Rolex's watch hegemony is threatened by Omega

“Omega's designs are newer and trendier,” said the 30-year- old businessman from Hangzhou, China. He bought the watch a month ago after seeing advertisements featuring swimmer Michael Phelps and actress Zhang Ziyi. “Rolex is old and traditional.”

That perception, together with a boom in Asian sales, helped Swatch Group AG's Omega snatch market share from Rolex in the US$35 billion Swiss watch industry last year, analysts say. Rolex, whose cheapest model is almost 60 percent more expensive than Omega's, has also been hit harder by the U.S. recession.

“For the gorilla in the industry, you feel threatened when you have brands that are smaller than you growing fast and doing a good job,” said Scilla Huang Sun, head of equities at Swiss & Global Asset Management in Zurich, who oversees about 4 billion Swiss francs (US$3.8 billion) including Swatch shares.

Swiss watch exports fell 22 percent in 2009, the biggest drop since the Great Depression, as retailers canceled orders. Both Swatch Group and Cie. Financiere Richemont SA, the owner of Cartier, have signaled their shipments outperformed the market, leading Rey Wium, an analyst at Nedbank in Johannesburg, to speculate Rolex's shipments dropped more than the market did.

“If these two outperformed, clearly somebody else suffered much more, and we all know it was probably Rolex,” Wium said.

Both brands will be showcasing their latest models at Baselworld, the biggest watch fair, which starts Thursday in Basel, Switzerland. Omega is one of 18 brands belonging to Swatch Group, which also produces US$50 plastic Swatches and double-tourbillion Breguet timepieces for more than US$700,000. Bank Vontobel analyst Rene Weber estimates Omega's 2008 sales at about 1.48 billion Swiss francs, compared with Rolex's 4.5 billion francs and Cartier's 1.63 billion francs.

Omega, whose entry-level timepieces cost about US$2,500, gets 35 percent of sales from greater China, Jon Cox, an analyst at Kepler Capital Markets, estimates. The brand is sold in about 80 outlets in China. Rolex watches, which start from about US$4,100, can be found in 200 Chinese stores and 80 in Hong Kong, the world's largest market for Swiss watch exports. Rolex gets about 5 percent of sales from the region, Cox estimates.

In China, a quarter of all Internet searches for watch brands last year were for Omega, compared with Rolex's 18 percent, according to IC Agency, which analyzed 500 million search queries in a study of 10 countries. China and Hong Kong last year consumed a fifth of total Swiss watch production.

Geneva-based Rolex, which is owned by the Hans Wilsdorf Foundation, got about a third of revenue from the U.S. before the credit crunch, Kepler's Cox said. The U.S. had the biggest drop in Swiss watch shipments in 2009 among the 10 nations that imported the most, declining 38 percent. Omega relies on the U.S. for about 10 percent of its sales, Cox estimates.

Omega's revenue from its own boutiques, which normally makes up about a fifth of the brand's overall sales, increased 10 percent last year, according to President Stephen Urquhart. He said the brand doesn't disclose total revenue. Cox estimates that sales at 105-year-old Rolex fell about 25 percent in 2009.

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