Swiss watch exports have significantly declined since 2020 as Chinese buyers’ demand for luxury watches slows. The world’s leading luxury company, LVMH, also feels the impact of Chinese consumers tightening their spending.
On the 18th (local time), Bloomberg reported that the Swiss Watch Industry Federation’s exports in March fell by 16% compared to last year, recording 2 billion Swiss francs (approximately $2.2 billion, or around 3.25 trillion Korean won). This is the lowest in four years since the market froze due to the shock of the COVID-19 pandemic in March 2020. The slump is due to a 42% drop in shipments to China, the second-largest market for Swiss watches, compared to the same period last year. Shipments to Hong Kong also fell by 44%.
Jean-Philippe Bertschy, an analyst at Swiss asset management firm Vontobel, remarked, “The downward trend is significantly more pronounced than anticipated,” noting, “The decline in China is particularly concerning.” He further observed, “It appears that inventory levels in this region were excessively high.”
The Swiss watch industry experienced unparalleled prosperity from 2021 to mid-2023. With limited spending opportunities during the pandemic, consumers redirected their extra cash towards luxury purchases, particularly high-end watches such as Rolex and Patek Philippe. Additionally, manufacturers who had paused production during lockdowns adjusted prices upward to offset the disparity between demand and production volume, consequently boosting profitability.
However, Bloomberg reported that consumers have recently been reconsidering their investments in luxury watches due to high-interest rates, unstable economic growth, and geopolitical conflicts. The federation revealed that the number of watches shipped from Switzerland in March decreased by 25% to 1.1 million units as retailers canceled orders. In addition, shipments to the United States, which overtook China to become the largest market for Swiss watches in 2021, also declined by 6.5% in March, highlighting the overall consumption contraction.’
Sales have declined across all price segments, albeit with relatively more robust demand observed for high-end products. Shipments of luxury watches priced over 3,000 Swiss francs (approximately $3,300 or 4.55 million Korean won), constituting over 80% of export value, experienced a roughly 10% decrease in volume. Exports of watches priced between 500 and 3,000 francs declined by 38%. Furthermore, exports of the most affordable watches under 200 francs plummeted 19% compared to March.
The impact of sluggish demand from China extends beyond the Swiss watch industry. As reported by the Financial Times (FT), LVMH, the parent company of luxury brands like Louis Vuitton and Dior, posted first-quarter sales of 20.694 billion euros (approximately $22 billion or 30.4 trillion Korean won), falling short of the market estimate of 21.1 billion euros. Although this is a 2% decrease compared to last year’s period, it is the worst quarterly fluctuation rate since the beginning of 2021. LVMH maintained a double-digit growth rate of 18% in the first quarter and 21% in the second quarter of last year. Looking at the sectors, sales in the most significant business division, fashion and leather goods, decreased by 2%, and watch and jewelry sales fell by 5%. The wine and spirits division saw the most significant decrease of 16%.
The slowdown in consumption by China’s largest customer posed a significant challenge. While sales in the United States and Europe increased by 2% in the first quarter, sales in Asia, excluding Japan, decreased by 6%, dragging down overall sales. Jean-Jacques Guiony, CFO of LVMH, said that the growth rate of core brands Dior and Louis Vuitton is at 2%, emphasizing, “The most notable change from last year is the shifting behavior of Chinese customers.” Guiony also remarked, “The growth rate in China, our largest market in Asia, is reverting to normal,” adding, “If consumers, affected by high-interest rates, resume spending, performance is anticipated to rebound, although the recovery may be gradual.”
Meanwhile, the outlook for the luxury industry appears dim for the time being as it coincides with the slowdown in Chinese consumption. Global consulting firm Bain & Company predicted that the luxury market growth rate of 8-10% last year will shrink to 1-4% this year.
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