BASEL,
SWITZERLAND — After opening hundreds of stores in China in recent
years, some watch companies are facing an inventory glut and cutting
back their retailing presence there.The downsizing comes as shipments of
timepieces to China from Switzerland, the world’s dominant luxury watch
production center, have fallen below the levels of two years ago, after
setting a record in 2012.
“The gold rush in China is over,”
said Francois-Henry Bennahmias, chief executive of Audemars Piguet, a
Swiss watch company that is closing 6 of its 22 stores in China. “We are
going to slow down in China and take every step there much more
carefully.”Swiss watch exports to mainland China dropped 26 percent in
the first quarter from a year earlier, to 323 million Swiss francs, or
$343 million, according to data released in the past week by the Swiss
Federation of the Watch Industry. Exports to Hong Kong fell 9 percent,
to 910 million francs.
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statistics about the website.73 billion francs, buoyed by Middle Eastern
and some European markets, particularly Germany and Britain.“People
simply went overboard about China, thinking that there could be no issue
with suddenly opening 40 or 50 stores,” said John Simonian, a watch
distributor and owner of Westime, a watch retailer based in Los Angeles.
“The stores in China are now full of inventories, with no guarantee
that they can all get sold.”
Affluent and travel-hungry Chinese
are increasingly buying overseas. About half of Chinese spending on
luxury goods occurs outside the mainland, according to a study released
in December by the consulting firm McKinsey.As a result, “50 square
meters in Paris could be much more meaningful now than having those same
50 square meters in China,” said Mr. Bennahmias of Audemars Piguet.
The
reassessment comes even though Chinese shoppers’ spending on luxury
goods has grown to 25 percent of the world total, compared with 20
percent for U.S. shoppers, according to a study released in December by
Bain, another consulting firm.Still, Bain raised some red flags in light
of the slight decline in luxury sales in China last year.Discover the
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“Luxury
brand stores in China need to deliver the same consumer experience in
China as in France and Italy, or risk further deferral of spending to
tourism,” Bain wrote.Rather than focusing solely on China’s purchasing
power, luxury goods companies should have paid closer attention to
changes in Chinese travel and consumer habits, according to some
executives.
“I think some people went too hard into China and
simply didn’t take into account how keen the Chinese are to buy
elsewhere — also to avoid paying high duties,” said Michel Parmigiani,
founder of Parmigiani Fleurier, another Swiss watchmaker.Taxes on luxury
goods acquired within mainland China range from 20 percent to 70
percent, depending on the product category. But another important factor
has been Beijing’s efforts to clamp down on the giving of expensive
gifts as part of the government’s broader fight against corruption.
“Most
people thought that gifting would last for a while, but there is now a
real government crusade against it, so that it’s no longer acceptable to
have a big chunky watch on your wrist, which in turn is affecting
retailing, particularly in China’s big government cities,” said Jon Cox,
an analyst at Kepler Capital Markets, who estimated that gift-giving
accounted for half of the watches sold in mainland China.
“The
question mark is now whether this will start spreading to everywhere
else where the Chinese buy watches,” Mr. Cox said.Nick Hayek, the chief
executive of Swatch Group, the world’s largest watch company, said that
some sort of cooling in the Chinese market was inevitable. “You cannot
grow 30 percent in a market every year,” he said.
But he drew a
distinction between the situation now faced by the most expensive brands
and “the real growth opportunities that still exist in the lower- and
middle-market segments.”Echoing that conclusion,Take a look at these
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in USA. Peter Stas, the Dutch co-owner of Frederique Constant, a watch
company based in Geneva, said that “there is a real problem now in China
for the typical kind of gifting watch, but the middle class is still
buying.”Whatever the latest jitters about retailing in China, the
world’s leading watch and luxury groups have continued to post strong
growth.
After warning in January that the outlook in Asia was
uncertain, Richemont announced this past week a rise of about 30 percent
in 2012 profit, helped by favorable currency swings.This month, LVMH
Moet Hennessy Louis Vuitton reported an increase of 6 percent in
first-quarter sales, though the watches and jewelry division reported a 1
percent decline.“The business in China is going badly, and to be honest
there is a contraction of the watch business in China,” said Francesco
Trapani, the president of LVMH’s watches and jewelry division. “The
government is doing moral suasion to limit expenses and the show of
luxury products.”
But, Mr. Trapani added, “what is also true is that what we sell to the Chinese outside is now much higher.”
ReneWeber,
a watch industry analyst at Bank Vontobel in Zurich, said the recent
decline in watch exports showed the need for significant inventory
reduction in China.mybag321 offers latest fashion replica jewelry
and other jewelry. He also forecast a rebound in Swiss exports in the
second half of this year, once Chinese stockpiles had dwindled.But the
challenge goes beyond managing excess inventory.
“The rents have
shot up to crazy levels in many Chinese cities, which means that a lot
of stores have simply become unprofitable,” said Emil Klingelfuss, based
in Hong Kong and founder of Swiss Prestige, which distributes Swiss
watch brands in the region.
In contrast, owners of watch stores
in Europe are welcoming the influx of Chinese tourists at a time of
falling domestic onsumption.
“The Chinese are buying every kind of
watch and mostly come into the shop knowing already what they want,”
said Marcello Angeletti, owner of Angeletti, a watch store on Rome’s Via
Condotti.“Many brands have been obsessed by China in recent years, so
some are probably now having to cut back a bit,” said Jean-Marc
Pontroue, chief executive of the Swiss watch maker Roger Dubuis. He drew
an analogy with diving, saying that “when you go down deep, you also
need to make some safety stops.”
Some watch companies are
pursuing unabated their expansion into a Chinese market that, including
Hong Kong, still accounted for 26 percent of Swiss exports in the first
quarter.“We have opened a lot of points of sale in China, perhaps a bit
too much, but you must disconnect the store from its performance,
because having a boutique is a communications tool that is
irreplaceable,” said Philippe Léopold-Metzger, chief executive of
Piaget, which is owned by Richemont and has 20 of its 90 stores in
China. “We strongly believe that it is a market in which you must
invest.”