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By
Reuters
Published
Jan 12, 2012
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Watch fair to reveal health of luxury industry

By
Reuters
Published
Jan 12, 2012

The Geneva watch fair, SIHH, the first major luxury goods industry gathering this year, will take the pulse of a sector which has sailed relatively unscathed through recent economic turmoil but could be facing dark clouds ahead.


The new "Capeland" watch by Baume & Mercier will be presented at SIHH

Order levels, business updates from brands and fashion trends will be major talking points at the plush fair which runs Monday through Friday and regroups 18 participants, many of them brands owned by luxury goods group Richemont.

Richemont will open the ball on Monday by publishing a sales update with the focus on prospects, comments on margin pressure and any evidence that Asian demand might be slowing down or unable to offset sluggish sales in Europe.

"The latest data points from Greater China have suggested a slowdown in hard luxury sell-out (sales to end-customers) including the Chinese and Hong Kong retail sales data," Barclays Capital analysts said in a note.

The world's biggest watchmaker Swatch Group on Tuesday warned sales growth would slow to 5-10 percent this year compared with almost 22 percent in 2011.

Meanwhile, jeweler Tiffany said Christmas sales weakened markedly and lowered its full year profit forecast.

Swatch Group and Richemont shares shed around 15 percent of their value last year, underperforming a flat STOXX Europe 600 Personal & Household Goods index, as markets are pricing in a slowdown in luxury goods sales this year.

"We are quite optimistic for 2012 even though the watch industry might not have the same growth rates as the 19-20 percent increase in watch exports seen in 2011," said Jean-Daniel Pasche, head of the Swiss watch federation.

"Risks this year are the economic situation in Europe, U.S. austerity measures and the strong Swiss franc," he said. "But we expect the watch fairs to confirm the sector's resilience."

The Geneva fair brings together Richemont brands, such as Cartier, Montblanc, IWC, Piaget and Vacheron Constantin, and independents like Audemars Piguet, Parmigiani and Richard Mille.

The Baselworld watch fair in March features many of Richemont's rivals owned by Swatch Group as well as major independent brands such as Rolex and Patek Philippe.

"One important topic at the fair will be Swatch Group cutting back on watch part and movement deliveries and how this affects the different brands," Vontobel analyst Rene Weber said.

"Cartier and Montblanc will definitely feel the pinch while Jaeger-LeCoultre, Vacheron Constantin and Roger Dubuis are less dependent on Swatch Group's ETA movements," he said.

Swatch Group, whose ETA and Nivarox units have a quasi-monopoly on watch parts and movements, is reducing deliveries this year, pending the outcome of an investigation by Swiss competition authorities.

"We assume the market needs 8.2 million movements in 2012 and Swatch Group can hold back delivery of 1 million or around 12 percent of those needed," Kepler CM analyst Jon Cox said, adding he expected overall 2012 market growth of 5 percent.

(Editing by Helen Massy-Beresford)

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