For the third consecutive year, annual sales results for the Swatch Group of Switzerland, the world’s largest watchmaker, fell. Total sales in 2003 in Swiss francs dropped almost 2%, to 3.98 billion (US$3.2 billion), says a preliminary report issued Feb. 5 in Biel, the group’s headquarters.

Fluctuating currencies affected that results, with turnover rising about 1.5%, in terms of local currencies. (In U.S. dollar terms, for example, the Group’s sales actually rose from $2.9 billion in 2002 to $3.2 billion in 2003, due to the stronger franc versus the weaker dollar. However, a weak dollar raises Swiss watch prices here, diminishing rather than encouraging Swiss watch exports.)

Total sales of finished watches drooped 1.98% (to 2.91 billion Swiss francs, or US$2.36 billion) and rose 2.2% in local currencies. Turnover from production of watches, movements and stepper motors fell 4.2% in Swiss francs (to 1.24 billion or US$1 billion) and dropped 3.1% in local currencies. That decline is due to “more cautious ordering, especially by third party customers of the watch industry,” says the Swatch report. The downturn in orders increased in 2003’s second half, in part due to “currency-related pressure on prices for movements produced and sold in the Far East in the lowest price category.” However, sales of electronic systems (chips and quartz) produced in 2003 by the Group showed a twofold increase (up 1.4% in local currencies and 0.6% in Swiss francs).

“Difficult Year.” Calling 2003 a “difficult year,” the watchmaker blamed the drop in total sales on “major challenges [including] the war in Iraq, SARS, the decline in tourism, and reserved consumer sentiment … with which the global economy, and hence also the Swatch Group, had to contend.” However, business picked up in 2003’s second half, rising 4.2 % in local currencies and about 2.3 % in Swiss francs.

Overall, says the Swatch report, it gained “substantial” market share in all watch categories, thanks in part to a strategy of avoiding short-term price increases due to currency fluctuations. Swatch and Rado, which were particularly hard-hit in the first half of the year, gained ground in the second half. Luxury brands reported the strongest growth for the year, especially Breguet, which—claims the Swatch Group—“exceeded published or estimated growth rates of all other luxury brands.” Swatch’s other high end watches—Blancpain, Glashütte, Jaquet Droz, and Léon Hatot—all reported good growth. Omega “gained market share against its direct competitors and achieved good growth in local currency terms, in all the important major markets,” though it did have “currency losses” in the most successful markets,” says the Group. The medium-range segment also showed “very attractive growth,” says the Group. Tissot, especially, “has achieved record sales throughout these years of economic difficulty,” it noted.

Optimistic. Regionally, the major markets in 2003 “showed many parallels with 2002,” says the report, primarily “sustained subdued [consumer] sentiment” in Europe and “an uninterrupted dynamic” in the Asian countries (except during the SARS period) the USA, Eastern European markets, and the Middle East. (Recent months, though have seen “significant improvement” in buyer attitude in many parts of Europe.)

Because of rising watch sales in 2003’s second half, modest recovery of the world economy, “hesitant improvement” in consuemr confidence in most major markets, plus the watch conglomerate’s own “solid financial base, respectable cash flow” and recent cost-cutting, the Swatch Group is optimistically predicting “a “positive sales outlook” and “a satisfactory result in terms of operating and net profit” in 2004, “despite the strength of the Swiss franc.”

The final results for the year 2003 will be published on March 25.

JCK