Swiss watchmakers are planning to raise prices to defend margins
coming under attack from the strength of the Swiss franc.
The first price rises are likely to come in April to counter the
strong franc, which has risen by 16% against the euro and 7%
against the dollar in the last year.
"We are definitely going to increase our prices to defend the
margin. That is the business, what powers the company," said
Philippe Leopold-Metzger, Chief Executive of Piaget, a brand owned
by Compagnie Financiere Richemont (CFR.VX).
Piaget had to take action because a lot of its costs, including
manpower are incurred in Swiss francs and that is affecting its
prices, he told Dow Jones Newswires at the Salon International De
La Haute Horlogerie (SIHH) event in Geneva Wednesday.
Piaget's parent company Richemont (CFR.VX), which also owns
luxury watch brands such as Roger Dubuis, Baume & Mercier and
Jaeger-LeCoultre, is also looking to adjust its prices.
"Our view is that we try to protect our margins globally and
maintain constant pretax prices in order to avoid grey markets," a
Richemont spokesman said.
"We will adjust our prices in some markets to react to the
appreciation in the Swiss franc," he added.
Philippe Merk, CEO of privately-held Audemars Piguet, said his
brand had already increased prices twice last year and would
increase them again in February.
He pointed out that the Swiss watch industry doesn't have the
option of natural hedging that other industries might.
"Transferring our assets or labor to other countries is really not
possible when you want to be in line with the qualifications of
Swiss-made," he said, adding that price rises are the only way to
combat the strong currency.
While Swatch Group AG (UHR.XX) Chief Executive Nick Hayek has
called on the Swiss National Bank to introduce a fair target level
for the Swiss franc, Merk was not optimistic that intervention was
the answer, saying that low interest rates had not worked so far.
Companies could only take their own actions to compensate, he
said.
Hayek has repeatedly warned of the far-reaching consequences a
soaring Swiss franc may have for Switzerland.
"The SNB has the means to act," Hayek said Wednesday. "But it
has to give a clear message to the market that it won't accept the
franc to fall below a fair level, which is currently set mid-term
at 1.4 francs against the euro by many banks."
The SNB last year intervened repeatedly in the currency market.
However, the franc remained at elevated levels and the SNB incurred
a loss of about 21 billion francs due to these interventions. Some
economist say that such intervention is useless and too costly.
Richemont, which makes the vast majority of its luxury brands in
Switzerland currently hedges 70% of its net exposure to the US
Dollar, Hong Kong Dollar and Yen.
The spokesman said there were no plans to dramatically change
this policy at present.
Chief executives of other Richemont brands also said they would
consider increasing their prices in the next few months.
Alain Zimmerman, CEO of Baume & Mercier said his brand would
review its prices before it launched new products in April.
As an entry level luxury watch brand, with prices starting at
CHF2,000 the company is more sensitive to price increases than more
expensive watches, he said.
"We want to make sure that if we increase prices we do it well,"
Zimmerman said.
The currency concerns have been noted by the Swiss watch
industry association, which said the issue cast a cloud over the
recent surge in watch exports.
Swiss watch exports for the first 11 months of 2010 rose 22% to
CHF14.6 billion, already higher than the full year figure of
CHF13.2 billion in 2009, according to the most recent figures from
the Federation of the Swiss Watch Industry FH.
"In 2011 the manufacturers are happy because the market has
returned, but we are also preoccupied with the strong franc," said
Jean-Daniel Pasche, president of the federation.
"This is a very big issue for companies. It could affect the
competitiveness of our brands, they have to either increase their
prices or reduce their margins," Pasche told Dow Jones
Newswires.
He said he was relieved by the appreciation of the euro versus
the franc in the last few days, but he did not know if this was a
long-term development or a short term respite.
After reaching record levels in late December due to safe haven
buying, the franc has softened slightly over the past few days. The
dollar currently trades at about 0.9586 francs, while the euro
currently stands at 1.2905.
Analysts think that Swiss watches will be able to sustain a mid
to high single increase in prices before sales start to be hit.
With most of the world's luxury watchmakers based in
Switzerland, it is a problem they all share and they are unlikely
to lose sales to outsiders.
Piaget's Leopold Metzger did not think his brand, which sells
watches ranging from CHF5,500 to several millions, would lose sales
because of price increase, although price increases could be
greater for mid and lower segment brands.
"But we are reaching a level where we have to be worried if the
Swiss franc was to become stronger. There may be moment where it
becomes a threat. But at the moment we can cope," he said.
-By John Revill, Dow Jones Newswires; +41 43 443 8042 ;
john.revill@dowjones.com
(Goran Mijuk in Zurich contributed to this article.)
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