THE slowdown in the growth of luxury watch trade has led to a downturn in sales. But rather than panicking, Swiss producers and Singapore watch retailers are preparing for an upturn in business.
The drop in business is reflected in Swiss watch exports, which account for virtually all luxury timepieces in the global market.
After tapering growth in recent years, watch shipments from Switzerland slipped 3.3 per cent to 21.5 billion Swiss francs (S$30.7 billion) in 2015, the first decline since the 2009 recession, according to figures released by the Federation of the Swiss Watch Industry.
They have continued to fall. The federation's latest numbers show Swiss watch exports tumbled 11.1 per cent in the first seven months of 2016. It also noted that shipments "fell faster than at any other time in the first half".
Watch exports to Singapore, which are a measure of the orders made by local retailers, still managed to post some growth in 2015 - they were up one per cent at 1.13 billion francs - but dived 13.1 per cent in January-July this year to 560.30 million francs.
Singapore's biggest watch retail chain, The Hour Glass (THG), reported a 4 per cent dip in sales to S$707.5 million for the financial year ended March 2016. It remained profitable, though net earnings were knocked down 10 per cent to S$53.5 million.
Cortina Holdings, the next-biggest retailer, reported a 9.2 per cent drop in sales over the same period to S$367.3 million. Net profit slumped 49.1 per cent to S$16.6 million.
The Swatch Group and Richemont, which together produced up to 90 per cent of Swiss luxury timepieces, also posted sales drop.
Yet, there have been no big cutbacks in production, staff and shops among the major Swiss watch groups and Singapore retailers.
Swatch Group openly declares its refusal to lay off employees, with its chief executive Nick Hayek arguing that this will stand it in good stead once the market picks up.
Instead, many Swatch and Richemont watch brands have trimmed costs by producing more less expensive stainless steel watches, rather than pricey gold and platinum timepieces. They are also playing it safe in an uncertain market by reviving old iconic models that have sold well - and launching fewer new ones.
Swatch and Richemont watch brands are further offering better value to customers and many are pushing women models to exploit a still not fully-tapped market.
Despite a 11.4 per cent drop in sales, the Swatch Group invested 285 million francs in non-current assets in the first half of 2016.
"The group's retail network was selectively broadened with the opening of new boutiques in the best locations in growth regions and production was expanded with the latest equipment, allowing (the group) to manufacture even more cost-effectively," it said in its latest financial statement.
In Singapore, there's been some consolidation in the watch retail trade, notably with the exit of Hong Kong-based Dickson Watch and Jewellery and THG's absorption of Watches of Switzerland. But the two main watch retail groups have continued to expand.
THG, reporting it has stayed resilient in these lean times, said that it opened six new shops in its 2016 financial year.
Taking a long-term view, Cortina is also pushing on with plans to add more outlets, including the biggest Rolex boutique in Singapore.
"This current downturn is not the first that Cortina has faced, nor will it be the last," its chairman Anthony Lim said. "We have and will continue to implement initiatives and put in place processes that will enhance our resilience to enable the group to overcome current and future challenges."
Added Richemont's chairman Johann Rupert in its annual report: "We are confident in the long-term demand for high quality products."
The Swatch Group, which expects to do better in the second half of 2016, indicated it has built up inventories "in anticipation of increased demand for Swiss-made watches, watch movements and components as of 2017".
Some bright signs have already appeared. Richemont said that "good growth" has already showed up in mainland China, which is estimated to account for a third of the global sales of luxury timepieces.
This is confirmed by the Swatch Group, which reported that the "sales situation" in China has "normalised" in the first half of the year. "In the first three weeks of July, very good growth was achieved in mainland China compared with the previous year . . ." It also said that the downturn in Hong Kong, the biggest market for luxury watches, have "bottomed out", especially in retail. "Positive developments" are also seen in South-east Asia, according to Swatch.
- READ MORE: Supplement: The Business Of Time 2016