armed the nation’s biggest bank UBS into swallowing up its troubled competitor Credit Suisse, in a bid to ward off a larger global banking crisis.

The upheaval has brought back difficult memories for Swiss watchmakers.
After the 2008 round of bank failures sparked a global financial crisis, Swiss watch exports plunged 22.3 percent in 2009 — more even than during Covid-dominated 2020.

“I am unable to say what the global repercussions will be,” Thierry Stern, the boss of Patek Philippe, told AFP.

“But I still think it should be easier than in 2008-2009.”

For the moment the difficulties remain “very localised” as Patek Philippe “sells all over the world”, said Stern, who is counting in particular on Asia to ensure growth in 2023.

Jerome Lambert, managing director of the luxury giant Richemont — owner of the Cartier, Piaget and IWC brands — acknowledged that the turnaround in demand in 2009 had been “very rapid” and very “severe”.

“But it was a big lesson for us,” he said, explaining that the group had since taken distribution in hand.

Edouard Meylan, owner of the Hautlence brand, nevertheless believes that “lights are turning red”.

“If there is a financial crisis, it will have a very big impact on our sector,” he told AFP, especially since with supply difficulties some watchmakers have gone from “very large orders from their suppliers” and risk finding themselves with large stocks if the market turns.

Other analysts believe there is little reason to panic just yet.

“For now, I would expect the impact to be muted,” Jon Cox, an industry analyst with the Kepler Cheuvreux financial services company, told AFP, adding that he is still expecting to see growth this year of around 10 percent in exports.

However, the Credit Suisse debacle, which threatens tens of thousands of jobs in the financial sector, could take its toll.

“The financial community is an important part of the buying public for the watch industry and there could be impact in local markets, such as Switzerland, on domestic business,” Cox warned, adding though that “this is likely to be offset by tourism”.

For now, Swiss watchmakers are looking to the Chinese market to pick up pace and ensure their 2023 export growth.

When demand was exploding in other markets as they rolled back pandemic protection measures, the watch market in China remained subdued as the country ploughed on with its zero-Covid rules, and then saw infection numbers explode when it abruptly ended that policy late last year.

But watchmakers and experts are expecting that to change with the reopening of the Chinese economy.

Jean-Philippe Bertschy, an analyst with Swiss investment managers Vontobel, warned however that “a return to normalcy” for Chinese watch sales — traditionally Swiss watchmakers’ largest market — will take time.

On the positive side, he told AFP he was confident, given “the level of savings the Chinese had set aside during the health restrictions”.

As for tourism, he cautioned that while Chinese travellers may quickly flock to Asian destinations, “it will take more time before they return to Europe,” due to the continued limited air transport capacity and visa backlogs.