Horological Meandering

For our members who are constantly wiring monies to Switzerland (probably to pay for our mechanical watch, clock, music box, chocolate bars, and/or belt buckle bills) there is a big problem heading our way...  The Swiss franc has been getting extremely strong.  Skyrocketing in fact.  The Swiss franc has gone up 13.31% in the past 12 months!  And about 7 percent in the past two weeks!  

This means there are huge economic repercussions, and since most watches and most high-value watch parts are made in Switzerland, the average cost of watches will go up.  The Swiss watch industry has also diversified away from Chinese watch parts due to the need of sourcing parts from multiple factories (including domestic factories) during the pandemic when parts supplies were interrupted.  Thus, Chinese parts have decreased.  And yes!  That affects WPS readers too - even though WPS tend to focus on higher-end Swiss Watches from Patek Philippe and Vacheron Constantin (which do use some Asian-sourced parts), a rising tide lifts all boats.  

There are dozens of reasons why the Swiss franc is appreciating in value.  Switzerland saw less inflation during the pandemic.  Thus, products in Switzerland became more valuable and thus, there was more demand in the currency as there was more trade to do with Switzerland.  

Furthermore, even despite the failure of the banking system, and the dramatic collapse of Credit Suisse, Switzerland is still a major country for storing assets.  With the conflict in Ukraine, Swiss banks have been seeing an increase in deposits.  Furthermore, wealthy individuals are pulling out of the stock market - this pull out of capital markets means that there is a lot of cash sitting around.  Often, family offices will consider storing a portion of the money in Swiss banks.  Swiss banks can store different currencies; Francs, Euros, and Dollars; but many will opt to convert their funds to Swiss francs - and this has lead to an increase in demand for Swiss francs as well.  

Large watch brands are often currency hedged.  So this won't affect them too much immediately.  But this is not the case with smaller brands and independents.  

I spoke with some independents about this problem and they confessed to me that they see their customers balking at the higher prices.  I asked one - someone who can afford a $100,000 USD luxury mechanical product can surely afford a $110,000 USD watch and this independent told me that while the client could afford it, sometimes it's going from $95,000 USD to $105,000 USD, and that six figure mental barrier is damaging and the clients are definitely noticing the increase and they feel clients are less eager to make acquisitions.  Also, independent watchmakers sometimes have customization details to work through or other problems and production snags.  Thus there is stress on both the sales side and the client side, when the price increases so much in a short period of time while the client is still in discussions about the customization details.  One independent I spoke with told me they expect to lose a sale or two from clients as the clients are just unhappy about the exchange rate - and this being a luxury purchase, clients need to feel good about their purchases.  

For our readers in Switzerland, this is good news, as you have more purchasing power.  And possibly less competition!  

What does this mean for readers of this site whom don't live in Switzerland?  As the Swiss franc continues to increase, watch collectors can expect to pay more for Swiss products.  Swiss watch companies who do their accounting in Francs will have to charge more Euros, Dollars, Yen, and Yuan for their products to keep their profit margins.  Will the market bear these increases?  Probably - since the watch market is still very warm.  

You might say this is a good time to buy a German watch - always wanted that Lange!  Well, Lange does do its accounting in Euros.  BUT, Lange seeks to position itself as a top level brand - which means it has to charge as much as other top level brands to preserve its image.  So, this rising tide of the Swiss franc does lift all boats...  

The Swiss government is attempting to control the Swiss franc and to curb this massive appreciation.  But, it's not very successful so far.  Historically, in times of war, Switzerland's long banking history, political neutrality, and physical insulation from war has always made Switzerland a place to bring money to in times of conflict.  We're in a conflict now.  Also, in the 1970s, The US dollar saw massive inflation, and at this time there was also a notable amount of appreciation in the Swiss franc.  We're in a similar situation now.  

The luxury world is still heavily dominated by the US dollar.  Graff Jewelers quotes all their prices in dollars despite being a UK firm.  The United Arab Emirates - where Dubai and Abu Dhabi are meccas for luxury shopping - has its currency pegged to the US dollar since 1997.  Luxury goods buyers throughout the world - especially in Asia and the Middle East often think in terms of US dollars.  Thus, the biggest watch brands won't be able to increase their prices too much.  But watches are still hot - so they will be making some adjustments - adjustments that are not in your favor!  

  login to reply