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Good times are back for Swiss watchmakers

As an assistant brings in box after box, an executive at Swiss watchmaker Century carefully lifts each lid to reveal the stunning watches nestled below.

The materials used to make these watches are luxurious: gold, mother of pearl, diamonds, alligator. So are the prices, which start in the low thousands (Swiss francs) and go up quickly up from there. Alfred Neuenschwander, Century's senior sales director, mentions that a member of royalty in the Middle East recently bought two of the so-called Venus model: a pretty gold shell, decorated with diamonds, that opens to reveal a small watch. The price tag for one is a hefty 35,000 francs ($38,479 Canadian).

The good times are clearly back for Swiss watch companies, which recently reported that 2011 was their best year in two decades. Exports jumped 19 per cent to 19.3-billion francs. Despite the European debt crisis, along with worries about the U.S. economic recovery and a slowdown in China, affluent consumers around the world are splurging on pricey watches again.

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This month some of the biggest names in the Swiss watch-making industry met in Basel for the annual watch fair, the world's biggest, attracting thousands of retailers and distributors who make the trek to see the latest collections and place orders. At this temple to opulence, where the booths look more like posh boutiques and diamonds are everywhere, industry insiders say the outlook this year also looks promising.

"It's going well, we are happy," Mr. Neuenschwander said in an interview in Century's multi-story booth, which featured giant white padded doors. "We are consistently surprised how many people come from around the world despite all the countries that have political difficulties and economic difficulties, the people are nevertheless here."

The Swiss watchmakers believe their robust sales stem from their industry's long legacy. Made-in-Switzerland is a powerful brand, and nowhere is this truer than in watch-making. The world's best-known timepiece brands, including Swatch, Rolex, and Patek Philippe all hail from Switzerland.

The Swiss watch industry got its start in the 16th century after a religious war broke out in France, leading Protestant watchmakers and jewellers to flee to Geneva. In the following centuries, Swiss watchmakers have become famous for innovation and careful attention to detail, even if it means spending a full year painstakingly assembling one watch.

That history and know-how, along with illustrious brands, have helped the Swiss watch companies recover quickly from hard times a few years ago, when the collapse of Lehman Brothers and ensuing worldwide recession led to a big drop in watch exports. As more people around the world join the middle class in countries like China, Russia and India, they are buying prestige products like Swiss watches.

The biggest sales boost is coming from China, where a burgeoning middle class is snapping up all sorts of luxury products. Swiss watch exports to China surged 49 per cent to 1.64-billion francs in 2011. Hong Kong, another important point of sale for Chinese tourists, registered a 28-per-cent increase to 4.09-billion francs.

Chinese tourists are also buying Swiss watches when abroad because of the high taxes on luxury products at home, watchmakers say. That helped bolster Swiss watch shipments to Europe by 10.9 per cent and Africa by 2.8 per cent in 2011. Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry, told magazine Swissquote that every second a Swiss watch is sold to someone from China – about 31½ million a year.

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"China is nearly an unbraked growth," Mr. Neuenschwander said. "I think what we are experiencing in China is only the start. … It will be a long time before this market is saturated. There are so many people with no watch and no idea about watches."

Retailers attending the fair in Basel from other regions agreed that watches are a robust business. Ali Tünay, the brand manager for the watch group at the Storks chain of jewellery stores in Turkey, said the upper middle class in his country tend to have a lot of "brand loyalty," and high-end watch sales are good.

Another retailer from Pakistan, Ahmad Irfan Khan, who heads the chain Famous Watches of the World, said watches are a "thriving" business, especially during wedding season when they're a popular gift. Most of his business comes from watches by designer brands such as Lacoste that tend to sell for between $150 (U.S.) to $400, but he also sells a few high-end pieces that cost above $1,000, which he calls the "icing on the cake."

People in the U.S. are also buying watches again. Pierre Bernheim, the grandson of the founder of Geneva watchmaker Raymond Weil, says he had more American visitors at this year's fair. Swiss watch exports to the U.S. gained 18 per cent to 1.98-billion francs last year, though they are still below 2008 levels.

The downside is Europe and the Middle East. Political and economic turmoil in those regions are dampening demand for Swiss watches, according to Mr. Bernheim, who said some buyers from countries such as Greece, Spain and Italy aren't attending this year's fair.

"America is doing better so the watch industry is doing better," said Mr. Bernheim, a director at Raymond Weil. He cautions that actual growth in the industry is slower than the 19 per cent posted in 2011 because some watches are reimported for various reasons.

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Rival Patek Philippe annually holds what could be thought of as a lottery for the rich. It produces a set amount of watches every year (this year around 50,000) but the demand is far higher. The company sets a quota for each distributor around the world. If timepieces fail to sell in one country, there's always a retailer elsewhere willing to take them on, according to Thierry Stern, president at Patek Philippe.

"It's not easy because the demand is way above what I can produce," Mr. Stern said.

Patek Philippe this year introduced a timepiece that took six years to develop and takes about a year to assemble by a watchmaker with at least 15 years of experience. It costs 260,000 francs.

Despite the popularity of his timepieces, which feature such intricacies as the moon phases, Mr. Stern balks at the idea of dramatically boosting production.

"Patek was always focusing on the quality and not on the quantity," he says of the firm, which traces its roots to 1839. His family bought the company a century later. "We don't have any shareholders pushing us saying, 'Just work to make money.' "

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