As 2021 begins, the Swiss watch industry is navigating a new and unfamiliar retail landscape: For the first time, China is the world’s largest market for its products.
China’s almost 1.4 billion residents have been the biggest buyers of luxury watches for several years. But most of their purchases had been outside the country, to take advantage of lower sales taxes in destinations like London, Dubai and Hong Kong.
Then came the pandemic, the suspension of international travel and a resulting surge in Chinese luxury consumers’ shopping domestically.
“We calculate that around 70 percent of Chinese luxury spend used to happen in the overseas market,” said Véronique Yang, a managing director and partner at Boston Consulting Group in Shanghai. “In 2020, that figure fell to around 30 percent. Chinese people have started to purchase within the domestic market.”
And the result? According to the Federation of the Swiss Watch Industry, the most recent figures show exports of Swiss watches to mainland China totaled 2.1 billion Swiss francs ($2.39 billion) from January to November 2020, an increase of 17.1 percent from the same period in 2019. (The federation tallies exports to Hong Kong and to mainland China separately.)
Every other market in the industry’s top 20 — including Hong Kong and the United States, its longtime leaders — recorded a double-digit decline during the same period.
The change became a bright spot in a chaotic year.
“China is on fire,” said Patrick Pruniaux, chief executive of the Kering Group watch companies Ulysse Nardin and Girard-Perregaux. “From midsummer onwards, we’ve been positive year over year in China. We’re seeing double-digit growth.”
Julien Tornare, chief executive of the LVMH watch company Zenith, said China had been critical to the business’s revenues. “China became No. 1 for Zenith in 2020,” he said, providing about 30 percent of the brand’s sales and helping to cover business lost during the pandemic.
The sudden shift in Chinese spending away from traditional tourist destinations left brands scrambling to adapt sales and marketing strategies. Some opened physical stores or pop-ups in China, but the focus for many was the country’s vibrant digital marketplace.
Last summer, a number of luxury watch brands, including the Richemont companies Montblanc, IWC and Piaget, opened stores on Tmall Luxury Pavilion, the Chinese online marketplace operated by the Alibaba Group, which now lists products from more than 200 luxury brands. The appeal certainly was the platform’s reach: While it doesn’t disclose specifics of individual site use, Alibaba has said its Chinese retail marketplaces have 757 million active annual users.
Other brands, such as Omega, turned to the Chinese app WeChat, which provides payment functions and direct consumer sales for its 1.2 billion monthly active users. “Our use of WeChat has been part of a global strategy to increase our social media presence and e-commerce platforms in key markets, in order to reach a greater number of clients,” Raynald Aeschlimann, president and chief executive of Omega, wrote in an email.
In May, WeChat’s owner, the tech giant Tencent, published a report on the app’s usage during the country’s initial Covid-19 outbreak. The report, produced with Tsinghua University’s Tsinghua China Data Center and the Tencent Social Research Institute, said there were more than one billion daily commercial transactions on WeChat Pay between March and May 2020. And, while it does not break out figures for watches, the app has said its WeChat Pay commercial transactions in 2019 totaled more than 800 billion renminbi (about $126 billion).
E-commerce in China has not been the silver bullet for watch companies, though. “It has been covering some of the physical purchases” lost during the pandemic, said Laurent Perves, chief marketing officer at Vacheron Constantin, which opened a store on Tmall Luxury Pavilion last summer. It used the store in August to introduce the 100-piece Malte Manual-Winding China Limited Edition watch, and said the timepiece, which retails for 166,000 renminbi, had sold out.
“We’ve also been selling very high value pieces online using private video conferencing sessions,” Mr. Perves said, including watches worth more than $100,000.
Luxury watch brands also have responded to the Chinese authorities’ decision last summer to relax its duty-free policy on Hainan, the southern island province being promoted as a domestic destination blending the tropical ambience of Bali or Singapore with the shopping allure of Paris or New York. They also lifted the duty-free limit of 8,000 renminbi on single purchases. And each visitor now is allowed to buy a total of 100,000 renminbi in tax-free goods there each year, up from 30,000 renminbi — an allowance that would permit the purchase of a midrange luxury watch.
The industry responded quickly. The Swiss retailer Kirchhofer moved its Chinese headquarters to Hainan and, in September, 11 brands gathered there for a monthlong public event organized by the Richemont-powered Watches & Wonders fair.
While specific sales figures for watches are not available, the Hainan Provincial Bureau of International Economic Development has said that from July 1 to Oct. 31, duty-free sales revenues at the island’s four duty-free shops hit 12 billion renminbi, a 214 percent increase year over year.
However, some watch executives said they weren’t expecting Hainan to be a long-term solution.
“Hainan was a bit of a gold rush that helped a lot of brands realize good performance in 2020,” Mr. Tornare of Zenith said. “But I don’t believe it’s going to be a long-term thing. The minute Chinese will be available to travel abroad, they will.”
For the brands reliant on Chinese buyers but with no presence or exposure in China, the pandemic created a financial crisis. Edouard Meylan, chief executive of the independent Swiss watch company H. Moser & Cie, said that before the pandemic less than 1 percent of the company’s global sales occurred in China, but that half of its sales in Switzerland alone were to Chinese. Now, “our Chinese tourist business has disappeared,” he said. “Today, it’s zero.”
The company hurried to open pop-ups, including one in Beijing, and Mr. Meylan said that by the end of this year, he hoped to have four monobrand boutiques in the country.
“We will also triple our communication budget in China, compared to 2020,” he said. “China is our main focus market for the next three years.”
According to some experts, developing a market in China offers more than just a quick fix for flagging global sales.
“China is a petri dish, where you can trial and experiment,” said Iris Chan, a partner at the Digital Luxury Group, a marketing agency based in Geneva. “Brands are trialing Tmall, but they would never be on Amazon. China is so much more digitally ahead. It’s like a view into the future of what other markets are going to look like.”
And, according to a recent report by Bain & Co., the luxury market in mainland China was expected to represent almost 346 billion renminbi by the end of 2020. The global luxury market shrank by 23 percent last year, it said, yet mainland China’s market share nearly doubled, growing to 20 percent in 2020 from about 11 percent in 2019.
Not everyone, however, was convinced that growth in China’s domestic luxury market would become a permanent trend.
“The Chinese are spending less per capita versus 2019 as many could enjoy European prices during their holidays,” said Luca Solca, a senior research analyst at Bernstein, a wealth management firm. “Once the Chinese are able to travel again, this will bring a tailwind, as consumers will find once again cheaper prices as they go to Europe.”
Mr. Pruniaux of Ulysse Nardin and Girard-Perregaux struck a similar note of caution: “One of the traps could be to become far too China-centric. If you want to be successful today, you can be successful in key cities and countries, but you cannot be successful only in one country. We shouldn’t be relocating too much to China. We need to keep a fair balance.”
Mr. Tornare agreed. “China will be the engine for growth, but it’s healthy not to put all your eggs in one basket.”
As the world deals with delays in vaccination, new lockdowns and ever-changing local restrictions, the prospects for 2021 remain uncertain.
“The big discussion we’re having now is about how we go after China,” said Mr. Meylan of H. Moser. “What works today might not work in 12 or 36 months.”