Watchmakers Fret Over China Sales Slump

Luxury watchmakers, who have in recent years seen massive sales growth in the Chinese market, have since last summer seen that growth stifled. While President Xi Jinping’s campaign to cleanup corruption and crack down on extravagance has been cited as a cause for the slump in China’s demand for luxury goods, Reuters notes that the downswing in sales is also rooted in global economic trends:

Luxury watchmakers expect sales growth to slow this year as a recovery in the United States and buoyant Middle East demand fail to offset a China slump more deep-rooted than a temporary blip caused by anti- moves.

[…]Luxury watch makers have expanded at breakneck speed in recent years in Greater China, which includes Hong Kong, Macao and Taiwan as well as the mainland – and enjoyed double-digit sales growth rates there until last summer.

But their latest comments reinforce the view that the region, to which luxury group Richemont (CFR.VX) is the most exposed, is being hit by more than the government’s crackdown on gifts for favours, which often involve , and is feeling the draught from a wider slowdown in the world’s second-largest economy.

Watchmakers and retailers questioned about their China strategy noted that some companies went overboard with their retail presence in China, and that affluent Chinese consumers – who now account for 25 percent of global luxury good purchases – can still be reached abroad. From the New York Times

“People simply went overboard about China, thinking that there could be no issue with suddenly opening 40 or 50 stores,” said John Simonian, a watch distributor and owner of Westime, a watch retailer based in Los Angeles. “The stores in China are now full of inventories, with no guarantee that they can all get sold.”

[…]Affluent and travel-hungry Chinese are increasingly buying overseas. About half of Chinese spending on occurs outside the mainland, according to a study released in December by the consulting firm McKinsey.

As a result, “50 square meters in Paris could be much more meaningful now than having those same 50 square meters in China,” said Mr. Bennahmias of Audemars Piguet.

Executives from Swiss luxury brand Piaget SA have long-term optimism on China, also noting the importance of cashing in on overseas purchasing habits of wealthy :

Executives at Cie. Financière Richemont SA’s Piaget watch and jewelry brand remain upbeat on China’s luxury sector, despite recent blunted demand amid a crackdown on gift-giving in the country.

Piaget’s watch sales from China are still strong and are likely to be robust in the long term, though there has been increased pressure in the short term, said Philippe Leopold-Metzger, Piaget’s global chief executive, on the sidelines of a luxury conference in Shanghai. He declined to disclose financial details of the Geneva-based company.

“We talk a lot about slowdown and many people say that stores in China are empty, but if you look at stores all over the world, they are full of Chinese who are buying,” said Mr. Leopold-Metzger. Companies looking at profit and sales alone coming from within China don’t have a good understanding of the buying patterns, he said.

Luxury watches, widely worn by officials whose salaries alone shouldn’t allow, have become a symbol of corruption in China’s bureaucracy. In August, well-fed Shaanxi provincial work safety minister Yang Dacai was photographed with a grin and an expensive watch at the scene of a deadly traffic accident. After China’s human flesh search engine exposed Yang’s larger collection of pricey watches, netizens dubbed the official “Watch Brother“.  Yang was removed from his post in September and investigated for graft.

After the 2013 Sichuan earthquake, photographs of a quake-zone official’s watch-tanned wrist led netizens to speculate that the watch was removed in the wake of high profile corruption cases like Yang’s.