In the last Year of the Dragon in 2012, Swiss watchmakers went all out to produce extravagant dragon-themed timepieces. Especially popular were watches with dragon motifs on enamel dials, often with diamond-set bezels.
Such metiers d’art (artisanal craft) timepieces were conceived specifically for the Chinese market, which was the world’s most important – then. However, since Chinese President Xi Jinping started his anti-corruption campaign in 2013, sales of luxury goods in China, as well as in Hong Kong and Macau, have dipped severely. The slowdown in the Chinese economy and the accompanying stock market volatility is yet another damper on consumer demand.
Watches have been hit hard, with the luxury watch industry going from double-digit annual growth to contraction. Publicly traded watchmaking groups, like Richemont and the Swatch Group, uniformly count Asia as the worst-performing region today.
With the release of its five-month results in September, Richemont noted that its sales in the Asia-Pacific region fell 18 per cent – a situation described as “extremely challenging” – with sales in Hong Kong and Macau “significantly lower”.
The link between the Chinese government’s crusade against graft and the past boom in pricey timepieces is simple: Luxury watches were often gifts for government officials.
A pair of academics from the Cheung Kong Graduate School of Business in Beijing quantified the correlation in 2013. Their research paper studied the relationship between the five-yearly transition of power in China and the corresponding Swiss watch imports into the country. Between 1993 and 2010, they discovered that Swiss watch imports tripled during each leadership transition, a phenomenon that did not occur in countries like Singapore and Hong Kong.
With about 10 million employees in the Chinese civil service, the number of watches gifted was colossal. The pair surmised that the attractiveness of watches as gifts stemmed from the fact that timepieces are small but valuable and liquid, being easily sold for cash. Counterfeits make real watches even more desirable, since a fake watch can be gifted along with the real thing, and the replica held up as proof of innocence during an investigation.
According to The Economist, 232,000 Chinese civil servants were punished for corruption-related offences last year – a measure of how vast the crackdown is. Needless to say, the correlation between leadership transitions and watch imports has irretrievably broken down.
So the watch industry has had to adjust, mainly by focusing on other markets and segments. Despite the slump, Chinese consumers are vital to watchmakers. Evidence suggests that Chinese tourists still shop overseas, especially in major destinations like Paris and Lucerne. But that is usually for plainer timepieces, rather than lavish watches for gifts.
As a result, watchmakers are tweaking their product offerings, emphasising affordability and value for money, to appeal to the upper-middle class demographic.
And then, there are other markets that are doing well. Japan, for instance, is enjoying unparalleled tourist arrivals due to the weak yen, as well as stronger domestic consumption on the back of Abenomics. With Japan being an extremely mature and sophisticated market, watches that cater to Japanese consumers have to be similarly sophisticated but not necessarily with the same bling factor.
In short, consumers can now look forward to better, wearable watches at lower prices. Now, isn’t that a gift.
Read more of Su Jia Xian’s incisive commentary at his website, WatchesbySJX.com.