Slump In Chinese, Hong Kong Demand Sends Swiss Watch Exports Plummeting: 'Negative Trend Is Even Worse Than We Expected,' Says Analyst

Swiss watch exports have experienced a significant decline, particularly in China and Hong Kong, leading to a 52-week low for Swatch Group SWGNF SWGAY.

What Happened: The exports of Swiss watches have recorded their most substantial drop since 2020, with a significant decrease in demand for high-end timepieces in key markets such as China and Hong Kong, reported Bloomberg.

The Federation of the Swiss Watch Industry revealed a 16% decrease in exports by value in March, amounting to 2 billion Swiss francs ($2.2 billion) from the previous year.

Shipments to China, the second-largest market for Swiss watches, fell by 42%, dropping below the levels seen in March 2020 when the industry came to a standstill due to pandemic lockdowns. Shipments to Hong Kong also plummeted by 44%.

Swatch Group, the manufacturer of Omega and Longines brands, saw its shares hit a fresh 52-week low on Thursday, dropping by about 1% in Zurich trading. Shares of Compagnie Financière Richemont SA CFRUY, the owner of Vacheron Constantin and Cartier, also fell by approximately 1%.

"The negative trend is even worse than we expected and the decline in China is really worrying and probably indicates that inventories in the region were once again too high," said Jean-Philippe Bertschy, an analyst at Vontobel in Switzerland.

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During the pandemic, the demand for Swiss watches and luxury timepieces experienced a significant surge. Consumers, confined to their homes and benefiting from government stimulus measures, rushed to purchase top brands such as Rolex and Patek Philippe.

The decline in exports highlights a global reduction in demand for Swiss timepieces, which experienced an unprecedented surge from 2021 to mid-2023. Factors such as higher interest rates, uncertain economic growth, and geopolitical tensions have led watch buyers to reconsider investing in expensive timepieces.

Why It Matters: The Swiss watch industry’s current struggles are part of a broader trend affecting the global luxury market. Brands such as Prada, Gucci, and Louis Vuitton are anticipating a significant decline in sales due to weak demand from China. This decline is also attributed to challenging comparisons with the sales spike following the COVID-19 pandemic in 2023.

China’s economic turbulence is impacting various sectors, including luxury goods. The Chinese government has taken stringent measures against debt defaulters, including restrictions on high-speed rail travel and luxury accommodations, as part of a broader crackdown on unpaid bills.

Another factor potentially affecting the luxury watch market is the trend of treating luxury watches as investments, which has seen a significant uptick during the pandemic. The CEO of Rolex, Jean-Frédéric Dufour, has warned against this practice, stating that it sends the wrong message and is dangerous.

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