Retailers of luxury Swiss watches in the UAE have cut discounts instead of raising prices despite a recent surge in the value of the Swiss franc.
Tag Heuer and Rolex have reduced the discount they offer for new purchases.
“We have been told that right now we must reduce the discount we are allowed to give,” said a salesman at the Rolex showroom in The Dubai Mall. “We usually offer up to 12 per cent discount on sales of new watches but we have been told that we can now only offer 5 per cent. We will not be increasing prices for the foreseeable future. All the salespeople in the watch shops are talking about it, no one has put their prices up but we have been told to wait and see.”
Breitling, Omega, Piaget and Raymond Weil have no plans for price increases. Tag Heuer prices in the UAE range from Dh4,400 up to Dh979,000 for the Carrera Mikrotourbillion.
The move by the Swiss National Bank on January 15 to remove the euro cap of 1.20 Swiss francs per euro resulted in the currency jumping by nearly 30 per cent against the euro and 18 per cent against the dollar in the minutes following the decision.
The franc has since given back some of those gains, and through Friday was up 12 per cent against the euro since the rate cap was removed, and 10 per cent against the dollar.
Within days of the move, watchmakers including Patek Philippe and Rolex said they would raise prices between 4 and 8 per cent this month in Japan to offset currency losses.
“There is not much they can do, especially when the currency shock came so suddenly,” said Nikola Kosutic, the research manager at Euromonitor International, a market intelligence firm.
“The best strategy is to cut other costs as much as you can and try to renegotiate contracts with distributors. Some companies might turn to their domestic market but in the case of Swiss watches this is not possible as the domestic market has tiny share in overall sales.”
Mr Kosutic said that some watchmakers might try to push the retail prices up, but it could backfire if consumers turn to other brands. “Different companies will take different approaches but they will all lose, just some more and some less. It is a disaster.”
Meanwhile, figures released by the Federation of the Swiss Watch Industry yesterday showed that overall watch exports rose 8.9 per cent last year to 1.01 billion Swiss francs compared with 934.1 million francs a year earlier.
The federation said that overall, watch exports ended last year on a negative note. In December their monthly value was 1.8bn francs, down 2.5 per cent.
It is not just Swiss watches that are bearing the brunt of an expensive franc. Exports of chocolates are also likely to come under pressure from European rivals.
However, some companies have taken the opportunity to open factories in other markets to limit the impact of an appreciating currency.
The chocolate maker Lindt opened a distribution office in Dubai last year, and with its production facilities outside of Switzerland it is able to mitigate against price increases.
“On a local, organic basis, meaning in local currencies, we are able to somewhat compensate the disadvantages of the strong Swiss franc thanks to our 11 production locations outside Switzerland that produce directly for the local markets,” said Sylvia Kalin, the corporate communications director for Lindt. But she added that the company was closely monitoring the currency development “in order to decide appropriate action, if needed”.
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How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
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- Upload the training certificate from a centre accredited by the GCAA
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What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
