Patek Philippe Chief Says China Overinvestment Is a Mistake

Patek Philippe SA Chairman Thierry Stern said Swiss watchmakers that concentrate investment in China are making a mistake as the market will eventually slow.

“I’m not putting all my eggs in the same basket,” Stern said in an interview at the world’s largest watch fair in Basel, Switzerland, yesterday. “It’s a big mistake I think that a few brands are doing by going only in China. They focus everything on China and it’s dangerous.”

The Chinese buy about half of the watches sold worldwide either in their home market, in Hong Kong or while traveling abroad, Jon Cox, an analyst at Kepler Capital Markets, estimates. Exports of Swiss watches to China rose 57 percent to 1.1 billion Swiss francs ($1.2 billion) in 2010 and shipments to Hong Kong, where many rich Chinese buy watches to avoid the country’s luxury taxes, rose 47 percent to 3.19 billion francs, according to the Federation of Swiss Watchmaking.

“For three or five years it should be fine” in China, said the chairman of Geneva-based Patek Philippe. “After that, it’s hard to know, but one day, of course, there will be something happening. This is why you have to really watch out.”

Sales of luxury items in China may more than double in five years to 180 billion yuan ($27 billion) in 2015, McKinsey & Co. wrote in a March 8 report. The nation may surpass Japan to become the biggest luxury-goods market by then, China’s Commerce Minister Chen Deming said March 7.

Advertising Ban

Beijing’s communist government this week moved to ban outdoor advertising that promotes lavish lifestyles in the Chinese capital, as it faces a widening gap between rich and poor in a nation where 150 million people live on less than $1 a day.

Of the 45,000 pieces Patek can produce annually, the watchmaker sold as many as 100 in China last year, Stern said. Patek Philippe has been selling timepieces to the Chinese for years, relying on them to travel to markets such as Europe, he said. The watchmaker now has two stores in China, mostly to be able to service and repair watches, he said.

Stern didn’t name any brands that he considers are overinvesting in China.

“I try to be very equal on every market, because if something happens, you should also survive,” he said.

Patek Philippe didn’t sell a “high” amount of watches in Japan before the earthquake there, and the company can shift the inventory set for that market to other regions, Stern said.

Buying watches isn’t a “major concern” for the Japanese, he said. “They have now to take care of all the problems of their people. It’s going to last quite a long time, I believe, which is sad for Japan, because they just started to increase, it was just starting to get better.”

Separately, sapphire glass for watches is becoming harder to find and may hinder the industry in coming years, Stern said.

“Every watch needs sapphire glass and today the raw material is missing,” he said. “We will have to find maybe new ideas or a new supplier, if they exist. This will become a problem in the future.”

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