Switzerland’s fledgling watch recovery picked up steam in January. Global exports of Swiss watches jumped 12.6% to 1.62 billion Swiss francs ($1.73 billion), according to data released Tuesday by the Federation of the Swiss Watch Industry (FH).
The double-digit jump follows a 2.7% increase in exports in 2017, after a two-year export slump. It’s a sign that the recovery that began in the Far East in the second half of 2017 is gaining momentum, as retailers replenish depleted watch stocks. It also backs up a growing number of optimistic forecasts for the Swiss watch industry in 2018.
The watch export data is supplied to the FH by Switzerland’s Federal Customs Administration and reflects wholesale sales, i.e., watch shipments from Swiss producers to their subsidiaries and retail clients. While it does not represent retail sales, it is a widely used barometer of the health of the Swiss watch industry.
In January, Hong Kong recorded its
highest monthly increase in Swiss
watch exports in five years.
“Many markets experienced strong growth in January,” the FH said in a statement. Of Switzerland’s top 30 markets, 21 posted increases, some of them quite dramatic. The FH was quick to point out that the January 2018 data benefitted from a comparison with a weak January 2017 (when exports fell 6.2%). That said, the data is encouraging for the Swiss, particularly brands strong in the Far East, which is leading the recovery. The regional contrast is striking. For the month, exports to Asia increased 23%. Exports to Europe and the Americas each increased 0.8%.
Mainland China’s surge continued in January with a 44% jump, which knocked the U.S. out of the number two spot on the export list.
Hong Kong, whose recovery began last spring, recorded its highest monthly increase in five years, up 21%. (Hong Kong is Switzerland’s top export market.)
Other top Asian markets also grew in January: #5 Japan increased 13%; #7 Singapore was up 19%; #11 South Korea jumped 29%; #14 Taiwan grew by 38%.
All told, Asia accounted for 55% of total Swiss watch exports for the month. The top watch markets in Europe and the Americas did not fare as well. Europe’s share of exports fell to 29% because of softness in Germany (#6, down 4%) and Italy, down 5%. Italy was Switzerland’s sixth largest market in 2017, but fell to #10 for January. Exports to the long-suffering U.S. market, “which has been declining for more than two years,” the FH noted, fell 2%. The Americas region accounted for 13% of total exports.
Other markets, however, posted big percentage increases for the month, like #12 Saudi Arabia (+33%), #16 Australia (+54%), #19 Mexico (+22%), #20 Russia (+29%), #22 Kuwait (+86%) and #24 India (+94%).
China Boom, The Sequel
The engine driving the current Swiss watch rebound is China. In 2017, Swiss exports there jumped 19%, the highest of any market. Its 44% jump in January indicates yet another Swiss watch boom is underway there.
But this one is different from the boom of 2010-2012, says Guillaume Gauvillé, a Credit Suisse luxury-market analyst, who closely follows the Swiss watch industry. That boom was fueled by bribes during a period when the Chinese economy was largely dominated by investments related to infrastructure projects. The Chinese government’s well-known anti-corruption campaign eliminated that luxury-watch sales source, and spawned the two-year downturn.
The recovery of watch demand in China does not represent an easing of the anti-corruption restrictions. They remain in effect, Gauvillé says. “The rise in demand that we have seen is a catch-up from genuine consumers,” he told Hodinkee in a phone interview. “You had a big drop in 2013-14, when genuine consumers feared being scrutinized for wearing a nice watch. Retailers in China told me their regular customers were afraid to buy a nice watch.” That lasted for three years. “This kind of ‘fear factor’ faded through time,” Gauvillé says, and that pent-up demand is driving sales now.
Another factor that was hurting – but is now helping — watch sales was Chinese consumers’ flirtation with the stock market. “In 2014 and 2015 in China, there was a whole euphoria about buying stocks,” Gauvillé says. Consumers diverted disposable income from watches to the stock market. Then the stock market collapsed “and retail investors realized, ‘This is actually quite volatile. So, let’s buy watches again, it feels like it’s a better investment.'”
One caution about this January’s exports to China and Hong Kong: Gauvillé points out that they got a boost from the later date of the Chinese New Year. In 2018, the New Year began on February 16, so the bulk of watch shipments arrived at retailers in January. In 2017, the New Year was January 28, so the bulk of the shipments arrived in December 2016.
Gauvillé is bullish on Swiss watch industry prospects for 2018. In a January 31 Credit Suisse research report, he wrote: “Cyclical indicators for the Swiss watch industry are the most positive we have seen in the last 2.5 years. The stock situation in the distribution channels is getting less bad and sell-out in Asia continues to be strong.”
Gauvillé notes that a reliable index that measures Swiss watch industry business climate has turned positive for three consecutive months due to a rise in orders. The KOF Swiss Economic Institute business climate index, a survey of 40 Swiss watch companies by the Zurich-based KOF Swiss Economic Institute, had been negative for 33 months. Gauvillé considers the shift significant. (It helped him to correctly predict, in a broker’s report two weeks before the FH data was released, a big jump in January watch exports.) “A majority of [the survey] respondents believe the overall business climate will improve over the next six months,” Gauvillé noted in the Feb. 7 report. “Most expect to raise production further over the next three months,” in response to order backlogs. He estimates that the watch industry is now running at almost full capacity.
Add to the upbeat indicators the Swatch Group’s estimate, in a private earnings call with financial analysts, that total group revenues for 2018 will jump around 8% or 9%.
One good month does not a good year make. No one is claiming that happy days are here again for the Swiss watch industry. But the Swiss are daring to think that they may be on the way.