The first quarter 2016 brings renewed proof that where statistics are concerned, some are more equal than others. “The American market is dynamic and Europe remains well placed, save for France which is suffering from a decline in tourism. Asian markets present a mixed picture, while Japan continues to make good progress.” With this brief comment, the world’s largest luxury group, LVMH, reports a 4% increase in sales for the first three months of the year. Better still, its Watches and Jewellery division outperformed the market at 7% organic sales growth, with a special mention for Bulgari and TAG Heuer.
In complete contrast, figures for Swiss watch exports show an industry on the wrong side of growth. Given the 16.1% drop recorded in March, some would even say the sector is heading downhill fast. This isn’t a sudden change in fortunes – shipments have been declining since the second semester 2015 – but the trend does appear to be accelerating: these are “the lowest March figures since 2011,” observes the Federation of the Swiss Watch Industry, noting that the last downturn on this scale dates from the crisis of 2009. In terms of individual markets, the situation is the exact opposite to the one observed by LVMH: the United States is in sharp decline (-33%), Japan is showing definite signs of weakness (-9.5%) and Europe is struggling to keep pace (-6.5%).
There is continued cause for concern in Asia. Over the first quarter 2016, Swiss watchmakers exported 17% less to the Far East (-14.5% to North America); Hong Kong weighed heavily in the balance, dropping 31.5%. In March alone, this Special Administrative Region of China was forced to bite the bullet as shipments plummeted by almost 40%. Rocky Tung, a senior economist at the Hong Kong Chamber of Commerce, gave his analysis to Swiss daily Le Temps: “It began in 2013 when China launched its anti-graft campaign. Since then, the Chinese have been unable to buy as many luxury goods. The slowdown in growth has only made things worse. We aren’t expecting activity to pick up before next year. In businesses that rely on tourism, such as shops and hotels, unemployment is already in excess of 5% and is increasing faster than the average rate, which is currently 3.4%.”
Retail sales in Hong Kong paint a dismal picture, having tumbled 20.6% in February, the worst figure in 17 years according to the Department of Statistics, which reports a 32.5% fall in the watch and jewellery segment. Le Temps gives the example of Emperor Watch and Jewellery, one of the leading Swiss watch retailers that carries brands such as Rolex, Breguet and TAG Heuer. After a loss of CHF 15 million in 2015 on the back of sales down 25%, it closed one of its stores on Canton Road, Hong Kong’s main luxury thoroughfare, and holds no illusions that sales will pick up this year. The fall in the number of Chinese tourists is clearly one explanation for the current debacle: the number of visitors from Mainland China, who account for 80% of Hong Kong’s tourism, slid by almost 20% over the first quarter 2016.
The trend shows no sign of reversing. Clashes between police and protesters early in the year added to tensions that do nothing to facilitate business. “Political slowness” is another factor, as Rocky Tung explains, referring to Parliament’s unwillingness to green-light budgets for the airport expansion, a new high-speed train station connecting Hong Kong to China, or a contemporary art museum. Those retailers that have reduced the price of the Swiss watches in their windows have yet to see the effect.