Market Overview

Luxury Watches and China's Slowdown


“Many wholesale watch dealers kept raising their asking price only to run into that price ceiling established across the board by the majority of the Asian dealers," says Hal Martin of Hal Martin's Watch & Jewelry Co.

Houston, TX (PRWEB) October 31, 2012

The desire of China's wealthy class for luxury products has been a major factor behind the bullish performance of Swiss luxury watches during the past couple years.

In September, however, sales in Asia, especially in mainland China and Hong Kong, show that demand could be changing. The total export of Swiss luxury time-pieces to key Asian markets dropped in September, and is expected to again in October.

The Federation of the Swiss Watch Industry figures that in September's the total values of Swiss watch exports was 2.7 percent lower than in the same month a year earlier in 2011. The biggest downturn in sales came from China, where sales are down around 27 percent, while in Hong Kong sales were down 19 percent.

In all, luxury product sales in China are still expected to rise by 18 percent by the end of the year, according to consulting firm Bain & Co. It predicts sales of luxury watches will grow 14 percent worldwide. But September's export data represents a down turn for the worse and an indicator of how China's luxury market has weakened.

The drop mostly reflects China's economic deceleration. Chinese shoppers aren't spending money the same way they once were, and purchases in September are likely to mirror lower sales expectations for the rest of the year.

Chinese payment processing company UnionPay recorded foreign transactions were up 33 percent from a year earlier, which is a sign that Chinese are making more and more luxury purchases abroad. This trend is growing as the value of the Chinese yuan increases, along with lighter travel restrictions and lower prices on luxury items outside China.

Meanwhile, a once-a-decade leadership change in China has delayed the common practice of gift-giving among Chinese businessmen and officials that have been a source of demand for the world's top brands. Those in the industry say people are waiting to see which political leaders are worthy of persuasive gifts.

China is sensitive to any issue that raises suspicions of government corruption, especially after a number of incidents, including a Ferrari crash reportedly involving the son of a public official and another government official, referred to as the “Watch Wearing Brother”, was photographed wearing an expensive watch that far exceeded his pay grade. These incidents among others have angered many Chinese.

The Chinese government has now instituted a "frugal working style" standard on its civil servants, which went into effect in early October, restricting them from using public money to purchase expensive gifts, as well as from accepting such gifts.

As a result of this “frugal working style” rule, many Chinese are starting to favor understated displays of wealth over high end luxury products.

“We have had record breaking sales over the past few years due to the demand of the Asian and Chinese markets; however, we now see the markets capping out and starting to fall,” said Hal Martin, founder and CEO of Hal Martin's Watch and Jewelry Co., which sells new and pre-owned luxury Swiss watches.

“Many wholesale watch dealers kept raising their asking price only to run into that price ceiling established across the board by the majority of the Asian dealers. The reality of having a brick and mortar store is to service the end customer, which is certainly becoming the focus and what's really important,” says Hal Martin.

Patek Philippe has opened a local service center so wealthy watch buyers can maintain their pricey Patek Philippe watches without having to send them overseas. The Swiss watch company is reported to be developing a watch-repair school in Shanghai, where it plans to train local Chinese in the craft of luxury-watch repair so that it can staff its new service center.

Swiss watchmakers are optimistic on China's rebound and feel the demand for luxury products is expected to recover once the uncertainty surrounding the Chinese leadership handover has passed.

Joey Schmitt is a news junkie, Internet marketer, and a writer for Hal Martin's Watch and Jewelry Co., with one of the largest selections of used Rolex watches in Texas.

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