While talking heads, politicians and proles debate an end to the Coronageddon lockdown, Swiss luxury watch sales are suffering. Badly. You can almost hear the Grim Reaper’s blade swishing through the air as you contemplate the recently released export stats. Before we play Doctor Death, let’s read ’em and weep . . .
The Swiss Watch Federation export stats for March 2020 report that exports fell by a mind-blowing 43.1 percent compared to 2019. That’s a drop of 700k watches shipped compared the year previous, down to 900k watches.
If you crunch the numbers according to the value of Swiss watches shipped – rather than their number – the USA, China and Japan all reported significant increases. Huh? Two words: channel stuffing. Here’s how the Federation put it:
The United States (+20.9%) was the most striking example. Watches priced at over 3,000 francs grew strongly there, in a market that has been very dynamic since the beginning of the year, probably anticipating future shipping difficulties.
China (+10.5%) also posted solid growth after falling by half in February, probably in anticipation of the end of the crisis and going hand-in-hand with an increase in domestic consumption.
Remember: exports do not equal watch sales. “Future shipping difficulties” is the Federation’s way of saying that the Swiss watch industry is no longer making watches.
They were making watches- hundreds of thousands of them – right until they weren’t. So either consumers are buying expensive Swiss watches now in advance of a horological drought OR a moribund multitude of NIB luxury Swiss watches are sitting in U.S. distribution centers, waiting for demand – which doesn’t exist.
Everything I’ve head from dealers tells me it’s the latter.
As for that “probable increase in Chinese domestic consumption,” I wouldn’t bet on it. China’s ‘Reopening’ Is Missing Consumers. That’s a Bad Sign for U.S. barrons.com’s headline reads. Coronavirus Ravages China’s Economy—and It’s Just Getting Started the Wall Street Journal proclaims.
The Wuhan Virus has decimated demand for Chinese products. No customers, no money, no recovery. As the chart above shows, the high end of the luxury watch business – which placed 50 percent of its eggs in a China-shaped basket – is hardly immune to the economic catastrophe caused by researchers monkeying around with bats.
Once again, the numbers reflect export stats, not watch sales. Swiss luxury watch sales are likely to be FAR worse. And worse again in April. And May. And June. And this is the point where we get out the crystal ball and take a close look at the future of the top end of the watch market.
Coronageddon hasn’t triggered a stock market crash. The pandemic’s economic impact on the extremely wealthy is relatively minor – they have liquidity upon which they can draw until the stock market and the rest of their portfolio recovers.
The “merely” wealthy – successful doctors, lawyers, real estate and software developers, medium-to-large business owners – people who could afford a $3k to $20k watch before the pandemic – are in an entirely different boat.
Their income has taken a big whack. They depend on consumers further down the food chain – who are now housebound and unemployed. When these consumers come back, they’re not going to come roaring back waving dollar bills. They’ll have their belts tightened and their cash stuffed deep in their wallets.
The merely rich have enough money to put food on the table and keep their McMansions heated and cooled. Their income will eventually return to pre-Coronageddon levels. But they’ve seen the abyss. Until they regain their confidence in their earning ability, they’re also going to cut back on their spending.
We’re not talking about shopping at consignment stores or pulling kids out of college. But that new-car-every-two-years thing? Let it ride. Winter, spring and summer holiday? Maybe just two this year, and some place a little closer to home. New watch? I’ve got watches.
Whether its OMEGA Speedmasters or Armani suits, the luxury goods market is past the point of no-return. The U.S. economy can’t recover quickly enough to quickly repair the coronavirus’ damage to consumer confidence. From the paycheck-to-paycheck proletariat to the Rolex-atariat, it will be at least a year or two before spending freely once again becomes second nature.
Meanwhile, inventory. Lots and lots or luxury watch inventory. Don’t be fooled by gently dropping pre-owned watch prices or the hoopla surrounding Watches & Wonders new product dump. There’s a ton of new product gathering dust and hundreds of brick and mortar watch dealers with bills to pay and no way to pay them.
The reason luxury watch prices haven’t dropped precipitously: hard-core watch buyers are still buying (e.g., Breitling’s Superocean Rainbow watch sold out within hours).
Diehard collectors are seeing watches that rarely come to market on sale at reasonable prices. Buyers of new watches? Aside from a small number of customers having one last horological fling before they batten down the financial hatches . . . crickets chirping.
Both groups of buyers will be done soon. After that, prices will go down further and the bargain hunters will swoop in. After that, desperate dealers will dump even more product into the gray market.
That’s when the downward spiral will be dramatic. As will the bankruptcy of cash-strapped watch brands with no customers to speak of and no prospects in sight.
Whether this process is a foxtrot – slow, slow, quick, quick, slow – or a sudden slam dance in the mosh pit, remains to be seen. But there’s no escape from the events that the Wuhan virus has set it motion. When will the excrement hit the rotating air circulation device, exactly? It already has.