With the Swiss National Bank’s decision to abolish its minimum exchange rate policy, Chinese consumers will soon be paying a lot more for luxury Swiss watches.
Swiss National Bank said in a statement that the policy, which, since 2011, kept the exchange rate with the euro from falling below 1.2 Swiss francs, “protected the Swiss economy from serious harm,” but due to the depreciation of the euro, the Swiss franc has fallen steeply against the dollar, so the protections are no longer necessary.
Experts say that the decision may hurt tourism and trade between China and Switzerland, but it is luxury exports that will be hit the hardest, according to China Daily.
“Clearly, Swiss timepiece and chocolate producers will feel the pinch in Asian markets after the announcement, which will add 10 percent to the items’ cost,” said professor Lu Jinyong of Beijing’s University of International Business and Economics.
Even before SNB’s decision, Richemont had announced a weaker-than-expected quarter for the three months ending December 31st. In Asia, the company’s largest market, which accounts for over a third of its sales, watch and jewelry sales were down 5 percent, according to The Wall Street Journal. Richemont attributed the decline to “an unfavorable basis of comparison and a difficult trading environment in most markets, primarily in Hong Kong and Macau.”
To offset the bank’s decision, Swatch and Richemont are considering raising their prices in Europe up to 10 percent, and Rolex and Patek Philippe are considering raising prices in Japan to counter the falling yen against the Swiss franc. With currency-related price adjustments in both Europe and Japan, similar decisions may be coming to China if the exchange rate between the Swiss franc and Chinese yuan becomes unfavorable for the Swiss companies.
The increased cost to consumers due to the rising value of the Swiss franc, along with the luxury spending slowdown in China, means 2015 could be tough for Swiss watchmakers in the Chinese market.
image source: s.yume