Currently at 10%, tariffs on Swiss goods imported into the US are causing a ripple effect on the watch industry.
Aggressive tariff policies are impacting the US and global economies at a time when inflation and economic uncertainty have already caused profound changes to consumer spending habits.
Not to mention, the currency exchange rate between the United States and Switzerland is currently unfavorable (100 USD equates to approximately 80 CHF).
Moreover, Swiss watch export volumes continue to decline, and the per-unit prices continue to rise. This generally means economies of scale become less efficient.
It’s worth noting that these trends affected the Swiss watch business before the news of import tariffs to the US went from 3% to 10% (with an impending tariff rate of 31%).
Considering that the current 10% tariff rate is applied to the wholesale value — not the retail value of watches imported from Switzerland — the net increase will not be the same as the actual tariff rate. Although at such a volatile time, even small increases in cost only exacerbate the already challenging business conditions.
Swiss watch industry leader Rolex appears to be playing it safe and has not reacted with any drastic strategic changes or price increases. Swatch Group AG, another industry leader, which owns Omega, announced price increases last week. We reached out to Omega US to clarify, but received no response. This reaction by the publicly traded Swatch Group AG starkly contrasts with the cautious approach of rival Rolex.
Considering the overall declining demand for Swiss watches, barring Veblen goods, which theoretically see demand rise with price increases, logic suggests that raising prices could be devastating to an industry already facing numerous perils.
Notwithstanding, as evidenced by the Swatch Group’s price increase announcement (and others such as Hermes), it’s already happening.
Professional Watches spoke to John Shmerler, CEO of The 1916 Company, last week, about the impact of tariffs on the watch industry, and he said:
“We’re entering a new era, and it is still early to observe the full impact of the tariffs. We anticipate that the rate will not go below 10% on Swiss watch imports, and we’ll need to adapt to this new environment.
It is clear, however, that US consumers are going to pay higher prices for new goods, as several of the watch companies have already announced retail price increases this week. Regarding the pre-owned market, it hasn’t played out yet – but conventional wisdom says that the category will likely follow suit with price increases, and that we’ll see inflationary pressures for pre-owned watches.
The real question that remains is whether there is enough excess demand to absorb the price increases, or whether consumers will turn to other categories. At the highest end of the price range, I do believe that these clients are the most recession-, or inflation-resistant, so we wait to see what happens next.”
We also spoke with Victoria H. Lee Castro of CH Jewelers last week about the same topic, and she had this to say:
“Like everyone in the retail industry, we’ve been closely monitoring the news around tariffs. We feel the need to keep ourselves informed so that we can make the best decisions with our partners and our clients. As a family-led business serving a diverse and global clientele, we’ve seen our share of historical moments where uncertainty prevails. We’ve weathered them all, and this turbulent time feels no different. Our clients remain our top priority, regardless of external conditions. We continue to focus on delivering exceptional service and unparalleled craftsmanship to all who walk through our doors.”
Once applied, price increases often become permanent, and could push Swiss watches further upmarket, excluding more potential consumers located in the US market from owning Swiss watches, a critical geographic market that for many brands represents 40-50% of their total global turnover. This tactic may improve secondary resale prices, exclusivity, and short-term profit margins; however, raising prices despite falling demand could destroy the long-term growth of an industry already at a tipping point.
After years of increases, prices are already objectively and subjectively too high for many watch brands. Discounting at retail, though rarely made public, is rampant at many major watch companies. Last week, WatchPro published this article addressing the discount rates of major watchmakers. This type of candid reporting is helpful to consumers. In continuing that dialog, would reducing discounts be a better solution than outright raising prices that are already unsustainable?
