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Brands Invest Big in China’s Booming Watch Market

Mainland China is now the number one export market for Swiss watches, but some luxury watchmakers risk becoming over-reliant on the region.
Actor Li Yifeng attends press conference for spokesman of Swiss watch Tag Heuer at Grand Gateway on July 1, 2015 in Shanghai, China. Getty Images.
Actor Li Yifeng attending a press conference for Swiss watch Tag Heuer in 2015 in Shanghai, China. Getty Images.

One of many business milestones that have been overshadowed by much bigger news relating to the pandemic is the fact that mainland China became the world’s number one destination for Swiss watches last year, displacing Hong Kong’s decade-long reign at the top of the list.

In 2020 worldwide exports declined 21.8 percent, according to the Federation of the Swiss Watch Industry, but exports to mainland China climbed to $2.6 billion, a 20 percent year-on-year rise. That amounts to one-quarter of the total of global exports. In the second half of the year, Swiss watch exports to China were up a whopping 50.1 percent — enough to propel the world’s largest fashion and luxury market to yet another number one ranking.

Of course, this doesn’t necessarily mean more Chinese consumers were buying Swiss watches. But it does mean they were buying more from within China. Prior to the pandemic, more than two-thirds of luxury purchases from Chinese consumers happened outside of China, but with the collapse of international travel, watchmakers found themselves in a serious predicament.

“It was a major wake-up call for us, as it was for the whole industry. Achieving sales through tourism was, even if it’s not the ideal word, easy,” said François-Henry Bennahmias, chief executive of Audemars Piguet, in the inaugural edition of The State of Fashion: Watches and Jewellery Report co-published by The Business of Fashion and McKinsey & Company.

“We discovered we’d not been working hard enough on our local markets. We did a lot of work on this, which wasn’t easy, and we did okay. We weathered the storm. The biggest risk when you’re successful is thinking that it can never end,” he added.

It was a major wake-up call for us, as it was for the whole industry.

Luxury watch brands quickly pivoted to China, doubling down on offline retail investments around the country. Richemont-owned IWC Schaffhausen announced plans to open its largest flagship in the world in Shanghai later this year. Jaeger-LeCoultre revealed plans to open a temporary café there over the summer (prior to taking the concept to Paris) and, after a successful pop-up on the duty-free island of Hainan last year, Panerai said it will open two more Hainan stores.

But this sudden shift to domestic demand also left the world’s leading watch companies on the back foot digitally, scrambling for position in China’s large, complex and increasingly e-commerce-driven retail market.

New Ways to Sell

Last year saw watch brands globally try to pivot to digital channels to reach consumers and make sales, as stores closed and people sheltered in the safety of their homes.

The situation in China was slightly different. Largely free from the risks of the virus after the first quarter of the year, people could still go out to stores and shop, but traditionally-minded watch brands that were exceedingly hesitant about selling online were not about to take any chances. Many rushed to e-commerce platforms such as Alibaba’s Tmall and JD.com.

According to Pablo Mauron, the Shanghai-based managing director of Digital Luxury Group, the move online in China actually started in 2019, when the Richemont Group and Alibaba signed a joint venture that saw Richemont place a hard luxury bet on Chinese e-commerce — one that paid off handsomely.

“It rang a bell that was heard by the entire category that it’s time to look at Tmall more seriously,” Mauron said.

Previously, brands interested in China’s online ecosystem had focused their attention on WeChat as a way to develop a direct relationship with their local customers, but Richemont’s success with fine jewellery and watch players like Cartier on Tmall prompted a shift in thinking across the category.

“We went from a place where e-commerce was still pretty theoretical for the category to becoming an essential component now for most of the watch brands,” Mauron added.

This didn’t just change the way watches were bought and sold, or the discovery process for consumers entering the category for the first time; it also fundamentally changed the marketing milestones for brands, which quickly aligned to China’s e-commerce calendar.

The revenue these e-commerce platforms were able to bring in, particularly from consumers in cities poorly served by physical retailers for many luxury watch brands, was welcome for many executives trying desperately to offset losses elsewhere.

It rang a bell that was heard by the entire category that it’s time to look at Tmall more seriously.

According to data from Tmall, its sales of Swiss watches in 2020 rose 100 percent, compared with 2019, and for luxury watches over 10,000 yuan ($1,565), the increase was 200 percent year-over-year. Data from its Singles’ Day sales period showed that the majority of customers buying watches over 100,000 yuan ($15,650) were from second-tier cities, such as Qingdao and Foshan.

New Customers Buying In

According to Ji Liang, a lifestyle blogger in China with three million followers who is well-known for his posts about watches, the shift to digital among brands wasn’t just about immediate sales, but about acquiring a new generation of young consumers driving luxury spending in China.

Indeed, brands like Jaeger-LeCoultre and Patek Philippe opened accounts on Xiaohongshu and started experimenting with livestreaming on different platforms.

“Before the pandemic, a lot of brands were totally focused on traditional channels, offline shops and advertising. But if they want to get young people to notice them and… influence these young people, they realised they needed to be online,” Ji said.

The shifting of the epicentre of the watch-buying world to China has also brought with it offline events, such as the Watches and Wonders exhibition, traditionally held in Geneva. In 2020, the fair moved its physical iteration to China, holding events on the duty free holiday island of Hainan and in Shanghai.

The scene at Watches and Wonders Shanghai 2020. Watches and Wonders

Ji was tasked with hosting a special livestream event for Watches and Wonders on Tmall, which the platform said attracted millions of viewers and featured a who’s who of top Swiss watch brands.

In his view, hosting events such as Watches and Wonders in Shanghai is significant because the online content that is generated by the likes of Rolex and Audemars Piguet at these offline events works to bolster interest in the sector.

“The content available, not just from the brands, but from bloggers and social media accounts that focus on watches as a hobby, has increased so much,” Ji explained. “This increase in content and interest will keep [propelling] the growth of interest in a broader range of [consumers] in China.”

The Watch Aficionado Evolution

There are, fundamentally, two types of consumers driving watch sales in China. The first are new entrants to the category, people for whom a nice watch is a status symbol, a treat or a fashion statement.

Data from a survey conducted by RBC Capital Markets showed classic mechanical watches were the most popular type, with a pricing “sweet spot” between $1,600 and $4,000.

Brands Chinese buyers in this group most commonly sought were Omega, Rolex, Longines, Cartier, and Tissot.

But according to Agility Research and Strategy’s recent Trend Lens survey of wealthy consumers, an increasing proportion of China’s affluent identify with the notion of being a “collector” of luxury goods.

Agility’s managing director, Amrita Banta, says watches are one of the categories benefiting from this growth of China’s “aficionado” class.

Not unlike their counterparts in other global markets, this type of customer not only moves their way up the price scale of watches as they become more knowledgeable and passionate about various mechanisms, designs and the rarity of some brands and models; they also tend to keep buying watches once they are hooked.

“Usually, when you are interested in investing that much in watches, you rarely limit yourself to one watch,” Pablo Mauron said.

A New Life for Old Watches

Both of these groups of consumers — young and middle-class consumers looking to invest in their first expensive watch, alongside a new class of Chinese watch aficionados — are also driving a new trend in China for pre-owned watches.

Despite underlying challenges that have traditionally plagued the resale market in the country, including stigmas around resale and the value attributed to newness, it has been growing at more than 20 percent per year since 2017.

A joint report by China’s University of International Business and Economics and Isheyipai, a platform for second-hand luxury deals, released last year also found that 52 percent of the second hand luxury goods consumers in China are below 30 years old, a segment bigger than the entire US population.

One of the factors driving this growth has been the advent of trusted second hand e-commerce platforms in China, though it’s notable that little exists in the market as yet, specifically in the watch field, like Watchfinder in the west.

One of multi-category resale platforms is Plum, known in China as Hongbolin. Its founder and chief executive, Xu Wei, told BoF its gross merchandising volume (GMV) rose five-fold in 2020.

Much like China’s watch market as a whole, the resale market as driven by three distinct groups, she says.

“There’s the price-sensitive, [who are] hoping to buy mid-to-high-end brand watches at relatively low prices, playful [consumers looking for] frequent style updates, and collectors, mainly focusing on brands’ limited editions,” she said.

The good news for watch brands is that all of these categories have room to grow in China, as more young and middle class consumers are looking to make their first serious watch purchase and more watch buyers become aficionados.

It’s little wonder then that a recent report from Deloitte found that 77 percent of surveyed watch company executives expect China’s market to grow this year, and 35 percent of them anticipate strong growth.

Perhaps the only long-term downside to this China boom is the propensity it might have for watch executives to over-focus on the Chinese market at the expense of other global markets, which are likely to regain strength once China’s borders reopen. It’s a point echoed by Bennahmias of Audemars Piguet when he recently considered how priorities have shifted.

“The watch world has focused so much on Asia that some brands are now doing 80 percent of their business in Asia and have forgotten the Americas,” he said. “You never let the US market go, never.”

But for now, that risk seems to be one that’s worth taking in the face of the scale of the opportunity that China presents — and the 25 to 30 percent decline that McKinsey estimates the watch industry suffered during the pandemic.

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China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Shanghai-based Asia Correspondent casey.hall@businessoffashion.com.

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