Middle-Class Angst Is Depressing Swiss Watch Sales
Stagnant wage growth for the global middle class has been cited for everything from the rise of Donald Trump, the U.K. vote to leave the European Union and the referendum that prompted the resignation of Italian Prime Minister Matteo Renzi. I'd like to add a business victim to the list: Switzerland's luxury watch industry.
The most basic Rolex Oyster perpetual watch retails at more than $5,000. Rolex doesn't say how many watches it produces each year; COSC, the body that vouches for Swiss chronometers, says it gave Rolex almost 800,000 certificates in 2015. Based on the export data, it looks very much like the global middle class -- or at least the upper end of it that might in the past have the disposable income for such purchases -- has indeed decided that, after not getting a pay rise for many years, there are better things to spend money on than Swiss wrist jewelry.
October's 16 percent drop in exports was the biggest in seven years, with 13 of the top 15 destinations posting a decline:
In the 2016 edition of its annual report on the industry, consultancy firm Deloitte noted that by the middle of this year, both the value and volume of exports had decreased for 14 consecutive months. In last year's survey of industry executives, about 40 percent were gloomy about the future; this year, that's doubled to 82 percent. And for the first time since the survey began in 2012, "the percentage of respondents who have a negative outlook for the main export markets exceeded those who are optimistic," Deloitte said.
In particular, demand for Swiss horology in Hong Kong, which Deloitte says is the industry's most important export market, has fallen off a cliff. Exports to Hong Kong have declined in every month since January of last year:
There's an even more worrying trend buried in the export data that my Bloomberg News colleague Thomas Mulier has uncovered. Watchmakers have been soothing the pain of their retailers by buying back unsold inventory, repurchasing almost 1.3 billion francs ($1.3 billion) of timepieces in the first 10 months of this year:
There are clearly a bunch of different factors at work here. Weaker economies, a crackdown on political corruption in China and higher prices due to an appreciating Swiss franc have all hurt demand in Asia. And, as my colleague Leonid Bershidsky pointed out earlier this year, the "aura of old-world luxury, on which its advertising culture is based, has an increasingly limited appeal in a tech-driven world where the younger generation is, for the first time since World War II, poorer than its parents." There's also the simple fact that the ubiquity of digital devices in our lives makes it almost impossible to not know what time it is even if your wrist is unadorned.
But I'd argue there's also something about the collapse in Swiss watch demand that's instructive about both demographics and economics. The kind of conspicuous consumption that prompted parents to buy gold timepieces as gifts to celebrate university-graduation or reaching the age-of-maturity is out of step with these austerity-driven times. Moreover, there are fewer of those parents relative to offspring; in the U.S., where Swiss watch imports dropped by 16.5 percent in October, there are now more millennials (18-to-34 age group) than baby boomers (aged 51-to-69) for the first time, according to the Pew Research Center:
The advertising tagline that says "You never actually own a Patek Philippe; you merely look after it for the next generation" only works if this generation has the income to buy a fancy watch and the next generation places the same value, sentimental or otherwise, on the heirloom. With both of those propositions looking increasingly dubious, the pessimism of watchmaking executives in the Deloitte survey is entirely justified.
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