Trump's 39% tariffs 'horrible' for Switzerland, Breitling CEO says

Breitling CEO Georges Kern described the 39% U.S. tariffs on Swiss goods as "horrible," forcing a 4% global price increase for the watchmaker and contributing to a 56% decline in Swiss watch exports to the U.S. While acknowledging a tough luxury market due to inflation and post-pandemic effects, Kern reported improving sales in China and strong growth in the U.S., Middle East, and parts of Asia and Latin America, expressing a long-term bullish view on the luxury industry despite anticipated continued pressure on luxury watch sales.

Analysis

The 39% U.S. tariffs on Swiss goods have significantly impacted the Swiss luxury watch sector, leading Breitling to implement a 4% global price increase to offset costs. This policy contributed to a substantial 56% plunge in Swiss watch exports to the U.S. in August, driving a broader 16.5% year-over-year decline in overall Swiss watch exports for the month, with no trade resolution yet in sight.

Despite these tariff-induced pressures, the broader luxury market faces a "long-lasting crisis" characterized by post-pandemic slump, inflation, and a Chinese economic slowdown. Bernstein's Luca Solca anticipates continued pressure on luxury watches due to their low-frequency purchase cycle, noting that many consumers bought watches during the 2021-2023 boom.

However, Breitling's CEO Georges Kern maintains an optimistic outlook, citing "booming" U.S. sales and "very good" performance in the Middle East, with potential further improvement post-Gaza ceasefire. The company also reports an uptick in demand across South/Latin America and specific Asian markets, alongside stabilizing and gradually improving sales in China, which could signal a U-shaped recovery by Q4 2025. Kern remains bullish on the long-term prospects of the luxury industry.

Key Decisions for Investors

• Monitor developments in U.S.-Swiss trade relations for potential tariff adjustments, as resolution could significantly reduce cost pressures on Swiss luxury goods.
• Evaluate luxury sector investments by assessing regional revenue diversification, favoring companies with strong exposure to resilient markets like the U.S. and Middle East, and those benefiting from a potential U-shaped recovery in China.
• Consider the long-term investment thesis for luxury goods, acknowledging the industry's historical resilience, but remain cautious regarding near-term volatility in the luxury watch segment due to cyclical purchasing patterns and ongoing geopolitical factors.