Is Swiss watch industry facing the worst ever crisis?

The Swiss watch industry is severely effected due to the virus-imposed shutdown. As per Ricardo Guadalupe, the head of LVMH brand Hublot, the coronavirus pandemic is expected to reduce the sales of Swiss watches by about 30% this fiscal year.

In an interview published on German newspaper Handel blatt, Guadalupe said,” Over the year the industry will record a decline of 20 to 30%.” He further added,” Consumption has been brought to a complete standstill. It is not clear when and what may be reopened. And then there will be the question of how quickly people’s confidence will return.”

During this crisis, cash flow is the biggest problem faced by several companies as consumption is in a complete standstill now and this may cause some manufacturers to close down.

Guadalupe feels that companies should be able to survive for at least 18 months and they should prepare accordingly. He said that “The strong will survive; the weak will get into real trouble.”

Even Guadalupe’s own brand Hublot was suffering as 80% of its retail network were completely un-operational during the initial weeks of the pandemic. Guadalupe said, “you can apply that to our sales.”

It is expected that because of the pandemic as many as 25000 store closures will be announced this year. The crisis can take a toll on the entire retail sector as it is pushing several companies towards the brink of bankruptcy.

The glut of vacant storefronts is leaving the landlords in a situation where they must either fill those spaces or find a new way to utilize their real estate. Many retailers these days are looking to downsize to smaller store spaces as they are not looking forward to growing via brick and mortar.

In Guadalupe’s view, Chinese customers are becoming more important to them as they have witnessed a 30% sales growth in mainland China. They will concentrate more on expanding in the Chinese market.

The effect of ‘revenge buying’ post-pandemic is boosting up their sales in the Chinese market, but this cannot compensate for the reduction in purchases by the travelling Chinese consumers. Most of the luxury sales is driven by   tourism. Chinese customers are no longer travelling to Europe and United States, this is resulting in overall decline in luxury sales.

The effect of revenge buying might not last long so concentrating too much on domestic sales of luxury may prove to be futile at a later stage.