From one health crisis to another, it seems history is repeating itself… to even more devastating effect. With over 20,000 people infected in China and close to 500 deaths reported as of early February, the coronavirus 2019-nCoV has already proven more deadly than SARS in 2003. While the Chinese government was quicker to impose quarantine measures – after initially refusing to acknowledge the scale of the problem – as the virus spreads, so does concern. The country is becoming increasingly isolated, domestic consumption has plummeted and industrial production is in slowdown. None of this bodes well for China’s economy and certainly not for the global economy, either. Beijing has announced a USD 170 billion injection to stem the effects of the crisis. And crisis there will be: some observers already forecast that the country’s annual growth rate will lose between 100 and 200 basis points. This comes on the heels of its worst economic performance in thirty years, when GDP rose by 6.1% in 2019, impacted by the ongoing trade war with the United States.
This clearly isn’t good news for watchmakers, confirmed by Swatch Group’s decision to cancel its presentation of new products from the group’s Prestige brands, which would normally have taken place in Zurich during the first week of March. As the world’s biggest watch conglomerate with brands in all market segments, Swatch Group’s performance is symptomatic of the branch as a whole, and the news isn’t great. In 2019, its sales contracted by almost 3% to CHF 8.2 billion, mirrored by a sharp decline of 11.5% in operating profit to CHF 1.02 billion. The group has been hard-hit by freefalling sales in Hong Kong, the main export market for Swiss watch brands. Figures leave no doubt as to the consequences of the pro-democracy protests that have shaken this special administrative region of China for more than six months: Swiss watch exports to Hong Kong lost 11.4% over the twelve months of 2019, with a low of -30% in October. More generally, Hong Kong’s economy went into recession in 2019, with GDP shrinking by 1.2%.
The view from Asia
Fortunately, watch brands can take solace from mainland China’s remarkable progress. Exports to this market increased by a massive 49% in December, bringing the total increase for 2019 to 16%. Only Japan did better, climbing 20%, followed by Singapore at +15%. The pessimistic view would be to point out the damage any spread of the coronavirus within Asia would do to watch sales.
In 2003, at the height of the SARS crisis that loomed over Baselworld, overseas shipments of Swiss watches dropped by 4.4% to CHF 10.2 billion. But seventeen years ago, China didn’t carry the weight it does now, ranking 11th among the industry’s export markets at CHF 197 million or 1.9% of total. Since then it has overtaken other regions to reach third position, having “absorbed” CHF 2 billion worth of Swiss watches in 2019 or 9.2% of total. Asian markets, excluding the Middle East, currently account for 44% of the Swiss watch industry’s overseas sales.
In countries where consumers are under lockdown, one can imagine the repercussions the coronavirus crisis can have on watch sales. So far, the luxury segment has proved more than able to weather a storm, not least the difficult situation in Hong Kong, as earnings by LVMH and Richemont confirm. But what about the coming months? The answer, in part at least, is in the hands of virologists.