Thursday, 14 May 2020

Watches of Switzerland hit by Covid-19, but demand still strong




Luxury watch and jewelry retailer Watches of Switzerland Group issued an encouraging update on Thursday and also told us that it has the money to get through a prolonged period of weak sales.

It has entered into a new £45 million facility agreement as part of the UK government’s Coronavirus Large Business Interruption Loan Scheme. And it said its total available facilities in place as of May 13 are around £265 million. 

All of which is good news. But what’s happening to the business now and what happened in its latest year? Well, most of that seemed positive too.

The company said that in the year to April 26 (FY20), group revenue rose 5.9% to £819.3 million, ahead of its recently revised guidance range. It saw a strong trading pre-lockdown (the first 46 weeks to March 15), with group revenue up 15.8% (the UK rising 9.4% and the US surging 36.4%). This was driven by luxury watches that were up 19.3%. In fact, “demand for key luxury watch brands continued to exceed supply throughout the year”.

But Covid-19 related closures of all stores in the UK and US understandably “impacted momentum” in the final six weeks of FY20. With those six weeks included, the numbers for the full year were pulled down noticeably. UK sales for the 52 weeks to April 26 rose only 0.6% to £591.6 million and US sales were up a healthy 22.9% to £227.7 million, but that was much lower than the close-to-40% it had achieved before the pandemic hit. 

At least the company made up for some of the store losses of March and April as its e-commerce sales rose 45.8% in the six weeks to April 26.
CEO Brian Duffy said the firm had been on track to deliver double-digit sales growth before the lockdown, “reflecting our strong brand partnerships, favorable market conditions and accelerating momentum in the US”.

But it’s encouraging that “despite the current challenges, demand for luxury watches has remained strong,” he added. “Through our longstanding partnerships with the most prestigious Swiss watch brands, we have further enhanced the online customer experience with the introduction of additional brands which we had previously only transacted in our stores”.

The company has also identified cost savings and, as well as strengthening its cash reserves as mention earlier, it has been able to “maintain full salary entitlement for all our colleagues”.

And it said it’s “working hard behind the scenes to ensure that when our stores do re-open, they do so safely and in line with best practice so that our customers and colleagues will be able to shop and work confidently in a safe and healthy environment”. 

Store re-openings are already proceeding in Florida and Georgia in the US, and to date, “the experience of those colleagues and customers has been positive”. That said, post-lockdown, the company is “anticipating a prolonged period of lower traffic, particularly in airports.” That means “e-commerce, CRM, and ‘clienteling’ continuing to gain importance,” something many of the firm’s retail peers are going to have to face up to in the months ahead too.

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