Watch Brands Continue to Concentrate on China Despite the Risks. China is the partnership that Swiss watchmakers obsessed with expansion cannot live without. “It will be the fastest growing market in the next years,” said Jean-Philippe Bertschy, a luxury goods expert at Zurich-based Vontobel. “We may speak about the US and Asian markets, but in terms of volume and magnitude, it will always be China.”
By all accounts, Mr. Bertschy’s scenario is already here. China is vying with the expanding US market to become Switzerland’s No. 1 watch export market in 2020.
From January to October, exports to China totalled 2.5 billion Swiss francs (nearly $2.7 billion), up 39.8% from 2020 and 55.5 percent from 2019.
Call it an epidemic. With travel restrictions in 2020, Chinese shoppers who had been accustomed to shopping for luxury products in Europe shifted their spending home.
With Hong Kong’s free-trade port, domestic vacation destination, and worldwide commercial hub becoming increasingly competitive, European luxury companies were obliged to extend their retail operations across China, both on the mainland and on Hainan, an island in the South China Sea.
57 percent of CEOs expect high growth in China, and 37 percent of brands are spending extensively in the Chinese market, according to a Deloitte report published in October.
While prospective sales in China are appealing to Swiss watch executives, few would deny the challenges of doing business there.
In addition to retail and supply chain disruptions, President Xi Jinping’s “common prosperity” campaign discourages public displays of wealth, and many Swiss companies simply cannot keep up with China’s rapidly changing consumer culture due to geographical and cultural distance.
“The hunger for new things is extraordinary,” Antoine Pin, managing director of Bulgari’s watch division, stated recently. “Because we are far away and cannot physically experience what’s fresh in the market, we sometimes feel behind.”
No watchmakers can afford to be slack in China. Take it from Zenith CEO Julien Tornare. The brand’s newest ambassador, actress and singer Xiao Zhan, gave him a taste of celebrity power in China this summer.
“When we revealed him at the beginning of July, we received 342 million views on Weibo,” Mr. Tornare stated recently. “Our video on the announcement had nine million views in a few hours. Our 24-hour sales surpassed our monthly sales.”
Zenith offers 15 boutiques in China, 20 places of sale through partners, and since January, e-commerce via JD.com and Tmall. “Our retail grew 450 percent year over year, which basically shows us that consumers heard the announcement, walked out of their house, and bought watches,” Mr. Tornare said. “All watches. And Xiao’s Defy Extreme.”
Also, despite the Chinese government’s recent commitment to tighten online celebrity regulation in an effort to control “chaotic” fan culture, the outlook for luxury firms that rely on celebrity endorsements in China remains positive.
Professor of political economy at Chaminade University in Honolulu and adjunct senior fellow at the East-West Center, Christopher A. McNally, says the government’s actions may impact some parts of marketing but do not threaten the luxury industry.
“There may be some upheavals (and the celebs will continue to be scrutinised),” Mr. McNally stated in an email. “But for luxury companies, it means adapting to a still-evolving market.”
While the epidemic increased consumer demand for luxury items, it also created uncertainty.
The Chinese government’s “zero Covid” policy has left watchmakers wondering how it would effect supply chains and whether future lockdowns may harm brick-and-mortar retail.
“In terms of numbers, Covid is anecdotal in China, but the response each individual example creates is significant,” said Pablo Mauron, managing director of the Digital Luxury Group’s China branch.
He cited an event at Shanghai Disneyland in late October when tens of thousands of people were tested for Covid-19 after a lady tested positive with the virus the day before.
While many watch components are sent by air, city-wide or provincial lockdowns can still disrupt supply chains and hinder manufacturing operations.
“It’s a confluence of unfavourable factors,” said Oliver R. Müller, founder of LuxeConsult, a watch consultant in Lausanne, Switzerland.
Managing pandemic-era safety regulations is perhaps easier than navigating China’s digital world.
Luxury brands have forced to embrace, or at least accept, the emergence of user-generated material on social media, setting up a power struggle with customers that threatens to unravel their carefully created brand narratives.
Consider the emergence of Xiaohongshu, a social shopping network often known as Red or Little Red Book.
“Chinese consumers started seeking for material that was more authentic and relevant than polished brand content,” Mr. Mauron added. “Red is built to amplify word-of- As a result, it became a place to explore new trends and companies, as well as find comfort.
“I know I can look to Red for authentic content from users,” he continued. “People are reviewing purchases in detail and even displaying purchases that they dislike.”
It goes against everything Swiss watch executives believed they understood about luxury.
‘Stay away from digital and don’t sell there,’ says Felicitas Morhart, a marketing lecturer at the University of Lausanne. She established the Swiss Center for Luxury Research in 2020 to research the future of luxury management.
“Luxury is everywhere,” Ms. Morhart observed. “It’s no longer exclusive; it’s for everyone. And with a touch of a button, you may buy the next expensive item, contrary to European custom. BUT CHINA IS SO STRONG NOW THAT IT IS CHANGING
Yajin Wang, associate professor of marketing at China Europe International Business School in Shanghai, was recently interviewed by Ms. Morhart for her “Luxury On Air” podcast.
In the podcast, Ms. Wang remarked, “consider how individuals currently encounter brands.” “They have all the knowledge and can act quickly. This is because KOLs and KOCs expect to buy and get items the next day.”
The failure to react to new opportunities, such as livestreaming, is a definite method of losing touch with the Chinese consumer, according to Ms. Wang.
As Ms. Wang points out, “livestreaming selling is so common today, you have to communicate with consumers.” The brands now have their own KOLs and can sell hundreds of handbags in seconds. “Even the finest salesperson in luxury stores cannot do that.”
Of course, the government is trying to reduce economic disparity by prohibiting individuals from collecting and displaying their money.
Mr. McNally of the East-West Center says that while “very excessive spending is undoubtedly being looked upon,” the government’s efforts are unlikely to have a significant impact on luxury sales.
In China, the notion of ‘common prosperity’ dates back to Mao and socialism, according to Mr. McNally, an expert on China’s transition to capitalism. ”It’s been utilised on and off for a year, but it’s really come to the fore recently. This is part of Xi Jinping’s national rejuvenation motto.
“The party wants a more socialist vision, where everyone works for common prosperity, where you donate to charity, create schools, endow fellowships, build hospitals,” he stated. “But for many luxury goods customers, this may be tough to change.”
Unless a premium brand is targeted by Chinese customers, as was the case with Dolce & Gabbana in 2018, many Swiss watchmakers believe that growth in China is certain.
“A entire generation is a single child,” said Edouard Meylan, CEO of H. Moser & Cie, an independent Swiss business that has spent the last two years entering China.
“They have money and two parents. So the market grows. There is a big hunger.”
