BASEL, SWITZERLAND — After opening hundreds of stores in China in recent years, some watch companies are facing an inventory glut and cutting back their retailing presence there.
The downsizing comes as shipments of timepieces to China from Switzerland, the world’s dominant luxury watch production center, have fallen below the levels of two years ago, after setting a record in 2012.
“The gold rush in China is over,” said François-Henry Bennahmias, chief executive of Audemars Piguet, a Swiss watch company that is closing 6 of its 22 stores in China. “We are going to slow down in China and take every step there much more carefully.”
Swiss watch exports to mainland China dropped 26 percent in the first quarter from a year earlier, to 323 million Swiss francs, or $343 million, according to data released in the past week by the Swiss Federation of the Watch Industry. Exports to Hong Kong fell 9 percent, to 910 million francs.
Over all, however, Swiss watch exports rose 2.3 percent in the first quarter, to 4.73 billion francs, buoyed by Middle Eastern and some European markets, particularly Germany and Britain.
“People simply went overboard about China, thinking that there could be no issue with suddenly opening 40 or 50 stores,” said John Simonian, a watch distributor and owner of Westime, a watch retailer based in Los Angeles. “The stores in China are now full of inventories, with no guarantee that they can all get sold.”
Affluent and travel-hungry Chinese are increasingly buying overseas. About half of Chinese spending on luxury goods occurs outside the mainland, according to a study released in December by the consulting firm McKinsey.
As a result, “50 square meters in Paris could be much more meaningful now than having those same 50 square meters in China,” said Mr. Bennahmias of Audemars Piguet.
The reassessment comes even though Chinese shoppers’ spending on luxury goods has grown to 25 percent of the world total, compared with 20 percent for U.S. shoppers, according to a study released in December by Bain, another consulting firm.
Still, Bain raised some red flags in light of the slight decline in luxury sales in China last year.
“Luxury brand stores in China need to deliver the same consumer experience in China as in France and Italy, or risk further deferral of spending to tourism,” Bain wrote.
Rather than focusing solely on China’s purchasing power, luxury goods companies should have paid closer attention to changes in Chinese travel and consumer habits, according to some executives.
“I think some people went too hard into China and simply didn’t take into account how keen the Chinese are to buy elsewhere — also to avoid paying high duties,” said Michel Parmigiani, founder of Parmigiani Fleurier, another Swiss watchmaker.
Taxes on luxury goods acquired within mainland China range from 20 percent to 70 percent, depending on the product category. But another important factor has been Beijing’s efforts to clamp down on the giving of expensive gifts as part of the government’s broader fight against corruption.
“Most people thought that gifting would last for a while, but there is now a real government crusade against it, so that it’s no longer acceptable to have a big chunky watch on your wrist, which in turn is affecting retailing, particularly in China’s big government cities,” said Jon Cox, an analyst at Kepler Capital Markets, who estimated that gift-giving accounted for half of the watches sold in mainland China.
“The question mark is now whether this will start spreading to everywhere else where the Chinese buy watches,” Mr. Cox said.
Nick Hayek, the chief executive of Swatch Group, the world’s largest watch company, said that some sort of cooling in the Chinese market was inevitable. “You cannot grow 30 percent in a market every year,” he said.
Article source: http://www.nytimes.com/2013/04/27/business/global/27iht-watch27.html?partner=rss&emc=rss
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