When the share prices of luxury giants take a dive, it’s never a good sign. Nevertheless, the tone set in the closing statements of the most recent watch fairs was relatively reassuring. The organisers of Watches and Wonders Geneva 2024, an event with 54 exhibiting brands that welcomed 49,000 visitors in April (14% more than last year), pointed out that “on the business side new heights were reached, with more than 10,000 retailer appointments (a 25% increase compared to 2023), 1,800 press sessions and an increase in end customers.” Time to Watches had a similar message. Featuring 53 brands, this parallel show boasted “unprecedented success” with a record attendance of over 7,000 visitors, up 20% on 2023.
However, a quick glance at the stock market paints a different picture. Beginning in mid-March, the shares of Kering, LVMH and, to a lesser extent, Hermès began to slide after Kerin issued a profit warning, predicting a 45% to 50% drop in operating profit over the first half of the year. LVMH also reported mixed results, with a “small” 2% quarterly increase in sales against the backdrop of concerns about a prolonged global slowdown and weakening demand in China. The shares of Swatch Group and Richemont fared no better in the face of investor gloom, falling by more than 10% over the period to the end of April.
China, again
Swiss watch export figures leave no room for doubt about the general direction the market is taking. As early as February, Swiss watch product shipments to various foreign markets experienced “a first significant decrease of 3.8%”. This decline was largely confirmed in March when exports plummeted by 16.1%. As noted by the Federation of the Swiss Watch Industry, two destinations were particularly affected: “China suffered a loss of 41.5%, falling to a lower level than that in March 2020, when the industry practically came to a standstill in the middle of the month due to the Covid pandemic. Hong Kong, down 44.2%, experienced a similar drop.” China, which was still the top Swiss watch export market in 2020, now represents only half that of the United States, which is now in the lead.
Given these circumstances, one may question the wisdom of some brands’ decisions to compensate for the production problems of the past two years of high demand by increasing prices. One thing is certain, as Jean-Philippe Bertschy, a financial analyst at Vontobel, points out: “This year will be a challenge for the Swiss watch industry, especially for small brands.” With an eye on China, the watch industry is slamming the brakes on investment. Will China’s economic growth of 5.3% in the first quarter, which was much stronger than expected, provide reassurance? While the country clearly faces major challenges, including a real estate bubble, US trade sanctions, youth unemployment, an ageing population and local government debt, it has overcome far greater difficulties in the past. This observation nevertheless offers no miracle solutions in the short term.
