Swiss watch exports continued to rise last year and are expected to hit a new record as a slowdown in Asia was partially offset by recovering Eurozone demand. Closer analysis of the data also uncovers markets which offer potential opportunities for the industry going forward.
High-end watches are an important bellwether for the wider luxury industry. As such, Swiss watch exports represent a useful metric to gauge luxury demand over the past year and in the near future.
Record Year, but Growth is Slowing
2012 was the biggest year to date as exports surpassed the CHF 20bn mark. The value of watch exports rose to 21.4 billion francs last year, representing an increase of 2.1 billion francs, or +10.9%. However, this was down on the 19% growth exhibited the previous year.
“ 2012 was the biggest year to date as exports surpassed the CHF 20bn mark ”
2012 was broadly a story of European recovery alongside Asian deceleration. At a regional level, European demand grew by 20%, almost double Asia’s 11%. Austria led the pack with demand rising 39% year on year.
Strong growth was also seen in Belgium (34%), the Netherlands (34%) and Germany (32%). Even European nations more acutely affected by the financial crisis performed well, with the UK (22%), Spain (22%), Italy (15%) and even Greece (11%) displaying strong demand growth.
Asia spends abroad…
This may be due to Eurozone fears partially subsiding in the latter half of the year. However, it could also be a result of an influx of Asian tourists to the region. Indeed, the number of Mainland Chinese who travelled abroad increased to 71% last year, up from 53% in 2011 (KPMG).
One fifth of these travellers visited Europe. Such trips are often devoted to purchasing luxury goods, in part because these consumers can make substantial savings by shopping abroad.
For example, Chinese consumers would avoid an 11% import duty, a 20% tax on high-end watches and 17.5% VAT through buying in Europe. Perhaps unsurprisingly, of the 72% of Chinese travellers which purchased luxury goods overseas last year, 37% bought a watch (KPMG). This is up from 20% in 2009.
“ 2012 was broadly a story of European recovery alongside Asian deceleration ”
…Whilst domestic sales stall
That Asian travellers are increasingly buying luxury watches abroad may help explain the slowing demand in the region. Hong Kong, by far the world’s largest single luxury watch market, grew only 9%, compared to 29% in 2011. Singaporean demand rose marginally by 2%, while Thailand, which saw a 39% increase the year before, shrank by -1%.
China, the star performer in 2011 with 57% growth, slipped to a comparatively anaemic 4% expansion. Pictures which emerged last summer of a Chinese civil servant wearing a series of watches worth over £110,000 provoked widespread outrage surrounding the bribery of public officials and contributed to a government crackdown on such gifts.
The clampdown, alongside slowing economic growth and uncertainty linked to a once-in-a-decade leadership change will undoubtedly have curtailed demand.
“ Chinese consumers avoid 11% import duty, 20% tax on high-end watches & 17.5% VAT by buying in Europe ”
How sustainable is this demand?
To understand how sustainable this demand is we looked at the relationship between luxury watch demand and the local wealthy population. In the chart below we’ve plotted the Swiss Watch Exports against the numbers of millionaires. The straight line represents the typical, or expected, relationship between luxury and the wealthy.
Unsurprisingly, the trend line is positive meaning that, as the number of millionaires increases, so too does luxury watch demand. However, some countries sit relatively far away from the line. This means that demand there is either significantly higher (far above the line) or lower (far below the line) than it should be for the given local wealthy population.
Regional wealth hubs prosper
The global travel hubs of Singapore and UAE stand out as having excessive demand compared to their millionaire populations. This is likely due to wealthy travellers buying watches on their way through to other destinations. Italy and France, particularly adept at attracting Asian tourists, also seem to be benefitting from high spending travellers.
Tax free shopping increased 32% in Italy last year, and watches and jewellery accounted for 16% of total luxury tax free revenues (Global Blue). This analysis also suggests that markets such as India, Turkey and Israel are underpenetrated, particularly as their millionaire populations are expanding rapidly.
This is corroborated by Ledbury Research’s Indian Wealth Segments which found four high growth segments of the wealthy population in India. We’d expect these markets to be firmly on the agenda in 2013.
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