Last week's cancellation of Switzerland's two major watch shows trained a spotlight on the impact of the growing coronavirus epidemic on Switzerland's watch industry.
That impact is profound. Friday's cancellation of the Baselworld watch and jewelry exhibition for the first time in the show's 103-year history made it clear that the industry is in an unprecedented place.
Events are moving fast and are very fluid. As of early March, there are more questions than answers as to how the cheap omega replica industry will respond to the pending pandemic and what its ultimate impact on the industry will be.
What's clear is that the Swiss watch industry is facing a full-fledged crisis. Watch sales in Hong Kong and China, Switzerland's first and third most important markets respectively, have hit a wall. Watch companies are scrambling to deal with the effects of the epidemic. They are figuring out the best way to respond to a severe slowdown in sales to Greater China, the best way to introduce their new products to their clients and press in global markets in the wake of the show cancellations, and how best to meet sales targets in an increasingly panicky world.
"It's not a matter of having a Plan B," Edouard Meylan, CEO of Moser & Cie told HODINKEE. "It's having a Plan C, D, and E."
Swiss sources describe the situation as "very challenging." No one knows how long the coronavirus crisis will last or how bad the situation in the markets will get. Many firms have cut budgets. Some have curtailed travel. Some have laid off workers. And there is a sense in the industry that there will be corporate casualties. One firm, RJ replica watches (formerly Romain Jerome) declared bankruptcy last week. "There will be more," a Swiss watch CEO told me. One estimate making the rounds in Switzerland is around 30.
Here is a summary of the situation so far.
Greater China Less GreatMainland China has been a booming market for luxury brands.
The Baselworld cancellation made headlines. (Rachel Maddow referred to it on her MSNBC show on Friday, and The New York Times posted a story about it on its website.)
But the show disruptions are minor compared to the havoc the coronavirus outbreak has inflicted on Swiss watch sales over the past five weeks. The problem is that the epidemic has struck what was the roaring engine of growth for Swiss luxury watch sales, mainland China and Hong Kong.
Hong Kong and China together account for nearly one-quarter (23%) of Switzerland's total watch exports, which last year were valued at CHF 21.7 billion.
Coronavirus has leveled a one-two punch at those markets. First, it aggravated the already difficult economic situation in Hong Kong. The political turmoil there in the second half of last year ravaged the luxury watch market. The value of Swiss watch exports to Hong Kong fell 11.4% in 2019. The measure of the impact of that drop is best illustrated by the Swatch Group, Switzerland's largest watch group, which operates 90 stores there. The group said it lost approximately CHF 200 million there last year, causing a 2.7% drop in its 2019 revenues to CHF 8.2 billion. This, despite the fact that its sales were up in every other global market.
The outbreak of coronavirus in China at the end of December made Hong Kong's bad situation worse. Why? Because at least during the political strife, stores were open when the demonstrations stopped. With the coronavirus scare, stores are empty almost all the time, business people there say. (An example of the atmosphere there: Schools were closed in January and remain closed.)
It's not a matter of having a Plan B. It's having a Plan C, D, and E.
?Edouard Meylan, CEO of Moser & CieThe second punch, which felled China, is far more damaging than the first. The coronavirus turned mainland China from a Swiss-watch hero to a Swiss-watch victim virtually overnight.
China was a Swiss-watch powerhouse in 2019. Exports rose 16% in value, which was a huge help in compensating for Hong Kong's decline. China helped maintain the industry's overall growth for the year. Swiss global exports rose 2.4% last year, not bad considering all the international tensions (the U.S.-China trade war, Brexit, Hong Kong, etc.).
Now, though, the coronavirus is clobbering sales in mainland China. There is no official data yet about the impact on sales, but expert estimates of the impact on the luxury goods industry ?including replica watches ?are dire. Credit Suisse, for example, estimated in a Feb. 24 note to investors that Richemont Group sales in China would fall 80% in February and March. It noted that one-third of Cartier stores in China are closed, and the rest are open from noon until 5 PM instead of the normal 10 AM to 10 PM.
Jean-Christophe Babin, CEO of Bulgari, is the rare Swiss watch executive to comment on the record about the situation. Bulgari has 51 stores in Greater China. Half of them were closed, he told CNN, and the rest were operating on short time. "The fact that we are relying on e-commerce only in China is hurting sales significantly,?Babin said.
ADVERTISEMENT Travel Retail GroundedA decline in tourist shopping as a result of the Coronavirus threat has hurt Swiss watch sales.
It's not just sales in Greater China that are down. Coronavirus restrictions on travel from Greater China are hurting luxury-watch sales in top tourist destinations around the globe. An estimated 150 million Chinese tourists travel internationally every year; they account for an estimated 40% of luxury goods purchased in the travel retail category.
In recent years, Chinese tourists have been a boon to Swiss watch sales in Paris, New York, London, Tokyo, and other top tourist destinations. (Including Switzerland: 70% of retail watch sales in Lucerne, for example, are to Chinese tourists, sources say.) It's a big business, and the coronavirus scare has slowed that business to a trickle. U.S. retailers who cater to the Chinese tourists tell HODINKEE they have no idea when it will resume.
Show StopperBaselworld will not be held again until January of 2021.
The back-to-back announcements of the cancellation of Baselworld and replica watches & Wonders Geneva (formerly known as SIHH) last Thursday and Friday scuttled most Swiss watch brands?plans for launching their new products and sent them scurrying to come up with new launch strategies.
Bulgari's Babin moved quickly to organize what will amount to a pop-up exhibition in Geneva in late April when replica watches & Wonders Geneva was supposed to be held. Joining Bulgari are Breitling, Girard-Perregaux, Ulysse Nardin, Moser, and other independent brands. The event is aimed primarily for European retailers, collectors, and press.
Less in a hurry, on the other hand, was Rolex. The day Baselworld was canceled, Rolex U.S. informed the press that it would be in touch about its product launch plans "later in the year.?/p>
Some larger brands will meet clients and press at regional events. Grand Seiko, which had planned a Summit for international guests for March 3-6 in Tokyo but canceled it, will hold a two-day version of the Summit in New York in early April. The Swatch Group, which canceled its "Time To Move?event scheduled for this week in Zurich, is also planning to hold regional events. Ditto for the Richemont Group. "We are currently working on alternative regional plans to present our Maisons?new collections to you all, and will come back to you as soon as possible,?wrote Alain Bernard, President and CEO of Richemont North America, to clients and the press the day replica watches & Wonders was canceled.
Another option is local watch and jewelry shows, such as the Couture Show and JCK show, held in June in Las Vegas. Stephen Kaiser, organizer of CoutureTime, the watch section of the Couture Show, said he has received numerous calls since the cancellation of the Swiss shows from watch firms expressing interest in exhibiting at the show.
Watches & Wonders Geneva was canceled last Thursday.
Among the Swiss watch industry coronavirus casualties are the Swiss shows themselves. They stand to lose millions of francs in revenue as a result of the cancellations, Swiss sources say. Both shows are in the process of reinventing their formats for a digital world.
The loss of this year's show is a particularly bitter blow to Baselworld. Its struggles were a major reason its parent company, the MCH Group, has reported a loss of CHF 300.7 million over the past two years. The show plans to move to January next year, a far more favorable time for exhibitors. replica watches & Wonders Geneva has not announced new dates; sources say its organizers are trying to move that show to January as well.
Whether anyone will want to travel to local shows this spring or summer if the coronavirus epidemic is still underway is one of a multitude of unanswered questions confronting the watch industry. Another one is what becomes of the luxury watch inventories now building up in China and that have been building for eight months in Hong Kong?
The most important questions are how long will the crisis last, and will it paralyze other markets as it has China. The answers? Nobody knows.
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