Sales of Swiss-made luxury watches are in sharp decline as hesitant consumers reevaluate splurging on costly timepieces and demand drops in a crucial market. Recent figures from Richemont and Swatch Group AG highlight a severe downturn led by China, adversely affecting luxury fashion brands like Burberry, Hugo Boss, and Gucci.
The double-digit decline in sales marks a significant change for an industry that enjoyed remarkable growth during the pandemic. During that period, consumers, flush with cash and limited in spending opportunities, invested heavily in expensive mechanical watches inspired by social media. Top brands like Vacheron Constantin and Omega hiked their prices during the boom, leading some consumers to rethink their purchases.
In the three months through June, sales of Richemont’s watch brands fell by 13%, hurt by a 27% drop in Greater China. Swatch experienced a 30% sales plunge in China for the first half of the year, contributing to a 14% overall sales decrease and a 70% drop in operating profit. This downturn is causing ripple effects throughout Switzerland’s third-largest export sector, employing over 65,000 workers, with reductions in production levels and deferred orders impacting watch component suppliers.
Nick Hayek, Swatch Group’s CEO, mentioned that some brands had delayed orders due to a 20-30% cut in production. Swiss watch export data, due Thursday, are expected to reflect this slowdown. The pullback isn’t unexpected but its scale is surprising, with industry executives predicting an end to the buying frenzy from 2023.
American buyers drove the pandemic boom, making the U.S. the top export destination in 2021. Despite China’s position as the second-largest importer, U.S. sales remain strong and Japanese retailers benefit from the weak yen. However, this isn’t enough to offset China’s decline.
Analysts like Luca Solca of Bernstein do not foresee an end to China’s demand issues soon. These problems also hit the broader luxury market, with Hugo Boss reducing its annual profit guidance due to weak Chinese markets, causing its shares to fall to their lowest since 2021.
The secondary market isn’t faring better, continuing its trend of falling prices for the most traded models. Used watches from brands under LVMH saw a 3.6% decline while Rolex models dropped 2.2%. Morgan Stanley’s report notes that as secondary market prices drop, so does the pricing power of leading Swiss watch brands, predicting a 5% fall in primary watch market sales for the year.
