Sometimes it takes a hard knock to elicit a response. Figures compiled by Swiss customs authorities show that in April this year, the country’s watch exports to Hong Kong contracted by 29.7% in value to CHF 260.5 million (while total exports dropped -0.8% on April last year). The Federation of the Swiss Watch Industry, which relays these monthly figures, made this comment: “While there were few declines on main markets, those in evidence were significant. Not least Hong Kong, where the decline in exports seems to be aligned with the reality of local sales.” Until now, and despite a year of zero growth in Swiss watch exports to Hong Kong in 2014, no-one had dared paint too bleak a picture, and the 10% drop in cumulative results for the first quarter this year had seemed little cause for concern.
A 40% decline in sales
But not even the most optimistic observer can ignore the harsh reality of April’s figures. At CHF 1.1 billion, Swiss watch exports to Hong Kong, a special administrative region of China, lost 15.6% over the first four months of 2015. Only Russia did worse, with exports plummeting 21% over the same period, although less is at stake: Russia ranks nineteenth among Swiss watch markets whereas Hong Kong is number one, having cornered 18.5% of total export sales or CHF 4.1 billion in 2014. Hong Kong overtook the United States as the main market for Swiss watch exports back in 2008, and now accounts for almost double the CHF 2.3 billion in sales made to the US last year.
At end April, Hong Kong’s distributors hit the panic button when, as Swiss daily Le Temps reports, Swiss watch manufacturers received a letter from HK Watch, the Federation of Hong Kong Watch Trades and Industries Ltd. It describes a situation of “profound crisis” and points to a 40% drop in sales during the first quarter. The gap between the Hong Kong federation’s figures and official export statistics can only mean one thing: inventory is piling up in stores. According to HK Watch, stock has reached an “incalculably high level of 6 to 10 months for certain brands”. Faced with a situation in which distributors are struggling to “maintain revenues let only profitability”, HK Watch has asked Swiss brands to sort out their pricing policy and offer a discount to its members.
Price cuts all round?
The causes of these woes are well-known. Beginning with the crackdown on corruption which the Chinese government launched over two years ago. Prestigious Swiss timepieces, more often than not purchased in Hong Kong to avoid Chinese tax on luxury goods, are no longer the gift of choice in exchange for one or other favour. China’s slowing economy is also having inevitable consequences on spending, and Hong Kong is largely dependent on cash splashed by visitors who arrive in droves from the mainland (47 million in 2014). One only need stroll through Central, Causeway Bay or Tsim Sha Tsui across the harbour on Kowloon Peninsula to realise just how many watch stores there are, all ready to roll out the red carpet for their “foreign” guests. That Hong Kong should remain a favourite destination for mainland tourists is anything but sure as more relaxed visa conditions encourage Chinese nationals to travel to new destinations, and take advantage of the weaker yen and euro to stock up on Swiss timepieces.
The Swiss watch industry’s response to these alarm bells is for the moment far from unanimous. Swatch Group chief executive Nick Hayek has already declared that any cut in prices would be “detrimental” to the branch as a whole: “The Swiss watch industry has acted calmly and serenely these past years,” he commented, “yet now it looks as though certain brands are losing their cool.” Does that include Patek Philippe and Panerai, which publicly announced a reduction in their prices of 7% and 5% respectively. Chanel has resigned itself to a 20% cut in the price of several of its iconic bags. Quoted in Le Temps, Desmond Marshall from Rouge International luxury consultancy states that “once the major brands get involved, this puts pressure on everyone. All the watch brands, and I mean all, have had to lower their prices.” Have the good times rolled on by for Hong Kong?