Swiss Watch Sales are Down, and China is to Blame

Swiss Watch Sales Decline

Cartier tourbillon swiss watchIt’s been a tough year for the Swiss watch industry.  Sales are down by a considerable margin, and a few people in the industry are growing a bit uncomfortable at the thought of a repeat of the disaster of the 1970s. At that time, the then-recent introduction of quartz watches, which were highly accurate and relatively inexpensive, nearly brought the mechanical watch industry to its knees.

The Swiss watch industry did recover, but not before a number of longtime watchmakers went out of business and a few others ended up merging with other companies to survive.  Eventually, the industry began to emphasize their timepieces as luxury items that stood in sharp contrast to the plastic and stainless steel quartz watches of the time.  While a few companies, such as Rolex, dabbled a bit in quartz watches, a few diehard makers simply made the effort to make their mechanical products more accurate and more desirable, by adding more gold and/or diamonds and by reducing production to increase scarcity.

The situation today is a bit different.  Most people carry a cellphone, and cellular telephones have the ability to display the time.  That means that for the majority of consumers, a wristwatch is no longer a necessity, but instead is a luxury item or a fashion accessory.  People buy luxury watches because they enjoy them, but few people buy a Swiss watch because they need them.  Adding to the problem is the fact that the smartwatch has begun to make inroads into the watch market.  While smartwatches have been available for a few years, last year’s introduction of a model from Apple has made the public more aware of the availability of smartwatches, even if people haven’t exactly flocked to buy Apple’s particular version of it.

People have, however, been buying smartwatches in general, and the Swiss watchmakers in particular have been lamenting this trend.  Swiss watch ales have been down for twelve consecutive months for most Swiss watchmakers, and so far this year, more smartwatches have been shipped to retailers than Swiss watches.  As with the quartz revolution in the 1970s, a few Swiss makers have begun to sell smartwatches, but only as a sideline.  Most of the high end Swiss watch companies are taking more of a “wait and see” attitude before deciding what they are going to do next.

Swiss Watch Sales and China

An unexpected source has added to the problem of declining sales of Swiss watches, and that source is China.  While China has been slow to adapt to capitalism, those in the country who have money have been quick to embrace luxury items, as they represent visible demonstrations of status.  If people see you driving a fancy car or wearing a spectacular watch, they know without asking that you are successful and have money.  Because of this, China has quickly become a big part of the marketing plans for many Swiss watchmakers, in some cases comprising up to 40% of their market.

That has recently taken a dive.  A recent change in Chinese leadership has led to promises of reform in government.  That’s usually welcome, and in the case of the Chinese government, this promised reform comes in the form of reducing corruption.   Most state employees in China are paid modestly; they earn a salary but they wouldn’t be regarded as wealthy by anyone’s definition.  On the other hand, it hasn’t gone unnoticed that many Chinese officials and public servants have been seen wearing Swiss luxury watches.  In fact, it has been estimated that as much as 60% of the luxury watches in China will, at one time or another, be presented as a gift to some state official.

automatic chronographWith the crackdown on this sort of gifting and corruption in general, sales of Swiss watches in China have taken a nosedive.  Few Chinese consumers have the disposable income to buy a Cartier or Rolex, and with fewer opportunities to use such luxury watches to grease the wheels of the usually slow-moving government, few Chinese of any means see any reason to buy luxury watches right now.

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Another issue in the decline of the sale of Swiss watches is the explosive growth of the replica and counterfeit industry.  While counterfeit watches are illegal in most jurisdictions, it can be quite difficult for the layman, including those in law enforcement, to discern the difference between a genuine Swiss watch and a well-crafted fake.  In addition, some so-called “Frankenwatches” actually have a mixture of both legitimate and counterfeit components, making it even harder for those who are tasked with shutting down counterfeiting operations to tell the difference.

As many counterfeit Swiss watches are sold on the Internet from a variety of locations, policing the sales of such products and limiting their sale can be quite difficult.  Few customs officials have either the time or the knowledge to know the difference between a legitimate watch and a good replica when one of them passes through customs via mail for inspection.

Ironically, the main source of counterfeit Swiss watches these days is China, which adds to the problem that Swiss manufacturers face in making sales there.  With so many fakes on the street and with so many of them looking convincingly like the real thing, fewer Chinese consumers have any incentive to save money to buy the legitimate product.

Swiss Watch Sales Conclusion

How will the decline in Swiss watch sales finally end?  Few are predicting the end of the industry.  People have worn wristwatches for more than a century, and it has been firmly established that a certain segment of the market still favors the mechanical wristwatch.  Some like them because they represent a work of art, and others simply appreciate the engineering that goes into them.  A few others like them because they represent luxury.

In the end, there will probably be a bit of consolidation in the industry, with a few makers getting bought out by large conglomerates or being forced to merge with other watchmakers.  A few companies will undoubtedly go out of business.

Sales may not be what they used to be, but in the end, Swiss watch sales will likely survive these crises.

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