The Swiss watch industry is bracing for more disappointing news, as pro-democracy demonstrations continue to roil Hong Kong, its No. 1 market.
Exports to the city plunged 26.8 percent in June, when protesters first turned out in large numbers against a proposed law that would have allowed extraditions to mainland China. In July, the most recent numbers available, the decline reduced to a modest 1.3 percent, with total global exports reaching 1.9 billion Swiss francs ($1.92 billion) for the month, an increase of 4.3 percent compared with the prior year.
But there are worries that the August numbers, scheduled to be released Sept. 19, may show further sharp declines as the Hong Kong protests have continued, especially on weekends, as the government has ignored demonstrators’ expanded list of demands (the extradition law was withdrawn Sept. 4) and violence has increased. As a result, some of the city’s normally vibrant retail areas have been deserted on Saturdays and Sundays, and tourism, a big driver for watch sales, was down 5 percent in July.
“If you consider that Hong Kong is about 11 percent of the turnover of Swatch Group and Richemont, this is a pretty scary situation,” said Alexander Linz, a Vienna-based watch journalist who runs the YouTube channel for WatchAdvisor.com.
Both Compagnie Financière Richemont, which owns several luxury watchmakers including Cartier, Panerai and IWC, and Swatch Group, whose prestige brands include Omega, Breguet and Blancpain, released statements acknowledging the turmoil in Hong Kong had caused local sales to decline — in Swatch’s case, by double digits — while emphasizing growth in mainland China. Swiss watch exports to that market increased 16.3 percent in July, according to the Federation of the Swiss Watch Industry.
“When there’s a decrease in Hong Kong, even a small one, it has quite a strong impact on overall growth,” said Jules Boudrand, a director at Deloitte Switzerland and co-author of the 2017 Deloitte Swiss Watch Industry Study.
Over the past five years, exports to Hong Kong have seesawed. The crackdown on luxury gifting spurred by the Chinese government’s anti-corruption campaign, which began in 2012, put a dent in luxury watch sales. Exports fell to 2.4 billion Swiss francs in 2016 from a high of 4.1 billion francs in 2014.
For luxury watchmakers, such as Cartier, the steep decline in sales was exacerbated by a corresponding oversupply of merchandise. In 2015, the glut of inventory in Hong Kong made its way to the gray market, forcing both Richemont and Swatch Group to embark on costly buyback programs to shore up their brands’ reputations. Mindful of that experience, both groups are now thought to be shipping fewer watches to the city.
“All brands are much more cautious,” said Karine Szegedi, managing partner and head of fashion and luxury at Deloitte Switzerland.
Further complicating the dynamic in Hong Kong is the Chinese government’s growing efforts to ensure that its citizens spend their money at home, including a reduction in the sales tax earlier this year. “There are heavy duties when Chinese consumers buy luxury goods outside the country so there is repatriation of luxury purchases to the mainland,” Ms. Szegedi said.
For all the uncertainty about what will happen next in Hong Kong, the United States, the No. 2 market for Swiss watches, is coasting along with 6.1 percent growth in July.
The two markets have a history of leapfrogging each other for the top spot on Switzerland’s watch exports list.
“When one was down, the other one generally was up,” said Joe Thompson, editor-at-large at the watch site Hodinkee. “Then they would flip. And that was good for the industry. When you’re Switzerland, you’re just looking for the hot spot.”