Swiss luxury watchmakers anxious about their stores in China

audemars-piguet Chinese customersSwiss luxury watchmakers predict the market will grow this year, expecting rising demand from North America and Europe to more than offset slowing sales to China.

Independent watchmakers Audemars Piguet, Parmigiani, Greubel Forsey and Richard Mille, told Reuters at an industry show they were expecting higher sales in 2014 than last year.

The Chinese government’s crackdown on the use of luxury goods as bribes and illegitimate gifts has hurt sales of luxury watches in mainland China, the third largest market for Swiss watch exports.

“The biggest dark cloud on the horizon is a potential Chinese bubble, we don’t know if it’s going to burst or not,” Jean-Marc Jacot, head of independent high-end watch brand Parmigiani told Reuters in an interview on Tuesday.

“We’ll all be hit terribly if something happens in China, let’s hope the Chinese government keeps things in check,” he said at the SIHH watch fair that unites Richemont brands and a handful of independents in Geneva this week.

Hong Kong and mainland China together accounted for about a quarter of Swiss watch exports. In the eleven months to November the total market was worth 20 billion Swiss francs ($22 billion). Exports to these two markets fell 6 and 15 percent, respectively, in that period.

Exane BNP Paribas analyst Luca Solca said he estimated that the luxury watchmakers were vulnerable to a slowdown because sales in China, as well as to Chinese tourists overseas, generated half of their revenue.

Richemont, which owns the Cartier brand, said last week that its sales in China were still in negative territory in the three months to December, while Swatch Group was more optimistic, saying its Omega brand was about to recover in China.

“Chinese consumers prefer to buy Swiss luxury watches over US$20,000 in overseas stores” said Pierre Gervois, CEO of China Elite Focus and Publisher of the Shanghai Travelers’ Club magazine. “It’s clear that the most expensive timepieces have no interest to be purchased in China because of taxes. Chinese watch collectors are familiar with trips to Paris and Geneva to purchase their new watches and have no intention to buy again in Mainland China’s stores. This is an issue for watchmakers who did not fully understood this trend”, Gervois added.

Vacheron Constantin’s CEO, Juan-Carlos Torres, said many watchmakers took buoyant Chinese growth for granted.

“You have to go slowly in China and work for the long term. We did not only go to first-tier cities, but also to second- and third-tier cities with local retail partners,” Torres said, adding this would help the brand grow sales in China this year.

Watchmakers said the second biggest market for Swiss watches, the United States, should see a tepid recovery gather momentum this year. Exports rose 2.4 percent between January and November last year.

Jasmine Audemars, chairwoman of Audemars Piguet, the biggest independent watchmaker at the fair, said the brand was doing well in the U.S. market and things should get better.

Parmigiani’s Jacot said: “The United States (is) coming back, this year we’ll see the real rebound.”

Overall, Audemars Piguet is expecting single-digit growth this year, while Parmigiani expects to grow about 15 percent after 17 percent last year. Richard Mille, another high-end player, is aiming for 150 million Swiss francs ($165 million) in 2014 sales after 132 million in 2013. ($1 = 0.9094 Swiss francs)

Source: Reuters

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Wealthy Chinese customers will shop abroad in 2014

Chinese Shoppers Chanel - Luxury Hotels of AmericaWealthy Chinese are likely to buy fewer luxury goods again this year after the steepest cut-back on spending in at least five years, changing the game for high-end retailers like Louis Vuitton which have staked their growth on China. Overall spending by wealthy Chinese fell by 15 percent in 2013, the third consecutive year of decline.

The drop coincides with a government crackdown on corruption and gifting, as well as an a growing penchant for travelling and shopping overseas to circumvent Chinese consumption taxes on luxury goods as high as 40 percent.

The shrinking ranks of wealthy residents in China has also reduced luxury spending. One in three so-called high net worth individuals have already left, or are planning to leave, the country, the report showed, mostly to seek better opportunities for their children’s education.

Advertisement Tower - Gervois Hotel Rating May 2017 featuring Pierre GervoisChinese are the top consumers of luxury goods globally. A slowdown in their spending, or a change in shopping habits, would hurt high-end retailers already struggling with a weaker Chinese economy and a more sophisticated clientele that has moved away from logo-branded goods.

Luxury group Richemont, the maker of high-end IWC watches and Cartier jewellery, reported this week slower-than-expected sales growth in the third quarter, largely due to weaker Asian demand.

LVMH, the world’s biggest luxury goods group, has also seen sales growth slow last year as Chinese demand cooled, prompting the company, and brands from rival Kering SA to offer goods with more discreet logos and in expensive materials.

The crackdown on conspicuous spending, which began in 2012, is part of a vow made by Chinese President Xi Jinping to be tougher on graft. He has focused in particular on gifts made to government officials often in exchange for preferential treatment or contracts.

Products by Hermes, Chanel, LVMH’s Louis Vuitton brand, Apple Inc and Gucci remained among the most sought-after brands for gifting.

Less popular were Bulgari – another LVMH brand – Salvatore Ferragamo, Tiffany and Co and the fiery baijiu liquor made by Chinese firm Kweichow Moutai Co Ltd, once the top tipple of Communist Party officials.

Affluent Chinese often shop online for the best price globally. They have also become more confident about their fashion choices, mixing high-street clothing and accessories with branded goods.Shanghai Travelers Club Winter 2013 Issue

According to Pierre Gervois, Publisher of the Shanghai Travelers’ Club magazine, a luxury travel publication for wealthy Chinese international travelers ” Chinese consumers probably won’t spend less – it’s absurd to say that – they will spend the same amount of money, and probably more, but not in China. They have already started to buy abroad, and as they prefer to pay cash, we will never know the real figures”

Over two-thirds of luxury spending by mainland Chinese was overseas in 2013, a factor that contributed to the United States overtaking China as the world’s fastest growing luxury market, according to a study by consultancy firm Bain & Company released in December.

China’s super-rich are also avid collectors – 70 percent of wealthy Chinese rank collecting as a hobby – but what they are coveting is changing.

Ancient calligraphy last year surpassed luxury watches as the most-collected, knocking watches out of the No. 1 spot for the first time in five years, the Hurun report showed, which could mean revenue losses for top watch makers but a boon for auctioneers.

Patek Philippe remained the most popular watch brand for collectors for the seventh year running while Christie’s was the top ranked foreign auction house, the report showed.

Besides spending less at home, more rich Chinese are leaving the country. The number of wealthy Chinese who have emigrated or are planning to do so rose to 64 percent from 60 percent in the previous year, the survey said.

Most of those leaving, or planning to, are looking for permanent residency overseas – the United States, Europe and Canada are top picks. Very few want to give up their nationality, perhaps because their outlook for China is improving.

The report showed millionaires’ confidence in China’s economy rose for the first time in five years but those who felt “extremely confident” still accounted for only 31 percent of those surveyed.

The survey’s results are based on responses from 393 Chinese millionaires, or those with personal wealth of at least 10 million yuan.