As 2021 begins, the Swiss watch trade is navigating a brand new and unfamiliar retail panorama: For the primary time, China is the world’s largest marketplace for its merchandise.
China’s virtually 1.4 billion residents have been the largest consumers of luxurious watches for a number of years. However most of their purchases had been outdoors the nation, to make the most of decrease gross sales taxes in locations like London, Dubai and Hong Kong.
Then got here the pandemic, the suspension of worldwide journey and a ensuing surge in Chinese language luxurious customers’ procuring domestically.
“We calculate that round 70 p.c of Chinese language luxurious spend used to occur within the abroad market,” stated Véronique Yang, a managing director and associate at Boston Consulting Group in Shanghai. “In 2020, that determine fell to round 30 p.c. Chinese language individuals have began to buy throughout the home market.”
And the consequence? In accordance with the Federation of the Swiss Watch Trade, the latest figures present exports of Swiss watches to mainland China totaled 2.1 billion Swiss francs ($2.39 billion) from January to November 2020, a rise of 17.1 p.c from the identical interval in 2019. (The federation tallies exports to Hong Kong and to mainland China individually.)
Each different market within the trade’s prime 20 — together with Hong Kong and the US, its longtime leaders — recorded a double-digit decline throughout the identical interval.
The change grew to become a vivid spot in a chaotic yr.
“China is on fireplace,” stated Patrick Pruniaux, chief govt of the Kering Group watch corporations Ulysse Nardin and Girard-Perregaux. “From midsummer onwards, we’ve been optimistic yr over yr in China. We’re seeing double-digit development.”
Julien Tornare, chief govt of the LVMH watch firm Zenith, stated China had been essential to the enterprise’s revenues. “China grew to become No. 1 for Zenith in 2020,” he stated, offering about 30 p.c of the model’s gross sales and serving to to cowl enterprise misplaced through the pandemic.
The sudden shift in Chinese language spending away from conventional vacationer locations left manufacturers scrambling to adapt gross sales and advertising methods. Some opened bodily shops or pop-ups in China, however the focus for a lot of was the nation’s vibrant digital market.
Final summer time, quite a lot of luxurious watch manufacturers, together with the Richemont corporations Montblanc, IWC and Piaget, opened shops on Tmall Luxurious Pavilion, the Chinese language on-line market operated by the Alibaba Group, which now lists merchandise from greater than 200 luxurious manufacturers. The attraction definitely was the platform’s attain: Whereas it doesn’t disclose specifics of particular person web site use, Alibaba has stated its Chinese language retail marketplaces have 757 million lively annual customers.
Different manufacturers, reminiscent of Omega, turned to the Chinese language app WeChat, which supplies cost features and direct client gross sales for its 1.2 billion month-to-month lively customers. “Our use of WeChat has been a part of a world technique to extend our social media presence and e-commerce platforms in key markets, to be able to attain a larger variety of purchasers,” Raynald Aeschlimann, president and chief govt of Omega, wrote in an e-mail.
In Might, WeChat’s proprietor, the tech large Tencent, revealed a report on the app’s utilization through the nation’s preliminary Covid-19 outbreak. The report, produced with Tsinghua College’s Tsinghua China Information Heart and the Tencent Social Analysis Institute, stated there have been multiple billion day by day business transactions on WeChat Pay between March and Might 2020. And, whereas it doesn’t escape figures for watches, the app has stated its WeChat Pay business transactions in 2019 totaled greater than 800 billion renminbi (about $126 billion).
E-commerce in China has not been the silver bullet for watch corporations, although. “It has been masking a number of the bodily purchases” misplaced through the pandemic, stated Laurent Perves, chief advertising officer at Vacheron Constantin, which opened a retailer on Tmall Luxurious Pavilion final summer time. It used the shop in August to introduce the 100-piece Malte Guide-Winding China Restricted Version watch, and stated the timepiece, which retails for 166,000 renminbi, had bought out.
“We’ve additionally been promoting very excessive worth items on-line utilizing non-public video conferencing periods,” Mr. Perves stated, together with watches value greater than $100,000.
Luxurious watch manufacturers even have responded to the Chinese language authorities’ resolution final summer time to loosen up its duty-free coverage on Hainan, the southern island province being promoted as a home vacation spot mixing the tropical atmosphere of Bali or Singapore with the procuring attract of Paris or New York. In addition they lifted the duty-free restrict of 8,000 renminbi on single purchases. And every customer now could be allowed to purchase a complete of 100,000 renminbi in tax-free items there every year, up from 30,000 renminbi — an allowance that may allow the acquisition of a midrange luxurious watch.
The trade responded shortly. The Swiss retailer Kirchhofer moved its Chinese language headquarters to Hainan and, in September, 11 manufacturers gathered there for a monthlong public occasion organized by the Richemont-powered Watches & Wonders truthful.
Whereas particular gross sales figures for watches will not be obtainable, the Hainan Provincial Bureau of Worldwide Financial Growth has stated that from July 1 to Oct. 31, duty-free gross sales revenues on the island’s 4 duty-free retailers hit 12 billion renminbi, a 214 p.c enhance yr over yr.
Nonetheless, some watch executives stated they weren’t anticipating Hainan to be a long-term answer.
“Hainan was a little bit of a gold rush that helped quite a lot of manufacturers notice good efficiency in 2020,” Mr. Tornare of Zenith stated. “However I don’t imagine it’s going to be a long-term factor. The minute Chinese language shall be obtainable to journey overseas, they’ll.”
For the manufacturers reliant on Chinese language consumers however with no presence or publicity in China, the pandemic created a monetary disaster. Edouard Meylan, chief govt of the unbiased Swiss watch firm H. Moser & Cie, stated that earlier than the pandemic lower than 1 p.c of the corporate’s world gross sales occurred in China, however that half of its gross sales in Switzerland alone have been to Chinese language. Now, “our Chinese language vacationer enterprise has disappeared,” he stated. “Immediately, it’s zero.”
The corporate hurried to open pop-ups, together with one in Beijing, and Mr. Meylan stated that by the top of this yr, he hoped to have 4 monobrand boutiques within the nation.
“We will even triple our communication finances in China, in comparison with 2020,” he stated. “China is our predominant focus marketplace for the following three years.”
In accordance with some specialists, creating a market in China provides greater than only a fast repair for flagging world gross sales.
“China is a petri dish, the place you possibly can trial and experiment,” stated Iris Chan, a associate on the Digital Luxurious Group, a advertising company primarily based in Geneva. “Manufacturers are trialing Tmall, however they might by no means be on Amazon. China is a lot extra digitally forward. It’s like a view into the way forward for what different markets are going to seem like.”
And, in keeping with a latest report by Bain & Co., the luxurious market in mainland China was anticipated to symbolize virtually 346 billion renminbi by the top of 2020. The worldwide luxurious market shrank by 23 p.c final yr, it stated, but mainland China’s market share practically doubled, rising to twenty p.c in 2020 from about 11 p.c in 2019.
Not everybody, nonetheless, was satisfied that development in China’s home luxurious market would develop into a everlasting pattern.
“The Chinese language are spending much less per capita versus 2019 as many may get pleasure from European costs throughout their holidays,” stated Luca Solca, a senior analysis analyst at Bernstein, a wealth administration agency. “As soon as the Chinese language are in a position to journey once more, it will carry a tailwind, as customers will discover as soon as once more cheaper costs as they go to Europe.”
Mr. Pruniaux of Ulysse Nardin and Girard-Perregaux struck an analogous notice of warning: “One of many traps might be to develop into far too China-centric. If you wish to achieve success right this moment, you might be profitable in key cities and international locations, however you can’t be profitable solely in a single nation. We shouldn’t be relocating an excessive amount of to China. We have to maintain a good steadiness.”
Mr. Tornare agreed. “China would be the engine for development, however it’s wholesome to not put all of your eggs in a single basket.”
Because the world offers with delays in vaccination, new lockdowns and ever-changing native restrictions, the prospects for 2021 stay unsure.
“The massive dialogue we’re having now could be about how we go after China,” stated Mr. Meylan of H. Moser. “What works right this moment may not work in 12 or 36 months.”