Watches of Switzerland defies downturn with high demand for luxury brands

Watches of Switzerland has defied the growing gloom around consumer spending, predicting that sales will rise by around a fifth this year as buoyant demand continues to meet a scarcity of supply.

The group’s 171 stores in the UK and US sell brands such as Rolex, Patek Philippe and Breitling, with an average price of about £6,000.

Sales for the year to May 1 rose 40 per cent to £1.23bn as consumers spent savings that had piled up during lockdowns. Pre-tax profit almost doubled to £126mn.

Shares in Watches of Switzerland have almost halved this year following fears about the effect of a looming spending downturn on products that are both expensive and entirely discretionary.

But chief executive Brian Duffy said that while the group was “mindful” of the macroeconomic environment there was no indication of a slowdown in demand yet.

“Our average sales price is around £6,000 so it is clearly a higher-income demographic that is less affected by cost of living pressures but more conscious of asset valuations,” he said, adding that watches were increasingly regarded as an investment or an heirloom rather than straightforward consumer goods.

Supply is also constrained by the skilled nature of watchmaking and its concentration in one country. “The luxury watch industry is a microcosm, it’s a very conservative Swiss industry that has been producing below demand for some years now,” said Duffy.

“The numbers of people registered with us is many times the number of products we have to sell them,” he added. Around three-quarters of watch sales are of products for which there is a waiting list.

Geographic factors have also helped Watches of Switzerland. It is not present in either Russia or China, where demand has been more fragile, but has benefited greatly from its expansion in the US market.

Sales in America have gone from 19 per cent of the company’s total in 2019 to 35 per cent now, growing by almost half in the year just ended. Duffy forecasts that they will overtake UK sales in 2026 or possibly sooner.

Analysts at HSBC said there was “a clear supercycle of growth in the US market”. Per capita ownership of luxury watches is just 40 per cent of UK levels, partly because of a relative lack of dedicated retail outlets.

The company is in the early stages of expanding into Europe, with stores set to open in Ireland, Sweden and Denmark in this year.

Aside from the uncertain economic outlook, the only real trouble spot was travel retail. Since the start of 2021, it has no longer been possible for tourists to reclaim sales taxes on items purchased in the UK but then taken out of the country.

Watches of Switzerland has renegotiated its store at Heathrow airport to reflect its expectation that tourism-related sales will not recover to pre-Brexit levels because of this change.