The prospect of Britain voting to leave the European Union on June 23 is unsettling the UK watch industry and may lead to a rise in prices, stores closing and difficulties in finding skilled workers, say industry executives.
Prices in the UK have remained static for several years; Rolex has not raised them since 2012, although it is rumoured to be scheduling an increase in June. But the pound's weakening over the past six months, due to the possibility of Brexit, has made watches cheaper to overseas customers.
The pound has fallen against the euro from 1.42 in November to 1.31 at the end of May, a decline of 7.8 per cent. Retailers are therefore expecting manufacturers to increase prices to compensate.
"If you're from, say, China and you're buying tax-free [in Britain], you can pick up a great bargain at the moment," says Brian Duffy, chief executive of Aurum Group, parent company of luxury retailers Watches of Switzerland, Mappin & Webb and Goldsmiths.
The effect of the current imbalance appears to be reflected in data from research firm GfK's POS Tracking unit, which reports that the average sales price of a watch over £1,500 in the UK in the six months to April rose from £4,581 to £4,791. Industry analysts point to the rising number of tourist consumers buying expensive watches as part of the explanation.
Opinion on British membership of the EU among brands and retailers is divided. One UK-based executive for a Swiss watch company says he would welcome Brexit because a weaker pound would be good in theory for watch sales to tourists. Yet if prices rise, this benefit would be negated.
In Switzerland, there is nervousness about raising prices in the UK. "How much can the UK customers take before they stop buying watches because of high prices?" asks Jean-Claude Biver, TAG Heuer's chief executive and head of watches at LVMH.
A comparison of global watch prices confirms the current disparity. In China, a rose gold Patek Philippe Annual Calendar currently carries a retail price of Rmb311,000, equivalent to just under £33,000. Tax-free, the same watch in the UK costs around £22,700, a price difference of 31 per cent. Similarly, a Rolex GMT Master II in the US currently retails for about $10,000 or £6,900 (depending on state taxes), while the UK tax-free price is below £5,000.
Chancellor George Osborne has warned that "tens of thousands" of jobs in the financial services industry, large consumers of watches, would be at risk following Brexit. In its quarterly inflation report in May, the Bank of England's Monetary Policy Committee said in this case sterling was "likely to depreciate further, perhaps sharply".
How much can UK customers take before they stop buying watches because of high prices?
British brand Bremont has two stores in London, one in Mayfair and another in the Royal Exchange. "You only need a couple of big institutions to pull out [following a vote to leave the EU] and there'll be a big impact on the performance of those stores," says Nick English, Bremont co-founder.
Bremont is in the process of transferring much of its manufacturing operation to the UK from Switzerland and has similar concerns. "A lot of the skills we need, finishing for example, still can't be found in the UK," says Mr English.
But for consumers, the biggest impact of the EU referendum could be a rise in prices. Historically, luxury companies have taken prompt action to balance retail prices around the world, as Chanel did in March 2015 when it cut them in Asia and raised them in Europe in response to the fall of the euro.
For brands, the challenge of maintaining price parity across key markets has rarely been more challenging. Currency fluctuations created by the prospect of Brexit have added to worries caused by the fall in watch exports to Hong Kong (down 38.5 per cent since 2014), falling oil prices and fragile consumer confidence in China, Southeast Asia and Latin America.
The decision by the Swiss National Bank in January 2015 to unpeg the franc from the euro unsettled the market, too. As a result, some markets have had multiple price increases in the 18 months since; Rolex increased prices in Europe as recently as February.
The effect on retailers can be costly. "Obviously, prices going up isn't a good message for consumers," says Mr Coleridge of the Watch Gallery. "But prices going down is as troublesome because it upsets customers who've just bought and can leave brands in a position where they have to compensate retailers for lost margins," he adds.
The concern for the Swiss watch industry is that future UK price rises may curtail one of its few good news stories. Figures released by the Federation of the Swiss Watch Industry reported global exports of Swiss watches were down by 11 per cent in April. The same report indicated a rise in exports to the UK of 3.7 per cent.
In the event of Brexit and further weakening of the pound, brands can be expected to push up prices in the UK proportionally.