PARIS — The luxury watch trade isn’t ticking at full speed just yet, but executives in Europe said the tourbillions are beginning to spin a little more regularly.

After a spring season marred by SARS in Asia, a drop in tourism in Europe and the war in Iraq, executives said sales showed signs of improvement beginning in late August and September. They predicted that the second half would level out after revenues dropped by as much as 30 percent in certain markets during the months of May and June.

But the turnaround remains far from certain.

In an industry driven by third-party distribution, inventory levels continue to run high. Although luxury timepieces traditionally never go on sale, some jewelers in Paris are ready to knock 25 percent off the sticker price. And the low-to-middle end of the market is being hit by the continuing economic doldrums in Europe, the Far East and the U.S.

Meanwhile, profits have been dented by high exchange rates. And although sales in Asia are improving, companies said they have had to spend more on advertising as competition increases.

“We’re starting to see the light at the end of the tunnel,” said Severin Wunderman, chairman of Corum, the high-end Swiss watchmaker. “But we’re not going to go back to the high-flying Nineties.”

Recent statistics from the Swiss Watch Federation indicate sales through the first eight months of the year declined by 7 percent to $3.89 billion, or 6.06 billion Swiss francs. In August, traditionally the industry’s slowest month of the year, sales fell 9.1 percent to $387.92 million, or 603.3 million francs.

Hermès recently reported its watch sales fell 15.9 percent in the first six months of the year. Swatch Group, which owns such brands as Breguet, Omega and Blancpain, saw sales slide 6.6 percent in the first half.

Statistics like these are fodder for luxury analysts who question the industry’s short-term turnaround potential.

“I remain skeptical in 2003,” said Antoine Colonna, analyst at Merrill Lynch in Paris. “I think it’s more likely that improvement will come in 2004, particularly if travel flows improve gradually.”Most industry executives expressed mild optimism for the second half, however.

“The market is beginning to pick up,” said Bernard Fornas, president of Cartier International. “SARS is over, and Americans and Asians are beginning to travel again.”

Fornas said the American and Southeast Asian markets were beginning to improve, “but Europe is not so good, especially in France, Germany and Switzerland.” Although he declined to provide specifics, he said that the end of the year should finish stronger than the beginning.

Compagnie Financiere Richemont, the Swiss luxury group that owns Cartier, recently reported that sales increased 1 percent in June, July and August at constant exchange rates. That followed a 19 percent decline in prior-year levels during April and May.

“We’re still cautious,” said Fornas. “There are too many unpredictables. A year ago we said that recovery would come in fall 2003, but we’re in fall 2003 now.”

Karl-Friedrich Scheufele, vice president at Swiss luxury watch and jewelry firm Chopard, said sales of timepieces had stabilized in late summer after a 15 percent decline in the early part of the year.

“We are seeing signs of recovery and improvement since August,” he said. “The Far East has improved, and the U.S. has been quite positive.

“If the trend continues, we will have a year that will be [forgettable], but not too bad.”

Fawaz Gruosi, who controls Switzerland’s high-end De Grisogono watch and jewelry firm, said business had been calm in his shops in Geneva and Paris. “There are not many Americans. We’ve seen some Russians.”

Meanwhile, he said business had been better in London and in summer destinations such as Porto Cervo, Italy.

“The watch market continues to be difficult,” said Francesco Trapani, chief executive of Bulgari. “It remains weak, and I don’t see a drastic improvement in the near future.” He predicted that consumers would now spend less on watches.

Christian Bedat, whose eponymous firm is controlled by Gucci Group, believes the market needs to be “cleaned up. There are too many companies making luxury timepieces,” he said.Wunderman of Corum added, “I’ve counted 59 companies making tourbillions. That’s a hell of a lot.”

Retailers said business in the middle segment, usually between $2,000 and $5,000, has suffered most. “Consumers that have wealth have not stopped spending money on high-priced jeweled and mechanical watches,” said Andrew J. Block, senior vice president at Tourneau. “The average consumer that is in the market for a watch is more likely to drop down in price than to spend above their means, hence the strength of the lower-price point market.”

Block said brands such as Breguet, Blancpain, Rolex and IWC were selling well. On the low-end side, Tissot, Oris, Michele and Movado have been popular.

“We are coming off a summer that has seen resurgence in tourism and consumer spending in general, resulting in double-digit sales increases in all of our U.S. markets. The increased number of collectors of luxury timepieces has helped sustain the market, said Wunderman. “Not long ago, there were only about 300 serious collectors,” he said. “Now there are some 300,000.”

Corum recently sold a $1 million dollar jade watch in Southeast Asia. “It sold the week after it went into the shop,” said Wunderman. “A guy who’s going to spend 30 grand for a watch will still spend it. A guy who will spend $5,000 isn’t spending.”

Wunderman believes that the market will not rebound before 2004. “Inventory levels are still high and manufacturers are closing up factories,” he said. “We’ve been killed by the [high] dollar. On $40 million in sales, we had $4 million in exchange losses.”

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