There has been no shortage of theories as to what or who is to blame for sliding sales of Swiss watches since 2015: the Swiss national bank’s decision to uncouple the franc from the euro; success turning the heads of brands and leading them down the dangerous route of price hikes; excess production capacity as a result of overinvestment; the global economic downturn and a tendency to favour national culture and business, epitomised by Donald Trump’s vision of the United States. None of these factors are conducive to business, but even they paled when exports to Hong Kong, Swiss watchmakers’ biggest market, began to flounder. After contracting 23% in 2015, shipments to the region continued their nosedive in 2016 with a 25% drop. It wasn’t until March 2017, after falling for 25 consecutive months, that the needle began to swing the other way. In the meantime, a substantial number of brands had had no choice than to buy back excess inventory that could otherwise find its way onto the grey market.
It wasn’t long before all eyes were turning to China as the explanation for Hong Kong’s tumble in export ratings. The region has a key role as a temporary stop-off for products on their way to China and which benefit from the more advantageous import tariffs between the country and its special administrative region. Also, Hong Kong was, for a long time, the main destination for Chinese nationals getting their first taste of capitalism. Now far-flung cities are benefitting from the surge in Chinese tourism, while those who prefer to stay closer to home are choosing Japan. Additionally, sales of Swiss watches on the Chinese mainland were hard-hit by the anti-graft campaign which the government launched in 2013, not to mention the 60% import duty now levied on luxury goods. Swiss watch exports to China have borne the brunt of these changes, falling by 5% in 2015 and again by 3% in 2016.
Once considered the next big thing for Swiss watchmaking, China not only lost its shine – it was also accused, along with Hong Kong, of hammering the final nail in the coffin. Until, that is, statistics began to tell a happier tale. Recent months have seen exports to China rally, gaining 20% in October 2017 and almost 40% in November. Figures for the eleven months from January to November 2017 show that at CHF 1.4 billion, the country is now the third largest market for Swiss watch exports, hot on the heels of the United States (CHF 1.9 billion), thanks to figures that hadn’t been seen in quite some time. All eyes are once again on Asia, and particularly the Far East which drove the 2.8% increase in worldwide exports for the same eleven-month period. Hong Kong (+5.3%) remains the number-one destination for Swiss watches, followed by China (+19.6%), Singapore (+10.6%) and South Korea (+3.6%).
This upsurge in interest should come as no surprise considering Asia’s weight on the global stage. A report published at end December 2017 by the Centre for Economics and Business Research (CEBR) forecasts that this year India will overtake France and the United Kingdom to become the world’s fifth largest economy. Within the next fifteen years South Korea and Indonesia will enter the top 10, and Taiwan, Thailand, the Philippines and Pakistan will join the top 25. The CEBR report also forecasts that by 2030 China will have clinched the top spot from the United States. Measured as purchasing power parity, Chinese GDP will even outstrip that of Uncle Sam. While this should all be welcome news for watchmakers, a word of caution nonetheless. Over-exposure to China or more generally Asia (50% of exports excluding purchases made while travelling) isn’t without risk, and brands have been stung in the past. But why see the glass as half-empty now that it’s finally filling up again!