(Adds details, background, management comments)
By Astrid Wendlandt
BASEL, Switzerland, March 18 (Reuters) - Tag Heuer, French luxury group LVMH’s biggest watch maker, plans to freeze prices in some markets and cut them elsewhere in a move to balance out the impact of the recent jump in the Swiss franc and the euro’s weakness.
Several luxury goods makers, including fellow watch makers such as Richemont’s Cartier as well as privately owned Patek Philippe and fashion house Chanel, have resorted to similar measures to erase major price discrepancies between markets resulting from currency fluctuations.
Tag Heuer said prices would drop an average 8 percent in Switzerland, China, the United States, the Caribbean, and Central and South America, 7 percent in the UK and 13 percent in Hong Kong, but it would not raise prices in the euro zone, Japan and Singapore.
“Tag Heuer is seizing the opportunity of the recent appreciation of the Swiss franc to rebalance its international price policy,” it said in a statement on Wednesday.
Brands are concerned that price differences, which can be more than 30 percent between some Asian and European markets, encourage parallel trading - when luxury goods are sold outside of approved retail networks.
Brands say some of their luxury products bought in Paris or Milan are sold back in China or on the Internet at prices lower than in their boutiques and risk creating confusion between original items and counterfeits.
Several analysts said that the round of price cuts could have snowballing effects, prompting rivals in the same price and product category to make similar moves.
“The penalty, if not, would be of potentially losing market share,” said Exane BNP Paribas analyst Luca Solca. “The consequence of more widespread price cuts in China - obviously - would be that part of the foreign exchange benefit from a weaker euro would disappear from the bottom line, just at a time when luxury players and investors alike were starting to salivate.”
Patek Philippe said price differences, which could be 20-25 percent in Asia and the United States compared to Switzerland and the eurozone, enticed customers to buy their watches abroad.
“Parallel trading is one of the biggest problems we have to deal with,” Patek Philippe Chairman Thierry Stern told Reuters at the fair. “Some retailers are not just vigilant enough.”
This month, Patek cut prices by as much as 14 percent in China, 10 percent in the United States and 7 percent in the euro zone. It estimated the move would result in a profit loss of some 100-150 million Swiss francs.
Chanel, which on Tuesday announced unprecedented price cuts of more than 20 percent in China and increases of around 20 percent in Europe, said the gray market also hurt the brand’s image and exclusivity.
The Swiss National Bank’s surprise decision two months ago to abandon its longstanding 1.20 Swiss franc per euro cap caused the currency to surge to 0.86 per euro. The franc is currently trading at 1.064 per euro.
The euro has lost almost a quarter of its value against the dollar in the last 12 months, meanwhile, including 12 percent since the start of this year.
“While price harmonisation is easier said than done and foreign exchange volatility tends to make things quite complicated, we believe the era of global, unique pricing in the industry is not that far-fetched nor that far away,” HSBC luxury analysts wrote. “Chanel and Patek are showing the way.” (Additional reporting by James Regan; Editing by Brian Love, Andrew Callus and Dominic Evans)