For the last 15 years the answer to any question about the luxury goods business has been China. China will supercharge sales. China will absorb production whenever a slowdown hits the West. China will drive the next stage of growth no matter what. China will save the Swiss watch industry. Will it? . . .
When COVID came and China was hit first, the luxury industry gambled that their bounce back would be fast and high. When lockdowns hit the Western world, a relatively passive China strategy for luxury brands turned into a fully active one. China would inevitably step in and provide all of the demand that the manufacturers were missing in the U.S. and Europe.
That’s still the bet now. But what happens if that doesn’t happen?
Starting in March the signs from the Middle Kingdom were decidedly mixed. Demand did bounce back – we’ve all seen the pictures of the swamped Hermes boutique. But the predicted “revenge buying” trend didn’t quite materialize.
The date for the deluge of Chinese customers desperate to buy luxury goods keeps getting pushed back. And there is always an excuse; the slowdown in international travel, the trade war, Hong Kong.
Now, facing the end of the summer, with the prospect of a huge rebound fading, the captains of the luxury industry are starting to entertain the possibility that we’re entering a new phase of luxury consumption. From our friends at Forbes.
Brands must become even stronger in telling their story, in offering true values, in understanding the customer and its current sensibility towards issues of transparency, fair trade, and other issues.
The sound you hear is the great middle class of luxury producers scrambling to figure out their business model if the Chinese juggernaut fails to arise from its slumber.
The fact of the matter: the top of the luxury watch market will be fine. The bottom of the market is getting eaten by smartwatches. That leaves the middle players to figure out what they can do.
The Forbes article touches several of the potential strategies. Localization! Sustainability! Focus on disruptors! That’s a clear sign that the formula hasn’t been figured out, because nobody knows what the formula is.
Most of these middle market watch brands have been caught napping; for at least the last 40 years there has been an obvious large market to exploit. First Japan, then Greater Asia, the Middle East and Russia, and finally China. These were easy pickings – they were large, getting rich quickly, and relatively homogeneous in terms of taste.
Now, however, there’s increasing evidence that the luxury brands not named Rolex, Patek and Audemars are going to have to work for their growth – and they’re scared.
Truth be told nothing being tried right now can sustain a multibillion dollar industry.
Women aren’t going to suddenly get into watch consumption (trust us, if it were going to happen already it would have). The move to experiential spending vs. acquisitive spending isn’t suddenly going to reverse. These are megacycles that change as demographics do.
Talk about sustainability is lipstick on a pig. And other markets (India, the greater Middle East, etc) are neither large enough nor as straightforward to penetrate as China was.
So, as the article says, the sharks are circling for the smaller luxury brands. Already weakened by Coronageddon, they bet their companies on China coming back fast and hard. If it doesn’t, and soon, watch out.
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Another risk is that with rising nationalism there is going to be increased pressure for successful Chinese people to wear Chinese watches. Not sure which Chinese company has the most “Grand Seiko” potential, but there has to be at least one.
Definitely – that’s the nightmare scenario for the the entire luxury industry. There aren’t a ton of examples of this happening successfully, but it does occur. (GS, obviously, and outside of watches, Tiffany and Tesla).
I would bet on a Chinese luxury watch company to achieve prominence within 5-10 years. Seems like an obvious win.
Maybe it’s a sign that “luxury” (really all) are overpriced? (They are)
Shhh! You said the quite part out loud!
Ha, I’ve known this for years, which is why I tell people to just save their money and buy Rolexes(?). I’ll always buy a brand that can save your life in a foreign country (I know stories). Hard to find watches of all prices without Chinese parts.
I’ll always buy a brand that can save your life in a foreign country
Or get you possibly killed… Miami- Dade man robbbed at gunpoint of $40k Rolex after arriving home from work.
Hey Joseph, did you mean to use a photo of the Myeong-dong shopping district in Seoul at the top of the article? Wrong country aside, a great neighbourhood for watches in the underground and shadows of the monolithic department stores.
[…] As the cliche goes, diversity is strength. The typical growth strategies aren’t working, and as we have said, China ain’t all that. […]