Russian sanctions could hit luxury watchmaker Swatch

'Short-term' hit from Russia sanctions: Swatch CEO
'Short-term' hit from Russia sanctions: Swatch CEO

Tougher economic sanctions on Russia could hit revenues at Swiss luxury watchmaker Swatch Group, but the impact is likely to be short term, the company's CEO told CNBC.

European foreign ministers are meeting on Tuesday to discuss further sanctions against Russia, after the downing of the Malaysia Airlines Flight MH17 over Ukraine. Russia has been accused of providing the missile system that allegedly shot the civilian plane down.

New sanctions could include asset freezes and travel bans for some of Russia's wealthiest citizens¬-potentially hitting luxury goods companies.

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However, Swatch Group CEO Nick Hayek said any impact was likely to be temporary.

"Of course, there can be an impact short-term, but there is enough other opportunities in the world that will compensate for this," Hayek told CNBC in a TV interview on Tuesday. "We are here for the long run, and what we are doing is to serve the consumers in all parts of the world."

'Victim' of own success

Swatch Group, which owns the Omega and Harry Winston watch brands, reported net income of 680 million Swiss francs ($755 billion) for the first half of 2014 on Tuesday, down 11.5 percent from the same period last year. The company said a strong Swiss franc as well as a "high level" of marketing expenses for the Russian Sochi Winter Olympics had weighed on earnings.

Adam Jeffery | CNBC

Despite currency headwinds, Hayek said he was resisting the urge to raise prices to boost margins, aiming instead to boost market share.

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The Swatch Group CEO also said that the watch company was a "victim" of its success in countries whose domestic currencies were weak against the Swiss franc.

"The Swatch Group is now a victim of the strengths that we have in the United States and Japan an in mainland China, because all three currencies have become so extremely weak against the Swiss franc that we are a victim of the success."

China tastes changing

Many segments of the luxury sector, from alcohol to jewellery, have been feeling the heat from an anti-corruption drive in China. Stricter rules against gift-giving has impacted global high-end brands.

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However, Swatch Group said it was seeing growth in mainland China and gave a positive outlook for the second half of the year. Gross sales in Swatch Group's watches and jewellery segment were up more than 10 percent, despite a fire at a workshop last December in which the company took a 200 million Swiss franc sales hit.

Hayek said there has been a shift in the behavior of Chinese consumers, who were increasingly focusing on the lower-end brands such as Swatch's own label, rather than top end watches like Harry Winston.

"In mainland China we always have been growing. Only there was a switch from the high-end luxury," Hayek told CNBC. "The one that sells the most…is Swatch. Swatch Watches are now the leader and is growing and (China) has become the number one country in the world for Swatch."