The Swatch Group, once a beacon of success in the Swiss watch industry, is now facing challenging times. The company's latest half-year results reveal a 14% decrease in net sales and a staggering 71% drop in consolidated profit compared to the same period last year. This decline is primarily attributed to a sharp drop in demand for luxury goods in China, Hong Kong, Macau, and Southeast Asian markets.
While the Swatch brand managed to increase its sales in China by 10%, the company's other brands, including Omega, Longines, and Tissot, heavily represented in the region, suffered significant losses. The overall decline in orders from China led to lower sales and negative operating results in production.
Despite the setbacks, the Swatch Group remains optimistic about its future prospects. The company believes that China's potential remains "intact" and sees "excellent opportunities for further growth," particularly in the lower price segment. The positive development of markets in Japan and the USA, as well as the upcoming Olympic Games, are also expected to contribute to a "significantly improved situation" in the second half of the year.
However, analysts have expressed concerns about the company's strategy of maintaining high production levels in the hope of a sales recovery. They also criticize the company's low return on capital and lack of investor friendliness.
The Swatch Group's struggles are not unique, as other luxury brands like Burberry are also facing difficulties due to a decline in demand in China. This has led to a broader downturn in the luxury goods sector, with other companies like Kering, LVMH, and Richemont also experiencing share price declines.
