Swatch's reluctance to cut costs is hurting investors

London - When times change, there a different ways to adjust a watch. Take Swatch and Richemont.

The woes of the market for luxury timepieces were laid bare on Friday when Swatch, maker of the eponymous plastic watches and upscale brands such as Omega, warned first-half profit will fall by more than 50%. The stock tumbled to the lowest in more than six years.

Swatch isn't alone in finding life in the watches and jewelry market tough. Richemont, maker of Cartier watches, said in May it expected a difficult first half.

Swiss watch exports, a barometer for the industry's fortunes, have fallen for 11 consecutive months. Meanwhile, the strength of the franc increases the costs of production.

The difference between Swatch and Richemont is that the latter has reacted by cutting costs. It plans to eliminate about 100 jobs at its Swiss watchmaking operations.

By contrast, Swatch CEO Nick Hayek has said he wants to avoid mass job reductions because - once demand improves - he will need those skilled craftsmen.

There's some merit in that approach. Swatch's sales were badly hit in the financial crisis, with revenue falling 17% in the first half of 2009. But they rebounded in the second half, and grew by more than 20% on average in the following three years, according to Bloomberg data.

But there are reasons to believe this luxury downturn is different, and potentially longer lasting.

Even in the depths of the financial crisis, demand for everything from Rolex watches to Louis Vuitton handbags was underpinned by Chinese consumers. This time, slowing growth and the government's crackdown on conspicuous consumption mean that luxury goods makers can't count on this source of demand.

While Swatch said sales from mainland China were positive, sales fell in Hong Kong. Europe, especially France and Switzerland were also weaker. That is likely to be because of fewer Chinese tourists.

But the US, another important market for Swiss watches, is also weakening, according to Richemont. And concerns about the economic tremors from the UK's vote to leave the EU will do little to lift confidence on both sides of the Atlantic.

Meanwhile, Swatch is also at risk from the rise of the smartwatch, which competes with its brands such as Tissot.

Swatch had an Ebit margin of 16% in the six months to the end of 2015, compared with 13% at Richemont in the six months to the end of March, according to Bloomberg data.

The fatter margin may explain Swatch's greater reluctance to cut - but the company faces a struggle to defend it. Analysts at Exane BNP Paribas, estimate that Swatch's Ebit margin could fall to 10% or less in the first half of 2016.

Swatch is right to want to preserve some investments, particularly to see off the threat from smartwatches. But with little prospect of an upturn in the market, it has only limited time before it will have to make deeper cuts.