After years of growth at over 40 per cent, the Chinese market started to lose steam in 2012 and took a nose dive in 2013. Is this the chronicle of a pre-announced crisis or the effect of the anti-corruption campaign? The result is more like the first signs of the end of the crazy years in China, which “needs rational consumers” according to David Chang.
In 2013, sales of Swiss watches in mainland China dropped by 12.5 per cent to 1.45 billion Swiss francs. This drop is all the more destabilising for the Swiss watch industry, which, paradoxically, closed the year on a new record (+1.9 per cent to 21.83 billion francs), because the monthly sales in its third biggest market are highly volatile (ranging from +19 to –34 per cent). So what is happening in China? For David Chang (常伟), editor-in-chief of the Chinese magazine “Perfect Time” and one of the main opinion leaders in the country, “It is above all the high-end segment that has stopped growing, while mid-range brands such as Tissot have not been affected at all and still enjoy considerable success”. Consultants Bain & Company reach the same conclusion, citing 13.9 per cent growth in the mid-range segment, buoyed by the economic growth in China’s second-tier cities and helped by slightly lower tariffs.
The more expensive the watch, however, the bigger the drop and the more retailers are cutting prices, as the example of the customer in Shanghai shows, who was offered a 60 per cent reduction from the outset on the collection of a renowned Parisian jewellery house.
Has the government’s anti-corruption campaign really dissuaded customers in the luxury segment? “The political influence is evident, since we have to admit that gifting watches is a Chinese speciality. But on the other hand we must not ignore the economic aspect that could, moreover, become more important,” explains Chang. How are the main national brands doing in this context? “Thanks to their judicious positioning in the mid range, their sales are growing and these brands are extending their sales networks. Some have even become very active at the high end, sometimes by celebrating Chinese art.” The year 2014 started with rebound in sales, can we expect this to last for the entire year? “No, 2014 will be a year of slowdown and this is after all a good thing, because China needs rational consumers. Only the brands that satisfy this demand will be successful. Each model – national or foreign – will have to adjust its price on the market and become more transparent,” the journalist concludes.
There was strong growth in jewellery watches for ladies in 2013 and, in terms of sales volumes, female consumers are starting to close the gap with the men. Several brands have already restructured their collections to take this into account – a strategy that may help to compensate for the losses from the anti-corruption campaign, which will continue unabated in 2014. We must also point out in passing that female luxury consumers in China are also increasingly attracted by the technical aspects of a watch!
Another surprise is that, despite the slowdown in sales in mainland China, the share of Chinese buyers increased considerably in 2013, with one in three customers in the world now Chinese – and even more than a third in the luxury segment! So the slowdown in sales in the Chinese market is really a delocalisation of shopping abroad, far from the zones of control (Hong Kong and Taiwan, which are also slowing down considerably), undoubtedly influenced by Xi Jinping’s campaign. According to Bain & Company, two-thirds of Chinese now do their shopping for luxury abroad. But these purchases are not always for personal use alone, they also feed the parallel sales networks.
In this game, the Beijing government loses a fortune in import duties but makes enormous gains in terms of image. And it has a vested interest here, because it allows it to reassure foreign investors and encourage international trade. In the thick smog of particulates and under the more or less encrypted layers of the Internet, the Chinese citizen knows that the fight against corruption is a smokescreen, just like the fight against pollution or the respect of human rights.
24 April: After Porsche Design and above all Eterna, the Hong Kong based group China Haidian (Ebohr, Rossini and Codex) takes control of Corum. We knew that the brand was looking for a buyer, but the announcement on the opening day of BaselWorld was more shocking than it was reassuring.
21 June: The Swiss parliament adopts the “Swissness” legislation that fixes the minimum value of Swiss components in “Swiss Made” industrial products at 60 per cent. For its part, the Chinese watchmaking industry regrets the decision, because in addition to missing out on potential joint-ventures with the Swiss watchmaking industry, Chinese suppliers risk losing orders. Some are already drawing up a list of well-known brands who do not reach this level. Whether Chinese industry likes it or not, it’s clear that the technology transfer in this sector is almost zero, whereas it is a concern in all other sectors.
27 June: Sea-Gull – the biggest mechanical movement manufacturer in the world in terms of volume – presented a multi-axial tourbillon at the Shenzhen fair, probably the biggest complication in the country.
6 July: A free-trade agreement is signed between Switzerland and China and adopted by the government with an overwhelming majority on 10 December. The agreement foresees a gradual reduction in customs duties, over between 5 and 15 years depending on the sector. For Swiss watches in China, the 60 per cent reduction in duties will be spread over ten years, 18 per cent in the first year and 5 per cent each subsequent year. We have already observed a drop in prices on the market, but it is not yet quantifiable.
25 September: The Samsung Gear is launched, the first genuine smartwatch, which has already been followed by several competitor models. Since the Chinese love high technology, they are wondering about the repercussions of this on traditional watchmaking. Is the multimedia watch from South Korea in 2013 what the Japanese Seiko Astron Quartz was in 1969?
25 September: Watches & Wonders takes over the halls of the Hong Kong Exhibition Centre to become the first high-end watchmaking show in Asia. It is the equivalent of Geneva’s SIHH, but adapted to local tastes.
21 October: The Swiss Competition Commission (Comco) approved the Swatch Group’s decision to gradually reduce the supply of mechanical movements from ETA to third-party customers. The Chinese watchmaking industry sees in this an opportunity to sell more movements and components to independent brands.
Source: Europa Star April - May 2014 Magazine Issue