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Swatch Group H1 profit squeeze: China slump offsets US and MEA gains

Bottom Line Impact

Absent rapid channel and inventory actions, margin remains near 2 to 3 percent; executing a DTC shift in China and reallocating inventory to US and GCC can drive a 100 to 200 bps margin recovery and defend share in core mid to upper-mid watch segments.

Key Roles Affected

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Executive Summary

Swatch Group reported H1 2025 sales of CHF 3,059m, down 7.1 percent at constant FX, with operating profit collapsing to CHF 68m as Greater China wholesale fell over 30 percent. Strength in the USA, India, Middle East, Turkey, and Australia provides reallocation headroom, but a rapid channel reset in China and tighter inventory control are critical to stabilize margins in H2.

Actionable Insights

Immediate Actions (Next 30-90 days)
Accelerate China channel reset by closing or converting 50 to 70 low-productivity wholesale doors and expand DTC via mono-brand boutiques and WeChat mini-programs to raise China DTC mix by 5 to 7 pts by Q4.
Rationale: Wholesale down over 30 percent vs 15 percent in owned retail indicates faster DTC pivot will stabilize sell-out and pricing power.
Role affected:CEO
Urgency level:immediate
Rebalance 8 to 12 percent of H2 inventory from Greater China wholesale to US, GCC, and India; target China wholesale weeks of supply reduction from 18 to 14 and free CHF 150m to 200m working capital.
Rationale: Double-digit growth in these corridors can absorb stock at full price, lifting gross margin 100 to 150 bps vs discounting in China.
Role affected:CFO
Urgency level:immediate
Flex production 10 to 15 percent on slower-moving China-first SKUs, prioritize allocation to US and GCC bestsellers, and institute a rolling 8-week SIOP cadence across ETA, case, and assembly plants.
Rationale: Aligning supply to demand hotspots reduces obsolescence risk and protects contribution margin through H2.
Role affected:COO
Urgency level:immediate
Short-term Actions (6-12 months)
Launch two region-specific capsule drops with limited allocations for Golden Week and Singles Day, supported by KOL livecommerce and CRM retargeting; cap run sizes at 5k to 10k units per brand tier to preserve scarcity.
Rationale: Slight H2 China improvement plus scarcity-led drops can convert traffic without broad discounting and support ASP resilience.
Role affected:CMO
Urgency level:short-term

Strategic Analysis

Next 30 to 90 days require active inventory rebalancing from Greater China wholesale to faster-growing US and MEA doors, tighter OPEX, and targeted China traffic activation around Golden Week to protect H2 margin trajectory.

Over 6 to 12 months, Swatch Group must structurally shift mix toward DTC in China, rationalize third-party doors, and lean into growth corridors in the US, India, and GCC; success could lift group operating margin by 100 to 200 bps from H1 levels by mid-2026.

Richemont's jewelry-led mix and Rolex and Tudor's waitlist dynamics insulate them in China, while LVMH Watches and Breitling continue to push DTC and experiential retail; without faster channel restructuring, Swatch risks ceding share in mid to upper-mid price tiers, especially in Omega and Longines competitive sets.

A China wholesale contraction stresses upstream planning for ETA and component factories; production needs to flex down 10 to 15 percent for affected SKUs while rerouting finished goods to US and GCC. Retail partners in China face cash flow pressure and may discount, risking brand equity; customers shift to DTC and travel retail, favoring brands with robust omnichannel and CRM.

Risks & Opportunities

Primary Risks

  • Prolonged China demand softness triggers further wholesale destocking and gray market leakage
  • FX volatility and strong CHF compress export margins despite local currency stability
  • Discount contagion in China erodes brand equity and ASPs across mid-tier brands

Primary Opportunities

  • US, GCC, India outperformance enables premium mix and full-price sell-through
  • DTC expansion in China improves data capture, pricing control, and CRM-driven repeat
  • Targeted limited editions and travel retail activations lift conversion without broad promotions

Market Context

The luxury watch sector is navigating a China slowdown, uneven travel recovery, and a consumer shift toward experiential and scarcity-driven purchases. Brands with higher DTC penetration, stronger jewelry exposure, or structural waitlists have been more resilient than mid-tier watch portfolios. For Swatch Group, accessible to mid-luxury positioning magnifies channel risk in China but creates leverage in the US and GCC where demand remains robust and price realization is higher versus peers focused on wholesale.

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