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Bright shine that may be short lived - Financial Times

Bright shine that may be short lived - Financial Times

Bright shine that may be short lived - Financial

WATCHES & JEWELLERY FINANCIAL TIMES SPECIALREPORT | SaturdaySeptember 11 2010 Inside Opals once had a reputation for bad luck. Now, they are at the heart of jewellery makers’ collections Nicola Copping Page12 www.ft.com/watches&jewellery­september­2010 | twitter.com/ftreports Bright shine that may be short lived The industry owes its rebound to demand and restocking but Scheherazade Daneshkhu asks: can it continue? The harder the fall, the greater the bounce. That is the hope of the watch and jewellery industry and so far this year, there have been few disappointments. “The crisis is over,” declared the Federation of the Swiss Watch Industry in July, hailing the “vigorous recovery” of Swiss watch exports that grew by 20 per cent in the first six months of the year, compared with the same period last year. The rise was particularly marked in March and June, when values jumped by, respectively, 33 per cent and 35 per cent. Swatch Group, the world’s largest watchmaker and manufacturer of Omega and Longines timepieces, as well as its eponymous brand, reported in August – two months after the death of its chairman and inventive founder, Nicolas Hayek – that sales by its watches and jewellery division increased by 33 per cent, in constant currency terms, in the first six months. That industry outperformance helped the Swiss company achieve record operating profit margins of 23 per cent. In France, LVMH, the world’s biggest luxury goods group, which owns Tag Heuer, Hublot and Chaumet, has also had a good year. Its watches and jewellery business grew faster than any of its other businesses – by 24 per cent, at constant exchange rates – in the first six months. The industry owes the rebound to increased consumer demand, restocking by wholesalers and third-party retailers. Aggressive cost-cutting has helped boost profits. The question now is whether this degree of outperformance can continue in the remainder of the year and into 2011. “It’s too soon to celebrate,” says Pam Danziger of Unity Marketing, a US-based consultancy. Her research shows there were more wealthy Americans buying watches in the second quarter, compared with the first three months of the year, but that the amount spent was flat. This suggests that these luxury consumers had traded down to less prestigious brands. Within the industry, most people are optimistic. Swatch, for example, says it expects strong sales and profit, while Francesco Trapani, chief executive of Insidethisissue Happy birthday Timothy Barber on the 40th anniversary of the quartz revolution Page 3 Rich pickings Maria Doulton explains why jewellery houses want to show their wares at the Paris Biennale Page 8 Blood diamonds Aimed at verifying the origins of stones, the Kimberley Process has been found wanting, writes Claire Adler Page 10 Under the hammer The auction season has just become longer, writes Simon de Burton Page 14 Bulgari – which last year incurred a loss – says he expects a very strong rise in profits this year, despite a modest sales rise. But amid the optimism, there are some, if only pale, grey clouds. The first six months of last year was the weaker half of 2009, making this year’s outperformance to date relatively easy. In the second half, the comparative period will not be so favourable and so rates of growth are likely to be less pronounced. “Further slowdown is likely as comparables get tougher,” says Dennis Weber, analyst at UK-based Evolution Securities, about the outlook for Swiss watch exports. “Nevertheless, with the lower-priced and highend segments outperforming, we believe there is a positive readacross for most companies focusing on hard luxury. The larger groups – Swatch and Richemont in particular – continue to gain market share.” The rise in gold prices is also a concern for the industry. Thierry Stern, chairman of Patek Philippe, the Swiss watchmaker, said recently that the relentless rise in gold prices was “a threat”. Mr Trapani said the cost of the precious metal was “a worry” but could increase the importance of watches made out of metal combinations, such as gold and steel or gold and ceramic. The rise in gold prices threatens to push up costs just as a question mark has emerged over people’s willingness to continue spending money following the splurge in the first half and the sustainability of the economic recovery, particularly in the US. Some companies have already seen a slowdown. Continued on Page 2 Windowshopping:salesofwatchesandjewellerygrewfasterthananyofLVMH’sotherbusinessesinthefirstsixmonthsof2010 Bloomberg

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