Uncompromising action against grey market dealers, especially in Europe, the Middle East, Eastern Europe and South America has impacted sales in the first half of the year for Swatch Group but is expected to lead to improved growth in its biggest markets, the company said in a trading update on Wednesday.
Sales dipped by 3.7% to CHF 4.1 billion at constant exchange rates (4.4% adjusted for currency variance) while net profit fell 11.3% to CHF 415 million.
However, shares rose by 5% on the day as investors took encouragement from the efforts to curb grey market activity. The group has been taking a zero tolerance approach with authorized dealers dumping unsold inventory that then appears at considerable discounts on the secondary market.
It has chosen to restrict supply or close accounts as its major weapon against grey marketeers. Faced with the same issue a few years’ ago, Richemont instead chose to buy back unsold stock to the tune of about half a billion euros.
Future growth is expected as Swatch Group’s best authorized dealers take heart if price erosion on the secondary market can be tamed.
Protests in Hong Kong, the largest market in the world for Swiss watches, have hit sales for all the major groups. According to the Federation of the Swiss Watch Industry, exports to Hong Kong slumped by 28% in June. That made the United States the biggest market in the world for the first time as exports to that territory rose by 8%.
“Sales in Hong Kong, an important sales market with attractive margins, suffered from political turbulence,” the Swatch Group said. “This resulted in a double-digit decline in sales.”