Swiss watchmakers see fortunes turn as Chinese demand wobbles

25 November 2016 5 min. read
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The Swiss watch industry has enjoyed a number of years of boom as Asia rose and consumers sought new ways to keep time and flash their new money. A new report finds that considerable pessimism prevails across Swiss watchmaker executives, as demand from China and Hong Kong falters. Innovation and new product lines are, according to respondents, the way forward.

The not so humble Swiss watch has long stood for quality, style and disposable income. Swiss watches, both an accurate timepiece and a symbol of status, have remained sought after consumer items since the beginning of the industry in the 14th century. Recent years have however seen the industry enter a period of ups and downs, highlights a new report by Deloitte, a global accounting and consulting firm.

Swiss watch sales figures

Time status sales

The export of Swiss made watches has seen troughs and peaks in recent years, following recovery from the financial crisis and its aftermath. In 2010, for instance, around CHF16 billion in exports were realised, which jumped by around three billion the following year to CHF19.3 billion. The most recent half year result highlights a drop in sales to CHF9.5 billion, following a peak of almost CHF11 billion the previous half year.

Across the top three markets, the industry has enjoyed considerable growth since 2005, as particularly a segment of Hong Kong-based consumers invested in status symbols. Total sales to Hong Kong jumped from around CHF500 million in 2005 to almost CHF1.3 billion by 2012. The good times have since receded, as the segment matured and growth slowed, shown by the most recent results of Hong Kong sales at levels of CHF600 million, in line with US sales results, and considerably below those of China.

Swiss exports by unit type

In terms of the type of Swiss watch sold, mechanical watches are considerably outperforming their quartz brethren. Mechanical watches jumped from around CHF6 billion in 2004 to more than CHF15 billion last year, and volumes increased from around 3.5 million units to around 8 million units. Swiss quartz watches, which tend to be cheaper than mechanical watches, stood at around CHF3.5 billion in sales last year, while around 20 million units were shifted worldwide.

12 month outlook

Swiss pessimism 

The study also finds that Swiss watch executives are relatively concerned about the prospects for both the Swiss economy in the coming 12 months, as well as their respective industry in the coming period. In 2013, 43% of those surveyed were positive about the direction of the Swiss economy over the coming 12 months, while 5% were negative. By last year, however, positive sentiment had fallen to 24%, while those with a negative outlook jumped to 41%. In the latest survey, positive sentiment has been drying up, at 13%, while negative sentiment has increased to 54%.

Respondents are also considerably more concerned about their main export markets, with just 9% positive and 65% negative. When reflecting on their own industry, Swiss watch executives are the most downbeat, with 82% sporting a negative outlook compared to 2% with a positive expectation.

Growth regions

Regional outlook

When it comes to the major export locations for the Swiss watch industry, respondents to the survey show the most concern for Hong Kong, at 57% expecting the market to decline while 8% expected it to grow. Respondents are evenly split on prospects for growth from the Chinese market, while slightly net negative for the European market. The slowdown in China, as well as a number of anti-corruption legislative efforts, focused on ending kickbacks – which often includes a nice timepiece – are key reasons for pessimism. Hong Kong and Chinese sales are also affected by changes in visa requirements for visiting Chinese tourists, as well as an appreciation of the CHF against prevailing currencies, resulting in higher unit costs for regional consumers.

Africa, Oceania, the rest of Asia and North America are areas in which respondents do expect to see growth. That growth is, however, considerably contracted in all regions compared to last year’s expectation as macroeconomic conditions bite.

Top five business strategies

Watch strategy

The research also asks respondents to highlight strategies aimed at improving the company’s outlook for the coming 12 months. The introduction of new products tops the list again, with 69% making it a strong priority and 27% somewhat of a priority. Increasing focus on research and development too has seen a slight decrease in priority, from 45% last year saying it was a strong priority to 40% this year, although the number saying it is some form of priority increase to 92% from 86%. Expanding into new markets comes second, with 44% saying it is a strong priority and 35% saying it is somewhat of a priority – although overall it decreased in priority from the previous