Luxury watchmakers reduce discounts as Swiss franc surges

Tag Heuer and Rolex have reduced the discount they offer for new purchases, but Breitling, Omega, Piaget and Raymond Weil have no plans for price increases.

Discounts offered on Rolex watches have been cut to 5 per cent from 12 per cent. Randi Sokoloff / The National
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Retailers of luxury Swiss watches in the UAE have cut discounts instead of raising prices despite a recent surge in the value of the Swiss franc.

Tag Heuer and Rolex have reduced the discount they offer for new purchases.

“We have been told that right now we must reduce the discount we are allowed to give,” said a salesman at the Rolex showroom in The Dubai Mall. “We usually offer up to 12 per cent discount on sales of new watches but we have been told that we can now only offer 5 per cent. We will not be increasing prices for the foreseeable future. All the salespeople in the watch shops are talking about it, no one has put their prices up but we have been told to wait and see.”

Breitling, Omega, Piaget and Raymond Weil have no plans for price increases. Tag Heuer prices in the UAE range from Dh4,400 up to Dh979,000 for the Carrera Mikrotourbillion.

The move by the Swiss National Bank on January 15 to remove the euro cap of 1.20 Swiss francs per euro resulted in the currency jumping by nearly 30 per cent against the euro and 18 per cent against the dollar in the minutes following the decision.

The franc has since given back some of those gains, and through Friday was up 12 per cent against the euro since the rate cap was removed, and 10 per cent against the dollar.

Within days of the move, watchmakers including Patek Philippe and Rolex said they would raise prices between 4 and 8 per cent this month in Japan to offset currency losses.

“There is not much they can do, especially when the currency shock came so suddenly,” said Nikola Kosutic, the research manager at Euromonitor International, a market intelligence firm.

“The best strategy is to cut other costs as much as you can and try to renegotiate contracts with distributors. Some companies might turn to their domestic market but in the case of Swiss watches this is not possible as the domestic market has tiny share in overall sales.”

Mr Kosutic said that some watchmakers might try to push the retail prices up, but it could backfire if consumers turn to other brands. “Different companies will take different approaches but they will all lose, just some more and some less. It is a disaster.”

Meanwhile, figures released by the Federation of the Swiss Watch Industry yesterday showed that overall watch exports rose 8.9 per cent last year to 1.01 billion Swiss francs compared with 934.1 million francs a year earlier.

The federation said that overall, watch exports ended last year on a negative note. In December their monthly value was 1.8bn francs, down 2.5 per cent.

It is not just Swiss watches that are bearing the brunt of an expensive franc. Exports of chocolates are also likely to come under pressure from European rivals.

However, some companies have taken the opportunity to open factories in other markets to limit the impact of an appreciating currency.

The chocolate maker Lindt opened a distribution office in Dubai last year, and with its production facilities outside of Switzerland it is able to mitigate against price increases.

“On a local, organic basis, meaning in local currencies, we are able to somewhat compensate the disadvantages of the strong Swiss franc thanks to our 11 production locations outside Switzerland that produce directly for the local markets,” said Sylvia Kalin, the corporate communications director for Lindt. But she added that the company was closely monitoring the currency development “in order to decide appropriate action, if needed”.

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