Impact of Tariffs on the Swiss Watch Industry: Brand Leaders Explore Solutions

The recent announcement of a 31% tariff on Swiss products has sent shockwaves through the Swiss watch industry, coinciding with the prestigious Watches and Wonders event in Geneva. As brand executives gather to unveil new timepieces, they are also grappling with the potential ramifications of these tariffs.

Industry leaders, including those from established luxury brands and emerging companies alike, have expressed concern over the steep tariff rate. The expectations were for a lower rate, around 20%, but the unexpected increase poses significant challenges for manufacturers. With inventory levels typically low at the beginning of the month, brands are scrambling to find solutions.

In an immediate response, some companies have shifted production logistics, moving watches from other regions to the United States to mitigate the impact of the tariffs. However, this approach is only a temporary fix as a long-term strategy is essential for sustainability.

One of the pressing concerns is the pricing strategy for Swiss watches in the U.S. market. Executives recognize that passing on the full cost of the tariffs to consumers may not be feasible. A significant price increase could drive customers towards international retailers or alternative brands, particularly for mid-range and lower-priced watches that are often impulse purchases.

The ramifications of such a pricing strategy could be particularly detrimental for brands that rely heavily on high sales volumes in these segments. As many brands operate their own boutiques in the U.S., declining sales directly affect their bottom line. Additionally, those working with multi-brand retailers have a vested interest in maintaining stable sales figures.

To avoid significant price increases while navigating the tariffs, companies will likely need to consider adjustments to profit margins. Some industry leaders have suggested that manufacturers, distributors, and retailers may have to share the financial burden. Drawing comparisons to other markets with high tariffs, such as India, executives acknowledge that lower margins may be necessary to sustain competitiveness.

As the Swiss watch industry faces these new tariffs, it comes at a time when the sector is already under pressure from a decline in exports. In 2024, exports fell by 3%, with the U.S. market being a rare exception, showing a 5% increase. This growth has helped to offset losses in critical markets like China and Hong Kong, which saw significant declines in demand.

Despite the uncertainty surrounding the implementation of these tariffs, there remains a glimmer of hope among some industry insiders who believe that negotiations may still be possible. However, financial markets are already reacting, with shares of major companies like Richemont and Swatch Group experiencing substantial drops since the announcement.

Industry representatives are calling for proactive measures from the Swiss watch federation to argue against the tariffs, emphasizing the lack of a comparable high-end watch industry in the U.S. that would benefit from such protective measures. Additionally, the employment impact of Swiss brands in the U.S. should be highlighted, as they employ thousands across various sectors.

While some executives are contemplating potential adjustments to their production strategies, such as local assembly in the U.S., the feasibility remains uncertain. The strict 'Swiss Made' label requirements, which mandate a significant portion of the manufacturing process to occur in Switzerland, complicate any such moves.

Overall, the Swiss watch industry is at a critical juncture, facing challenges not only from the newly imposed tariffs but also from evolving consumer behaviors and market dynamics.