Swiss watches have suffered a cliff-like cooling

Mega tide WAVE

2024-05-08 14:28Posted in Beijing Finance and Economics Creators

Text | Old fish

Edit | Yang Xuran

The days of Swiss watches are about to change.

According to the latest data released by the Swiss Watch Industry Federation, Swiss watch exports fell 16% year-on-year to CHF 2 billion in March 2024, and Swiss watch shipments fell 25% to 1.1 million pieces.

Such a decline did not come without warning. In February 2024, the Swiss watch industry is already showing a decline, with exports of 2.155 billion Swiss francs, down 3.8% compared to the same period last year. Even the Swiss watch industry's 1.9 billion Swiss franc exports in January 2024 increased by only 3.1% compared to the same period last year.

In 2023, Swiss watch exports increased by 7.6% year-on-year to a record total of CHF 26.7 billion, followed by a rapid cooldown.

In this wave of decline in 2024, the Chinese market is especially obvious. In March, exports to the United States, the largest market for Swiss watches, fell 6.5% year-on-year, but exports from Chinese mainland, the second largest market, and Hong Kong, the third largest market, plummeted by 42% and 44% year-on-year, respectively. In February, exports to Chinese mainland and Hong Kong also fell by 25.4% and 19% year-on-year, respectively.

Obviously, this is an overly drastic downward trend.

Once upon a time, watches gradually evolved from a timekeeping tool, relying on price increases and luxurious designs, to "jewelry-like goods" with luxury attributes, and were highly sought after all over the world.

However, this so-called jewelry attribute and luxury attribute has rapidly collapsed in the process of changing Chinese people's consumption habits and the evolution of global politics, economy and culture.

01 Rise into luxury

After the 19th century, the Industrial Revolution arose, and the watch came into being. Due to the complexity of the production process, it became the exclusive product of the aristocratic class at the time of its birth, with its own luxury temperament.

In the 20th century, with the acceleration of industrial production, watches began to enter thousands of households, diluting the attributes of luxury goods, and the industry also produced a differentiated positioning - China is the main producer of low-end watches, and the output once accounted for 80% of the global output, and Shenzhen watches are famous for accounting for 53% of China's output and 42% of global output, and even have the legend of "Shenzhen watches are bought by the pound".

On the contrary, Swiss watches have long adhered to a more high-end product positioning.

In essence, whether it is a 20-piece Chinese watch or a 200,000-piece Swiss watch, their basic attributes are still timekeeping tools. Until entering the 21st century, the popularity of mobile phones and the rise of smart watches have made the timekeeping function of watches fully replaceable, which has also directly brought about the subversion of the watch industry.

The most obvious change is the decline in sales.

According to the National Bureau of Statistics, China's watch exports have been declining significantly since 2004. Exports peaked in 2015 and have continued to slump. In 2020, both the volume and value of exports fell to the bottom, and although they rebounded slightly, they are still at a historical low.

But Swiss watches, which focus on the high-end market, have stepped out of a different curve.

According to public statistics, in 2011, the number of Swiss watch exports peaked at 29.75 million pieces, but then began to decline, and by 2020, it fell by 13.78 million pieces, a decline of more than 50%. Although it rebounded in subsequent years, it is still only half of its peak.

However, the value of Swiss watch exports has shown a steady upward curve, climbing from CHF 16.2 billion in 2010 to CHF 26.7 billion in 2023.

The reason for this contradiction between volume and price is that the Swiss watch industry firmly believes that only high-end, high-end, and high-end can completely distinguish its traditional mechanical watches from smart watches.

So the Swiss relied on continuous price increases, and turned a consumer product into a luxury product.

For example, when Rolex officially launched the Submariner watch in 1954, the official price was only a few hundred dollars. After countless price increases, the starting price of the black water ghost today is almost around 100,000 yuan. So much so that arranging a global price adjustment on the first day of the new year has almost become a tradition for Rolex.

In 2023, Patek Philippe, Omega, and Longines will all have no less than two price adjustments, with an increase of more than 10%.

According to a report by Morgan Stanley, in the past five years, the luxury level of Swiss watch brands has become higher and higher.

And it turned out that the effect of the price increase was immediate. In 2023, sales under the Rolex brand alone will reach about $11.5 billion. This year, there were also 6 Swiss watch brands with sales of more than 10 billion yuan.

Taking a Chinese company as a comparison, FIYTA, as the only listed company in the watch industry in mainland China, has an operating income of 4.57 billion yuan in 2023.

Rising prices have made luxury watches one of the most sought-after luxury goods in the world, especially in China.

02 Popular from China

Once upon a time, it was so exciting to be able to wear a watch, and it was worth shaking your hands frequently to look at the time.

The Chinese themselves have a considerable luxury complex, the so-called "respect Luo clothes first and then respect people". Even Bernard Arnault, the owner of Louis Vuitton, the richest man in the world, has to do everything he can to visit China and curry favor with Chinese consumers.

As a result, when watches became luxury goods, the two complexes superimposed, making China a fanatical place for major watch manufacturers. This craze began in Hong Kong and continued in Chinese mainland.

Hong Kong is an important market for Swiss watches

Hong Kong during the Pearl of the Orient era was the largest export market for the Swiss watch industry for many years. In various Hong Kong films, famous watches represented by Rolex have always been the standard configuration of bigwigs and a symbol of wealth.

In "Infernal Affairs 2", Wu Zhenyu, Yue Wenle, Edison Chen and several underworld brothers have a Rolex; In the movie "Descendants of the Dragon", Stephen Chow's uncle said: "When you come out to mix, you have to wear a Rolex when you wear a watch"; In the "Crazy Boy" series, Chen Haonan gave the pheasant Dajin Lao as hard currency to run away.

Hong Kong people's love for luxury watches has also been conveyed to mainland consumers through various means such as movies. For a long time, the amount of Swiss watch exports to Chinese mainland has continued to increase steadily. After 2000, Swiss watch brands also sprung up like "mushrooms after the rain" to enter the Chinese mainland market. Previously, they all set up their Asian offices or branches in Hong Kong, but later with the rapid development of the mainland market, such offices and branches were moved to Shanghai.

In 2020, the consumption power of mainland watch enthusiasts who are unable to leave the country will explode in China. According to Deloitte's 2020 Swiss Watch Industry Study, from June to September 2020, the monthly year-on-year growth rate of Swiss watch exports in Chinese mainland was 48%, 59%, 45% and 79% respectively.

This also makes Chinese mainland surpass Hong Kong and the United States in 2020 to become the largest exporter of Swiss watches.

This kind of consumption strength has also allowed major watches to enjoy a handful of Chinese market dividends.

Let's take the Rolex that Chinese people are most familiar with as an example. In the 2020 China Luxury Report, Rolex ranked first in both popularity and sales volume in the Chinese market. According to the survey, 61% of Hong Kong consumers and 34% of Chinese mainland consumers choose to buy Rolex, much higher than other brands.

Although Rolex's revenue figures are not publicly available, according to market research institutes, its sales in China account for a significant proportion of global sales. In addition, Rolex's sales in China have continued to grow over the past few years, far outpacing other luxury watch brands.

The same is true for other brands: Omega has about 200 stores in Chinese mainland, and its overall sales account for about 30% of its global share; Longines is deeply bound to the Chinese mainland market, with 500+ stores in major cities in China, accounting for 35%~40% of the global share.

But now, this wave of dividends has shown signs of fading after the price increase has risen to a certain extent.

03 The law of prosperity and decline

After more than two years of steady growth, Swiss watch exports have seen a serious decline since 2024. On the one hand, it is certainly due to the high base of the same period last year, and on the other hand, the Chinese market has declined significantly.

The serious decline of Swiss watches in the Greater China market may be a symptom from 2023. According to statistics from the Federation of Swiss Watch Industries, during 2023, the export value of Swiss watches to Chinese mainland has declined many times, including a year-on-year decrease of 3.7% in November.

And 51% of executives in the Swiss watch industry expect the Chinese watch market to decline or stagnate in 2024.

In fact, Chinese mainland quickly ceded that status to the United States after briefly gaining the title of largest exporter of Swiss watches in 2020. Today, the United States has been the largest consumer of Swiss watches for three years in a row.

According to data from the General Administration of Customs of China, the import value of Swiss watches in the first three months of 2024 has rapidly fallen back to the level before 2021.

According to the 2023 Global Luxury Report released by Bain & Company, it is estimated that by 2030, Chinese consumers will contribute 35%-40% of sales to the personal luxury goods market, but how much of these sales can be contributed by luxury watches is worth putting a question mark.

The biggest factor influencing this sales comes from the generational changes in the customer base of luxury watches. Now Generation Z has entered the main circle of consumption, and even millennials have begun to become the new generation of consumption. Bain & Company expects Gen Z to account for 25%-30% of global luxury market spending by 2030, while millennials will account for 50%-55%.

With the changing values of future customers, the influence of watch culture on these generations or generations that have grown up with electronic products is gradually decreasing. These people may clearly remember the replacement of Apple's smart watch, but they will not understand the Rolex halo in the old Hong Kong film at all. In the future, they may find the joy of consumption in top technologies such as robots and unmanned driving, and even drink Moutai, but they will rarely use antique watches to show their identity.

Moreover, China has entered the era of cost-effective consumption. In a recent interview, Swatch Group CEO Nick Hayek has made it clear that Chinese consumers are becoming more sensitive to the price of luxury goods.

After losing its timekeeping attributes and frequent price increases, the famous watch itself is quite far from the word "cost performance". In China, where practicality is important, this means that more and more people will give up consumption. Therefore, even in 2023, when consumption expectations were extremely optimistic, the trend of luxury watches was weaker than that of other luxury categories, and the report released by Bain & Company showed that in terms of luxury consumption in the entire Chinese mainland market, the year-on-year growth of watches in 2023 was the weakest, much lower than fashion, jewelry, leather goods and beauty.

The reason for this is simple: it is not as used as frequently as a luxury bag, not as practical as fashion and beauty, and not as good as jewelry.

According to the Daily Economic News, the most expensive Richardmill watch in a known "Shanghai's largest second-hand watch store" has been speculated by the market for more than 2 million yuan of second-hand watches, and now the price has dropped to 1.5 million yuan, losing a Porsche.

According to a report released by Morgan Stanley and WatchCharts in January this year, prices in the second-hand watch market peaked in May 2022 and have been declining since then, marking the seventh consecutive quarter of decline in the fourth quarter of 2023.

At the Watches & Wonders Haute Horlogerie exhibition in Geneva just past April this year, Rolex CEO Jean Chancellerie was the CEO of Rolex S.A. Frederick. In an interview with a Swiss newspaper, Dovert made it clear that "it is already extremely risky to treat luxury watches as an investment." ”

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