Hong Kong witnessed a surge of Swiss watch imports in September, a sign of watch wholesalers’ and retailers’ further boosted confidence in the consumer market. The no. 1 go-to destination for luxury watches for Chinese mainlanders has suffered a painful slump since the beginning of the anti-corruption campaign instigated by Chinese president Xi Jinping in 2013. It has been such a nightmare for the luxury watch industry that last year Richemont had to buy back inventory from watch retailers in Hong Kong. This year, however, growth is driven by Chinese consumers’ changing habits in watch shopping, which requires a large amount of foot traffic. But whether such traffic will continue is tied to the Chinese government’s foreign policy decisions.
Statistics released by the Federation of the Swiss Watch Industry show that Swiss watch exports to Hong Kong increased to 216.4 million (CHF 213.4 million) this September, rising 13.7 percent against the same period last year. Remaining the world’s largest Swiss watch importer, Hong Kong’s strong performance in September spurred overall Swiss watch exports to rise 3.7 percent to 1.82 billion (CHF 1.8 billion).
This is the fifth month in a row that overall Swiss watch exports have risen, following a prolonged decline in sales that lasted over a year; largely the result of the weak performance in watch sales in Hong Kong.
A growing demand for luxury watches prompted Hong Kong watch wholesalers to expand their inventory in September. Hong Kong government statistics show that retail sales of watches and jewelry in HK increased by 3.1 percent over the first eight months of 2017.
Unlike in the golden days before 2013 when high-end Swiss watches were frequently sold in HK, the mild surge in Hong Kong watch sales is now driven by watch purchases.
Jimmy Tang, the chairman of Prince Jewellery & Watch Company, a luxury watch retailer with 16 branches in Hong Kong, told the Hong Kong Economic Times (HKET) that mainland visitors are buying luxury watches for their own use. Despite the fact that Chinese consumers are less enthused by buying watches as compared to a few years ago, his stores' September sales surged almost 10 percent, with a 3 percent rise seen during Golden Week, a semiannual seven-day national holiday in China in the beginning of October.
Timothy Daniel Kao, VP of Wah Ming Hong Limited, a Hong Kong-based watch and jewelry wholesaler, told HKET that consumers now spend 8,000 to 12,000 yuan on a timepiece, significantly lower than the past high of 15,000 yuan.
Buying mid-priced watches for themselves might be the new norm for mainland Chinese consumers. What motivates them to buy, according to a survey by HKTDC Research, is less about status than demonstrating their individuality and pursuing happiness. The survey shows that half of the respondents agreed that a reason for wearing watches is to demonstrate one’s taste and personal style. All respondents agreed that “to reward oneself/make oneself happy” is the top reason for buying watches.
This new consumer mentality means that now Chinese shoppers are aiming at lower-priced watches with a variety of personal styles. However, lower prices means that higher sales volumes are needed to pull in comparable revenue, and that is heavily dependent on the number of visitors. Whether these consumers will go to Hong Kong to buy watches is highly dependent by the political climate.
Tourism from China to Hong Kong rose 2 percent this year through August, compared to a 9 percent decline during the same period last year, according to the Hong Kong Tourism Board.
This growth is in part due to the decrease of Chinese tourists to South Korea. According to the Korea Tourism Organization, the number of Chinese tourists visiting South Korea has halved—dropping to 2.5 million from 4.7 million in the same period in 2016—since Beijing unofficially told travel agencies in March to stop selling South Korean tour packages due to the deployment of the U.S. THAAD missile defense system in South Korea.
Last Tuesday, however, Seoul and Beijing agreed to move past the standoff, which casts a shadow over Hong Kong watch retailers as well as Swiss luxury watchmakers as Chinese tourists might again venture to South Korea for shopping. South Korea is not traditionally considered by Chinese consumers as a destination for watch shopping.
Although China’s foreign policy decisions may decrease the number of visitors to Hong Kong, it is safe to bet that Chinese consumers will continue to buy watches for personal fulfillment and expression given Beijing's continued anti-corruption efforts. To succeed, Swiss watchmakers need to double down on their focus on mid-range luxury watches to improve sales in Hong Kong and revenue from Chinese consumers.