Wednesday, August 31, 2016

Alphaville Talks The Decline Of High End Swiss Watches, Savonarola Swings By

From FT Alphaville:

A bonfire of the Swiss watches
Ever since the Chinese government cracked down on “gift giving” as part of its anti-corruption campaign, Swiss watch exports have taking a beating.

Here’s the trend, courtesy of a UBS European luxury note out Wednesday:http://ftalphaville.ft.com/files/2016/08/Screen-Shot-2016-08-31-at-10.15.341.png
As the analysts note, that slump follows a more than 100 per cent rise in the value of Swiss watch exports over 2010 and 2011.

Ground zero for the demand destruction, meanwhile, is Hong Kong. And it’s there that UBS got some insight on the scale of the downturn from three major retailers:
We recently met three Hong Kong/ China watch retailers: Hengdeli, Oriental and Emperor Watch & Jewellery. All three companies commented that current trading remains tough, and there is not expected to be any significant recovery this year. Destocking continues as retailers reduce replenishment rates on weaker brands and adjust inventory price mix. More store closures are also ahead with the only silver lining that there appears to be a little more room for rent reductions in Hong Kong of ~10%-40%.
Recent company commentary has continued to be weak: Swatch reported H1 results on 21st July. Organic sales declined -12.5%, with multi-brand retailers cautious to re-order or cancelling orders. CEO Hayek commented that own retail was better than wholesale and retail in Hong Kong has potentially bottomed out with sales between +10% and -10% depending on the stores. Local Hong Kong retailers, however, do not see the same trends. These results again confirm the difficult market conditions, and follow Richemont reporting April sales -15%.
Unsurprisingly, for a market where the perception of scarcity underpins all value, the likes of Richemont have even taken to buying back inventory. According to UBS, the new Cartier CEO has specifically looked to clean out high end inventory from the Hong Kong market. This, we’d argue, is quite something. (Or at the very least a new asset purchase idea for QE?)...
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Here's a quick look at Savonarola: "Origins and History of the Iniquitous Bonfire of the Vanities and the lasting consequences on Art History