RUNNING SCARED: The threat that Apple will cannibalise existing watch demand is most acute for Swatch, analysts say, because it has the highest proportion of products selling for a few hundred dollars.
ZURICH: Swatch Group AG reported a decline in first-half profit as the maker of Omega and Tissot timepieces cracked down on unauthorized sales by retailers that have eroded its pricing power.
Operating profit slid 13% to 547 million francs ($554 million), Swatch said Wednesday. Analysts expected 534 million francs. The company also suffered from a decline of more than 10% in revenue from Hong Kong, the largest export market for the industry, where sales were disrupted during political protests.
The watchmaker said it took “uncompromising action” against so-called grey market dealers, which typically buy up unsold stock from authorized dealers and sell it at big discounts. While this is the first time the company announces such a move, rival Richemont has been taking measures to buy back excess inventory from the market for years.
“The grey market news is really encouraging,” said Jon Cox, an analyst at Kepler Cheuvreux. “You need to create the appearance of scarcity in luxury watches -- otherwise they become a commodity.”
Sales fell 4.4% to 4.08 billion francs as the measures against unauthorized sales reduced revenue by a figure in the hundreds of millions of francs, the company said.
The decline in profit probably also reflects the struggles of low-priced and mid-range timepieces. While Swiss watch exports have climbed in the first months of 2019, the growth has been driven by higher-end watches costing more than 3,000 francs. Swatch relies on low and mid-priced brands for the bulk of its earnings.
The company’s namesake brand may be losing money, or breaking even at best, Luca Solca, an analyst at Sanford C. Bernstein, said in April.
Investors also may be disappointed that Swatch didn’t resolve all the bottlenecks that snarled production in the second half of 2018. The company said while such issues improved in the first half, some remain to be fixed later this year. Still, Swatch forecast growth in full-year sales, which will be helped by easier comparisons in the second half. - Bloomberg
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