Profits of Swatch Group AG melt half, which is the largest decline of at least 15 years, as demand for watches of the company in Hong Kong, France and Switzerland shrink. The sales were down by nearly 12%, informs unexpectedly based in Biel, Switzerland, producer of watches brands Omega and Tissot. Analysts had expected 22% drop in net profit and a 7% decrease in revenue. After the news during early trading on the stock exchange in Zurich Swatch shares fell sharply by 14%. The weak demand spread from Hong Kong to some key markets in Europe, among which France and Switzerland. Sales in the luxury segment in France slowed down because of the small flow of tourists after the terrorist attacks in November against the background of the last act in Nice.
According Swatch retention strategy to keep staffing levels, investment and marketing exacerbate the decline in profits. Unlike Richemont, which cut about 100 people in Cartier, Vacheron Constantin and Piaget, Swatch avoid mass job cuts. Reducing fixed costs in fine watchmaking is more difficult in most industries because finding trained craftsmen difficult. CEO Nick Hayek said he wanted to avoid layoffs because it will require employees when the market improves. The brand Tissot may be the most affected because it is in the same price segment, which competes directly with smart watches of Apple.
The only light was mainland China, where Swatch market is developing positively. Against this background, exports of Swiss watches decreased 11 consecutive months. During the first five months of 2016 exports are down by 9.5%.
Swatch will publish its final financial results for the first half to 21 July.