In a year ravaged by the fallout from Covid-19, Omega stands firm, still hosting product presentations, in particular for those watches currently reaching stores, and whenever possible face-to-face… a privilege for the lucky few who were able to travel to the brand’s newly opened store at the Swatch Group headquarters in Biel/Bienne and enjoy a personalised walk-through of the latest releases. But aside from taking in the 2020 collections, the question uppermost in the mind of all those present was “how’s business”? Pretty good, as it turns out! Even management admits to being impressed by how well sales are doing in China, especially for watches with a strong presence, such as the Speedmaster, and those at higher price points.
Pending publication of Swiss watch export figures for July, the numbers for June already point in this direction. They show a remarkable 48% increase in shipments to China; the only one of the industry’s top 15 markets (along with Saudi Arabia at +41%) to post positive growth. For the first half 2020, at -15% exports to China performed “less badly” than the global market which contracted by 36%. Confirming this upturn, the Chinese economy is the first major power to show signs of recovery. After losing 6.8% in the first quarter, the country’s GDP gained 3.2% between April and June. Quoted by People’s Daily, Morgan Stanley states that China has “mostly ridden out the Covid-19 blow and is entering a V-shaped rebound trajectory.” Helped by consumer spending, year-end growth is forecast at between 2.5% and 3%.
The Chinese exception
This is all music to the ears of watch brands, deprived of spending by incoming tourists from China who are valuable customers for the luxury industry overall. On the domestic front, it appears shoppers aren’t necessarily deterred by the 50% import duty slapped on prestige watches entering the country, prompting makers to put China back in their sights – H. Moser & Cie., for one, has announced the opening of a concept store in Beijing, its first point of sale in the country. Of course, it’s not all rainbows and unicorns. Firstly, relations between China and the United States are becoming increasingly strained, the latest episode being America’s targeting of Chinese digital giants ByteDance, which owns TikTok, and Tencent, owner of WeChat. Secondly, China’s growth is primarily the result of investment and industrial production, meaning directly or indirectly State-driven, rather than consumer spending which, despite the recent spike in retail sales, has still to equal 2019 levels. This leaves the matter of domestic affairs and questions surrounding the special administrative region of Hong Kong, where Swiss watch exports already fell by 11% in 2019 then plummeted 53% in the first half 2020.
The fact remains that, at this point in the economic cycle, China stands apart as economies in the rest of the world struggle to pick up, including the main export markets for Swiss watchmakers. The United States entered recession in the second quarter when GDP fell by 9.5% year-on-year. The situation in Europe is no rosier, with second-quarter slumps in Germany (-10.1%), France (-13.8%), Italy (-12.4%) and the United Kingdom, where GDP plunged 20.4% between April and June. In Asia, Singapore (-5.3%), South Korea (-3.3%) as well as Japan (-0.6% in the first quarter) fared better, mainly thanks to trade with… China. For watch brands this can only mean one thing: China will in all probability be their number-one market in 2020, having already ranked first in June’s export figures. The all-important question now is, will Chinese consumer spending stay strong? The Shanghai stock exchange may have at least part of the answer: its composite index climbed 13% over the past six months. In New York, the Dow Jones lost 5% over the same period.