Luxury watch crisis: Can Gen Z save Swiss brands?

With China’s luxury market expected to see tepid single-digit growth in 2024, the Swiss luxury watch industry – long buoyed by robust Chinese demand – sits at a crucial inflection point. According to recent data from the Federation of the Swiss Watch Industry, Swiss watch exports dropped 3.3% YoY in the first half of this year, with exports to mainland China falling 21.6% YoY and exports to Hong Kong falling nearly 20%. The story in the rest of the world was better, with other markets rising, but by just 1%. Coming after three consecutive years of post-pandemic growth, the grim global market and dropoff in crucial markets like mainland China means the Swiss watch industry must reassess its strategies to stem the bleeding in the remainder of the year. Market of contrasts Johann Rupert, chairman of Richemont — owner of Cartier, Vacheron Constantin, IWC, Jaeger-LeCoultre, and Van Cleef & Arpels —recently sounded the alarm on the issues facing the global luxury watch industry. Speaking at Richemont’s annual general meeting, Rupert emphasized that the global boom in luxury watch demand has waned. He pointed to sluggish sales in China and Hong Kong as major concerns, advising watchmakers to reduce production to align with the softer market. Richemont’s financials underscore the depth of the issue. In line with the broader global picture for the Swiss watch industry, Richemont reported only a 1% increase in sales at constant exchange rates during Q1 2024, with sales in the Asia-Pacific dropping 18% drop. Even worse, the Greater China region saw a precipitous 27% decline. Richemont is not alone in this. With the entire Swiss watch industry grappling with reduced exports to China and Hong Kong and flagging demand owing to a high youth unemployment rate, a struggling real estate market, and a general lack of consumer confidence. This year, Chinese consumers have tightened their belts on discretionary spending, and with post-pandemic travel restrictions a thing of the past, many are opting to make luxury purchases abroad. Chinese consumers have not stopped buying luxury watches; they’ve simply been more value-minded in where and how they do it. This goes part of the way in explaining how other regions have shown resilience this year. The US strengthened its position as the top market for Swiss watch exports, posting 3.8% sales growth in the first half of the year and accounting for a significant share of the industry's revenue. Powered in no small part by Chinese consumers capitalizing on a weaker yen, Japan also performed well, with a 7.7% increase in sales in H1. Gen Z a long-term bet? The question facing the Swiss watch industry is how to encourage Chinese consumers to shop, and better tap new demographics. Despite near-term challenges like high unemployment and low starting salaries, China’s younger generation does present a significant long-term opportunity for Swiss watchmakers. Tech-savvy, highly brand-aware, globally connected, and increasingly affluent, Chinese millennials and Gen Zers are already redefining luxury consumption in China in segments like apparel and beauty, and hard luxury very well could be next. Several watchmakers are already making inroads with China’s younger luxury shoppers. Jaeger-LeCoultre recently collaborated with Chinese actor and singer Jackson Yee to release From the Ends of Time, a music short film inspired by the brand’s iconic Reverso series. This blend of traditional craftsmanship and contemporary culture aims to resonate with younger audiences who seek exclusivity with a modern flair. Jaeger-LeCoultre has also proven adept at encouraging potential buyers to engage with and experience the brand via efforts like its 2021 Art Deco 1931 Café, which premiered at Shanghai’s K11 Art Mall before relocating to Paris. However, capturing the attention of China's younger consumers is far from straightforward, particularly as the market takes a more low-key shift. The concept of "luxury shaming" is gaining traction, as overt displays of wealth become less socially acceptable amid economic headwinds. According to a report by Bain & Company, Chinese consumers are growing more cautious about flaunting their wealth in the face of a challenging macroeconomic environment, sluggish GDP growth, and weak consumer confidence. “Wealthy customers are afraid of being seen as too ostentatious or too showy,” Claudia D’Arpizio, global head of fashion and luxury at Bain & Company, recently told CNBC. This sentiment echoes a similar phenomenon observed during the 2008-2009 financial crisis in the US, where consumers became hesitant to display their affluence openly. Political factors also play a role. For years, China’s government has promoted the concept of "common prosperity," aiming to reduce income inequality and discourage conspicuous consumption. In May, authorities cracked down on "wealth flaunting," banning several online influencers known for their lavish lifestyles from social media platforms. “The government's posture has created a psychological impact,” D'Arpizio said, adding that some wealthy individuals have started to move money out of the country. As a result, over the past two years, Chinese consumers – like their global peers – have gravitated toward "quiet luxury." They are opting for subtle, less visible luxury goods that emphasize craftsmanship over brand logos. As Imke Wouters, partner at Oliver Wyman, recently put it, ‘They really want to see a correlation between price and value.’ This shift necessitates that brands recalibrate their messaging, focusing on authenticity, heritage, and understated elegance rather than overt opulence. Uncertain future What’s next for the Swiss watch industry, globally and in the Greater China market? Is it best to take the revenue hit and redouble marketing efforts to engage tomorrow’s core consumer, or cut production to address more immediate concerns about excess inventory? In China, the best strategy may be a relatively well-worn one in the luxury industry – focus on incentivizing Chinese consumers to spend domestically to stabilize near-term revenue while laying the groundwork for younger consumers to purchase in the long-term. The former makes more immediate sense, encouraging Chinese luxury consumers to spend at local boutiques rather than seeking out better deals in places like Japan. For this, brands can lean on China-market exclusives or perks, whether those be private clubs, or cafes, or simply activations aimed at very important consumers (VICs). Meanwhile, against the backdrop of luxury shaming, brands can invest in private and personalized experiences that appeal to younger, more discerning customers. Taking a small but quietly luxurious approach, this could involve leveraging social media platforms more effectively to communicate one-on-one with potential shoppers, partnering with lower-key influencers who embody a minimal or “quiet luxury” ethos, and offering access to small exclusive events that build deeper connections that will pay off in the long run.

Sectors

Insights

Company

Luxury watch crisis: Can Gen Z save Swiss brands?