Sales of Porsche are down because even its wealthy customers are being squeezed by rising interest rates designed to bring down inflation.
The company’s chief financial officer believes the froth is coming off because of economic headwinds and government policy in Western nations.
“Drivers are more reluctant to buy Porsche after governments increased interest rates heavily,” the car maker’s finance chief Lutz Meschke says.
Porsche is not alone.
The squeeze is also hitting the luxury industry more broadly, he argues. “You can follow it when it comes to share price development of all luxury retailers worldwide,” he adds.
He has a point.
The Watches of Switzerland Group’s share price has been trading below £5 this week. At the end of 2021, it was three times higher.
From being valued at over £3 billion, the company is now worth £1.2 billion.
Hong Kong-based jewellery and watch retailer, Chow Thai Fook has been on a similar trajectory.
The business, which has close to 8,000 point of sale, 7,700 in Mainland China, has seen its share price peaked at almost HK$18 in 2021 and is now almost half that at HK$10.6 today.
The Hour Glass, headquartered in Singapore, saw its share price peak last year at SGD 2.5. Today it is SGD 1.7.
These stocks may have been oversold, and the hope is that central banks squeezing demand through higher interest rates will manage a soft landing, with growth strengthening next year.
Porsche is not so sure. “In 2024 we expect a challenging year due to the geopolitical situation and the economy in China,” Mr Meschke forecasts.
Swiss manufacturers will have another record year of exports, which makes me fearful that a supply will run ahead of demand for all but a few collections from Rolex, Patek Philippe, Richard Mille and the low volume independents (I think Audemars Piguet will drop off the list).
For retailers, even if sales hold up, I think margins will be down because the cost of customer acquisition will rise and repeat business from the biggest spending collectors will slow.
Before you think I have succumbed to a council of despair, I remain hugely optimistic about the long term health of the watch industry from the highest volume Japanese manufacturers making ever-improving products to the venerable Swiss that have transitioned from producing practical timekeepers to covetable works of art.
So, while I think the boom times of the past three years have kept some pretty mediocre businesses afloat, and these may succumb in tougher times, I am confident that our greatest brands and retailers will find new ways to thrive in a cooling economy.