Swiss watches are currently selling less well than before. What is behind the decline in exports and is it a crisis? Looking for answers at the Geneva Watch Days.
One of the high performers in the Swiss watch industry: the watch brand H. Moser & Cie (watch on the right). Here in cooperation with the hip young British brand Studio Underdog.
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The Swiss watch industry is currently dominated by negative signs. Since February, exports have been noticeably below the previous year’s level. In the first seven months of the year, the industry exported Watches and movements valued at a total of 15.2 billion francs, which represents a decline of 2.4 percent compared to the same period last year. Is the watch industry in crisis?
Young Chinese are not yet accustomed to crises
There was an opportunity to feel the pulse of the industry recently in Geneva, where the Geneva Watch Days watch fair is taking place until Monday evening.
For Georges Kern, CEO of the watch brand Breitling, the case is clear: “At least 50 percent of the decline in exports has nothing to do with a crisis. Rather, it is a normalization of the situation.” Kern refers to the fact that consumers spent above average on watches during the pandemic because they could not travel. That is no longer the case. According to Kern, the rest of the decline is due to high interest rates and geopolitical conflicts that are weighing on the consumer climate. But the watch industry is not in a crisis: “We are suffering at a high level.”
Bulgari boss Jean-Christophe Babin also stressed that a loss of 2.4 percent was no cause for concern. Customers thought longer before making a purchase, but then often opted for higher-priced products. The positive development on the stock markets supported the desire to consume among wealthy buyers.
According to Babin, the problem is not the watch industry, but China. Because of the bursting of the real estate bubble, both the real economy and stocks are doing badly there. While the stock markets worldwide have risen significantly in the past three years, the leading index in Shanghai has lost 20 percent. Many companies in the construction and real estate sectors are listed in Shanghai and have been affected by the crisis in the sector.
This is causing considerable uncertainty among local consumers, says Babin: “In the Western world, we are used to the ups and downs of the stock markets and real estate markets. Young Chinese, the typical buyers of Western luxury goods, are currently experiencing an economic downturn for the first time.”
India is booming
The uncertainty in China is reflected in the statistics. According to the Fédération Horlogère, exports to mainland China and Hong Kong has fallen by around 20 percent since the beginning of the year. Because these are the second and third largest markets, this puts the entire statistic into the negative.
Demand for Swiss watches is increasing almost everywhere else in the world. Particularly strong increases are being recorded in Mexico (+20 percent from January to July 2024), South Korea (+12 percent), India (+20 percent) and Japan (+11 percent), with the weak yen behind the boom in Japan. Watch lovers are increasingly traveling to China to buy their watches there.
Particularly relevant: The USA, the most important export market for Swiss watches, is also continuing to develop positively (+5 percent). According to Breitling CEO Kern, this market is far from saturated: the east and west coasts are currently well developed with retail stores. In between – from Texas to Tennessee to Ohio – there is still a lot of potential.
Those watch brands that are heavily involved in China are currently suffering particularly. These include several prominent names from the brand portfolios of Richemont, LVMH and the Swatch GroupAccording to industry insiders, their sales in China have fallen by more than 50 percent in some cases, significantly more than exports.
The problem with these brands is that they have in some cases over-increased their Chinese business in recent years because they overestimated demand. During the boom years, watches from Rolex, Patek Philippe and Audemars Piguet were sometimes almost unavailable, so some customers switched to other brands. Now that the waiting times for the top 3 have been reduced, some of these customers are no longer available.
Suppliers suffer the most
However, these brands do not have to worry about their existence. They belong to financially strong groups and can easily survive a downturn. There is hardly any talk of layoffs or other drastic personnel measures among the watch brands. Smaller brands have introduced some short-time work, as was heard in Geneva. In addition, fixed-term employment contracts are not being renewed. These are widespread in the watch industry.
The situation is particularly problematic for suppliers, as not all brands treat their partners as well as Rolex, for example. Industry representatives tell of brands from large groups that stopped their orders overnight and could no longer be reached by phone. These are the same brands that had begged their suppliers to expand their capacities a few months earlier.
But even for suppliers, the current situation is not unusual. Ups and downs are part of the watch industry, everyone in the industry knows that. And: it is largely self-inflicted. Industry representatives also openly admit it in private conversations: “We never learn. Every time things go well, we produce at full speed and expand our capacities. And as soon as things turn around, the complaining starts.”
Grey market traders become active
Something else triggers an unpleasant déjà vu: Representatives of watch brands report that they are currently being contacted again by specialized gray market dealers asking whether they have “surplus goods.” These dealers receive the watches for a fraction of the price and then sell them to end consumers with a good margin, but still well below the normal retail price.
It is difficult to say whether these grey market specialists are just bluffing when they say that they are in business with all the major watch brands except for ten manufacturers. What is certain is that the grey market is damaging for products where the consumer pays primarily for the value of the brand. Luxury brands that are not price-stable lose their appeal. It appears that long-term damage is once again being accepted in order to improve the figures in the short term.
Luxury goods are a long-term growth market
This is all the more regrettable as the future of the Swiss watch industry is by no means bleak. Exports were already up again in July, by 1.6 percent. Weaker comparative figures from the previous year contribute to this, but it is still positive. “I am 100 percent convinced that the market will recover,” says Georges Kern. The market for luxury goods is a long-term growth market. “Otherwise I would have been in a different industry long ago.”
