Switzerland's watch industry experienced an "unprecedented crisis" in the first half of this year due to the coronavirus pandemic and a temporary halt in production and sales, the Federation of the Swiss Watch Industry (FH) warned on Tuesday, adding that it expects a market contraction of around 30 percent for 2020.
The sector exported the equivalent of 6.9 billion Swiss francs (7.4 billion U.S. dollars) in the first half of 2020, far from the 10.7 billion posted for the same period last year, representing a year-on-year fall of 35.7 percent, industry data released by the Federation showed. The most severe consequences of the pandemic were felt in the second quarter, which saw watch exports plummet by 61.8 per cent.
"Consumer confidence is a key element in the recovery. At a time when all eyes are on China, which is showing the first signs of a return to normal, there are still numerous factors affecting the recovery process," the FH said in a statement. Swiss watchmakers are bracing for the worst year in the modern history of watchmaking as the coronavirus pandemic led to factory closures, shuttered shops and travel bans.
Switzerland's two biggest watch trade shows -- Baselworld and Watches & Wonders Geneva -- were both cancelled due to the coronavirus. "Unfortunately 2020 will be remembered as the 'annus horribilis' (horrible year) for the world and more specifically for the whole luxury industry," Oliver Mueller, founder at LuxeConsult based in Geneva, wrote in emailed comments to Xinhua." I expect 2021 to be a much more stable year, mainly thanks to the Chinese market which is gradually regaining momentum," Mueller added.
China, an exception
The Federation said that the return to normal for Swiss watchmaking will be a medium- or even long-term process. "Watch exports are likely to reflect a market contraction of around 30 percent overall in 2020, with certain marked differences between key players," the FH said.Switzerland exported 5.5 million timepieces during the first half of the year, compared with just over 10 million last year, a drop of 44.9 percent. All markets fell sharply between the first half.
China was the exception, with a decline of only 14.6 percent, the data showed." Overall, demand from China is very strong indeed. Chinese consumers are not traveling, and spending their luxury dollars in China. This creates a mechanical boost in sales in China," Luca Solca, managing director of luxury goods at Sanford C.
Bernstein, said in an email. "I also expect that the macroeconomic pain in China is going to be lower than in the U.S. and in Europe, supporting discretionary demand," Solca said.
China's economy bounced back to growth in the second quarter, expanding by 3.2 percent year on year, as the country gradually resumed work and production, official data showed last week. "It is safe to say that the brands being strong in China such as Omega, Longines or Rolex will take advantage of a recovering Chinese economy which represents the biggest market worldwide for luxury products," Mueller wrote.
Swiss watchmakers were hit hard by the coronavirus outbreak in China as their business heavily depends on demand from Chinese shoppers. "The high-end watch market will slowly recover, lifted by e-commerce, and thanks to valuable partnerships made by Swiss watchmakers and e-commerce giants Alibaba and JD.com," said Thierry Huron, founder of The Mercury Project, a Swiss watch and jewellery consulting firm.
The COVID-19 pandemic has also spurred a digitalization across the luxury industry. Traditional Swiss brands like Swatch, Tissot and TAG Heuer are trying to keep pace with digital trends and have started to produce both luxury as well as more affordable smartwatches for the younger consumers and millennials who increasingly want digital wrist wear.
"I think most Swiss brands underestimated the threat from smart watches and tried to underplay them. This was a mistake," Solca said.
The Apple Watch was released in 2015. Sales estimates by Strategy Analytics showed that Apple shipped nearly 31 million devices in 2019, a 36-percent jump over the previous year.
In comparison, the Swiss watch industry only shipped an estimated 21.1 million units in 2019, a decline of 13 percent over 2018."The Swiss have once more -- after the quartz crisis in 1975-1983 -- ignored a technological game changer," Mueller wrote in an email."
It seems that some brands are -- finally! -- recognizing the urgent need of a response in the mid-price segment with Tissot, TAG Heuer or Alpina launching new interesting products. Is it too late? Time will tell." (1 Swiss franc = 1.07 U.S. dollars)