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FT SPECIAL REPORT Watches & Jewellery Monday January 21 2013 www.ft.com/reports | twitter.com/ftreports good news is that some of this slow- down may have been a temporary phenomenon linked to the political Inside » uncertainty surrounding the genera- tional transfer of power in China’s Swatch strategy Glory days Communist party, which was accom- panied by a number of scandals that Group’s purchase put a damper on the tradition of gift giving among China’s political of Harry Winston and business classes. will increase “It’s hard to say precisely how long presence in the US on hold as it will take for gift giving to come back, but it will,” says John Guy, Page 2 retail and luxury analyst at Berenberg Bank. “It’s very ingrained in the Chi- nese psyche. And even if business gift- The big launch ing remains subdued for a bit, other types of gifting will keep going. The Investment sees sales start wealthy uncle giving a Rolex as a wedding present won’t go away.” returns as Cartier Other observers are less optimistic secures its place about a bounceback in 2013, however. David Sadigh, chief executive of the as a heavyweight Digital Luxury Group, a consultancy Page 4 to lose lustre that works with a number of big watch groups, suggests that the SIHH preview ‘The wealthy uncle giving A selection of 16 a Rolex as a wedding timepieces set to A decline in gift giving in China may not be stun horolophiles present won’t go away,’ at Geneva show a temporary phenomenon and the next says a Berenberg analyst 12 months could be tough, writes James Shotter Page 5 anointment of Xi Jinping as China’s Secret boutiques n the face of it, 2012 was For alongside such headline suc- leader could lead to a more enduring another good year for cesses, 2012 also saw a number of decline in gift giving. Alternative auction Swiss watchmakers. developments that will cause “He comes from a family that is Exports of Switzerland’s problems for watchmakers in 2013. part of the old guard of the political houses are finding most famous product were The most significant was a slow- revolution. He is deeply rooted in a place among Oup 13 per cent by value in the down of demand in Asia, whose communism. He has already made it 11 months to November – and that is swelling ranks of nouveau riche con- clear that he intends to crack down US aficionados in comparison with a record year in sumers have been voracious buyers of on corruption. If the Chinese start to Page 7 2011. Swatch Group, which agreed a high-end watches in recent years. In feel scared of wearing a watch $1bn deal to buy Harry Winston Dia- September, Swiss watch exports to because it is seen as a sign of mond Corporation on January 14, mainland China dropped 27.5 per cent, corruption, that would have a massive posted annual revenues of SFr8bn for while in Hong Kong – the biggest for- impact on the watch industry,” he the first time. And Richemont, the eign market for Swiss watches – they warns. On FT.com » Swiss luxury giant which owns watch were down 19.9 per cent. Taiwan and Yet, even if China’s business and brands such as Piaget and Jaeger- Singapore posted similar declines, political elite does return to giving LeCoultre, reported in November that contributing to the first monthly drop watches with their old abandon, there ●Antwerp party its sales had risen 12 per cent in the in Swiss watch exports for three are broader, macroeconomic reasons ●Buying in bulk six months to September, with its years. for the slowdown in Chinese watch specialist watch division the star The disappointing figures continued purchases which may take longer to ●UK watch theft performer. throughout the autumn, with exports dissipate. “The thing to bear in mind ●How to protect Business over the next 12 months is to China down 2 per cent in October, is wealth effects,” says Jon Cox, head unlikely to be as brisk, however. and 10 per cent in November. The Dusting: in September, exports to mainland China dropped 27.5 per cent Getty Continued on Page 2 against fakes 2 ★ FINANCIAL TIMES MONDAY JANUARY 21 2013 Watches & Jewellery Swatch fills gap in portfolio with purchase of Harry Winston Corporate strategy The $1bn deal has raised eyebrows, but analysts say it makes a lot of sense for both sides. James Shotter reports or all its other successes, the the song Diamonds are a Girl’s Best ventures of Swatch Group Friend, and which remains a red- into the world of high-end carpet staple, counting the likes of jewellery watches have not Gwyneth Paltrow and Halle Berry always ended in smiles. among its Hollywood admirers. FIts most recent foray collapsed in Swatch – which beat two rival acrimony in 2011 when the Swiss bidders, according to a person close watchmaker abruptly terminated a to the negotiations – will pay the partnership with Tiffany, the US lux- Toronto-listed company $750m in ury jeweller, with accusations from cash, as well as assuming up to $250m John Guy, an analyst at Berenberg Diamond deal: the given all the concerns around blood says Jon Cox, an analyst at Kepler both sides that the other had failed to in debt, making the acquisition the Bank, pointing out that as well as acquisition is Swatch diamonds,” he says. Capital Markets. honour the terms of their deal. group’s biggest since it was created filling a gap in Swatch’s brand portfo- Group’s biggest “It eliminates any ethical risk. But “On this year’s numbers, the deal As well as sparking a bitter legal during the depths of Switzerland’s lio, the acquisition will also bulk up since it was formed in it is also important because the dia- values the unit at 23 times earnings tit-for-tat, the imbroglio left a gap in watch crisis in the 1980s. the watchmaker’s hitherto slender the 1980s mond market can be a volatile and before interest, tax, depreciation and Swatch’s portfolio in an area of the Under the terms of the deal, the presence in the Americas, which capacity-constrained business. The amortisation. The average for the jewellery and watchmaking business Canadian group – which will now con- accounted for just 8 per cent of greater your control over supply, the sector is 10.” that many observers think could see centrate on its mining activities and Swatch’s sales in 2011, but which has better, he says. Other analysts are more sanguine. decent growth in coming years, and rename itself Dominion Diamond Cor- been a traditional area of strength for For the Harry Winston brand, the “Clearly a multiple of 23 times is which is currently dominated by poration – will continue to meet Harry Winston. move is also a shrewd one, argues expensive,” says Mr Weber. “But brands such as Cartier – owned by Swatch’s thirst for polished diamonds. The potential co-operation on dia- Rene Weber, an analyst at Bank Von- LVMH paid 21 times for Bulgari, and Swatch’s Swiss rival, Richemont – and The two companies will also explore mond polishing also has significant tobel. “Harry Winston already had a if you believe that Swatch can boost Chopard. the possibility of embarking on a joint strategic implications, Mr Guy says. strategy in place to increase their Harry Winston’s margins from around On January 14, Swatch moved to fill diamond-polishing venture. “Vertical integration is the holy exposure to watches from 25 per cent 10 per cent now to 25 per cent in the gap, disclosing that it had struck Analysts were quick to approve the grail in the luxury goods sector. This of sales to between 40 and 50 per cent future, then in retrospect it will look a deal to buy the watches and jewel- rationale of the deal, which accompa- is particularly true where diamonds and with Swatch they can clearly like quite an attractive deal,” he adds, lery division of Harry Winston Dia- nies a flurry of corporate activity in are concerned – if you can trace a achieve this,” he says. referring to a suggestion by Nick mond Corporation, a swanky brand the luxury sector. diamond from the mine to the shelf in Indeed, Swatch has a good record of Hayek, Swatch’s chief executive, that immortalised by Marilyn Monroe in “Strategically it makes sense,” says the boutique, then that is a big plus, improving the fortunes of underper- the unit could achieve net profits of forming brands, says Mr Guy. “When SFr250m from sales of SFr1bn in a few they took on Breguet, it was lossmak- years’ time. ing, and they have now turned it into The deal is also a good use of the a roughly SFr1.1bn-business with cash that has been piling up on operating margins of approximately Swatch’s balance sheet as its profits 25 per cent. We believe Swatch has have soared in recent years, adds Mr similar sales and margin opportuni- Weber. ties with Harry Winston.” “Swatch has got so much net cash Yet, while few observers would that it can afford $1bn, and given that quibble with the logic of Swatch’s lat- cash held in banks is not yielding est addition, the pricetag has raised much at the moment, it is likely to eyebrows. have a positive effect on their bottom “At first glance, it looks expensive,” line.” Sales start to lose their lustre Continued from Page 1 instead.

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