The impact of the price increase of luxury watches

Vacheron Constantin latest launch SIHH 2011

This week’sSIHH exhibition in Geneva, one of the major international luxury watch fairs is dominated by the theme of Swiss luxury watchmakers raising prices. Despite high demand from China, the strong Swiss Franc is forcing watchmakers to raise prices. ”We are definitely going to increase our prices to defend the margin” said Philippe Leopold-Metzger, CEO of Piaget, a member of the Richemont Group which already announced the intention to raise prices. An a statement, the company confirmed ”Our view is that we try to protect our margins globally and maintain constant pretax prices in order to avoid gray markets. We will adjust our prices in some markets to react to the appreciation in the Swiss Franc”.

Philippe Merk, CEO of Audemars Piguet confirmed his company already increased prices twice in 2010 and intends to increase them again in February. ”Transferring our assets or labor to other countries is really not possible when you want to be in line with the qualifications of ”Swiss made”.The largest Swiss watches manufacturer, Swatch Group formally demaded the Swiss National bank to introduce a target level for the Swiss Franc.

Jean Daniel Pasche, President of the Swiss Watch Industry FH also voiced concern over increased prices: ”This is a very big issue for companies. It could affect the competitiveness of our brands, they have to either increase their prices or reduce their margins.”

Oliver Petcu of CPP Luxury Industry Management Consultants Ltd believes sales of very expensive pieces (over EUR 20.000) will not be affected by the price increases. However, he warned this price increase might have a direct negative impact, putting pressure on local retailers, especially in emerging markets (Eastern Europe, Brazil, North Africa) which already have to fight to determine customers to buy locally, even though they are most likely to shop abroad in flagship stores and duty free outlets at lower prices. The black and grey markets for the under EUR 20.000 product range are also likely to increase, especially ”direct sales” made by individuals as well as small un-authorized re-sellers. In the long term, sales of luxury watches could also be affected in these emerging markets by the fact that luxury watches are no longer a status symbol for the upper middle class driven mostly by the notoriety of the brand rather than the value of the mechanism, quality of finishes and materials utilized.

partially from Wall Street Journal