Those of you following Chinese watch sales, please note: on March 12, bloomberg.com posted ‘Revenge Spending’ Spurs Chinese Luxury Rebound From Virus. While writers Robert Williams and Jinshan Hong weren’t exactly singing Happy Days Are Here Again, they weren’t not singing it either. Like this . . .
Store traffic in China is creeping back up after falling as much as 80% at the virus outbreak’s peak there earlier this winter, hammering sales of brands ranging from Burberry Group Plc to Kering SA’s Gucci. The recovery could accelerate in the coming weeks, fueled by so-called “revenge spending” sprees.
Amrita Banta, managing director at Agility Research, used the term — previously coined to describe pent-up Chinese consumer demand that was unleashed in the 1980s after the chaos and poverty of the Cultural Revolution — to describe buying by luxury clients whose pockets are flush with cash after weeks of canceled plans.
“China seems to have turned the corner and bigger cities are showing cautious optimism,” she said. “We see a slow but definite bounce back.”
bloomberg.com isn’t a reliable source of information about The People’s Republic of China. As The New York Times (recently booted from the PRC) reported, Mike’s minions play ball with Chinese censors to protect the boss’s financial interests. The photo accompanying the article shows ONE shopper in ONE store.
Be that as it is, Williams and Hong report that “luxury brands such as Hermes International are reopening shops” and “Hermes says it has reopened all but two of its stores in mainland China, after closing 11 locations when quarantine measures were at their peak.” and “At a luxury mall in Hangzhou on Sunday, customers lined up to enter a Chanel boutique.”
While bloomberg.com makes no mention of Chinese watch sales, this is great news for the watch industry in general, and the Swiss watch industry in specific – which sent over 50 percent of its exports to the PRC before Coronageddon. But it’s nowhere near as great as Bloomberg’s Chinese-approved journalists would have us believe.
Coronageddon has collapsed China’s economy. The chart above tells the tale: the PRC as factory-to-the-world has fallen off a cliff. And even as China’s getting back online, the European market for its goods – save ventilators and masks – has simply ceased to be. It’s going to be many moons before China’s economy recovers from the epidemic that started in their country and spread to the world.
The chart above tells us that Chanel better have one HELL of a free-spending crowd at their Chinese boutique to recover even a fraction of the business they enjoyed before Coronageddon.
Consumer confidence and worldwide recession aren’t what you’d call bosom buddies. And that means Chinese watch sales will be wandering around the basement for some time to come. Reading between the lines, even Bloomberg’s baton twirlers acknowledge the problem:
“It all comes down to the confidence of the consumers,” said Jason Yu, managing director at Kantar Worldpanel Greater China. Many people who work in the service sector or run smaller companies saw their incomes damaged by the epidemic, he said, and might be more likely to weed out non-essential spending from budgets.
Ya think? If you do, keep in mind that “non-essential spending” is a category that covers the entire watch industry, from the lowest priced Chinese quartz piece to the highest of high horology – with the possible exception of the Apple Watch. (Yeah, it’s that good.)
While the world economy will recover from the epidemic, it won’t be soon and luxury goods won’t be leading the charge. There won’t be a “revenge shopping” luxury watch sales surge. In fact, investment firm Bernstein predicted that the first half of 2020 is “going to be the worst in the history of the modern luxury goods.”
Even after America, Spain, France, England, Italy, Switzerland, Germany, etc. come off coronavirus lockdown, the wealthy buyers who drove the luxury watch market will emerge from the crisis having lost bigly (World’s Richest Have Lost Over $1 Trillion In Stock Market Crash). While they’ll still have a roof over their head and a Bentley in the garage, they’re not about to storm Watches of Switzerland. Less well-heeled once-and-future luxury watch buyers even less so.
Bottom line: China or no China, the world’s watch industry in flat on its back, in terms of production and sales. It’s going to be at least a year before it even gets on its knees. So I’m not backing off on my prediction of deep discounts on high-priced Swiss, German and Japanese watches, both new but definitely pre-owned. Watch this space.
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