How Dangerous Could The Coronavirus Be For The Watch Industry?
Watchonista talks to several professionals in the watch industry to better understand the impact of the current coronavirus epidemic.
Today’s figures from China’s National Health Commission state 563 dead, 1,153 cured, 28,018 confirmed cases, 24,702 suspected cases, and 186,354 people under medical watch. But the virus is not only taking a human toll, it is creating an economic one too.
The global shipping trade is grinding to a halt as seven of the world's ten major ports are based in China, crude oil prices are at the lowest level in a year, and numerous airlines are severely reducing, if not canceling, flights to and from the Chinese mainland. But how is the Swiss watch industry fairing in the wake of this health crisis?
Chinese Consumption At Home
Chinese consumption of watches has plummeted as people have been advised to stay home. Offices and shops are closed, and people are only going out for essentials. Stories from Wuhan, where the outbreak began, are apocalyptic as people have been confined to their homes for over two weeks now, and authorities are struggling to take care of the sick. Luxury purchases are surely the furthest thing from people’s minds.
David Chang, fellow journalist, founder of Watchina and director of the Beijing Collectors’ Association spoke to us from his home in Beijing, “Recently I have been staying at home and rarely go outside. I know many shops are still closed, and very few people are willing to go out. It is a big problem. I also worry about how many Chinese journalists will not go to Baselworld.”
The Swatch Group’s Time To Move Show
The Swatch Group has already announced the cancelation of its ‘Time to Move’ fair that was scheduled to run at the beginning of March for the world’s press and retailers. Nick Hayek, CEO of the Swatch Group, remains positive in spite of this difficult decision to postpone its presentations until later in the year, stating. “What we don’t know is how the coronavirus will develop, but if it only lasts one to two months, it won’t have a negative impact for the year. I’m confident the problem will be brought under control. Swiss Made watches remain a top desire for the Chinese consumer, across all price points. And Chinese shoppers will want to shop even more after the worst is over with the coronavirus.”
The Spring Watch Fairs
Following the Swatch Group’s cancelation, fears are starting to circulate about the upcoming Watches & Wonders and Baselworld fairs. For other luxury industries, such as the fashion industry, it is business as usual as the 2020 Fall Fashion Weeks are in full swing – just without the presence of the Chinese. This is what happened with the watch shows during the 2003 SARS epidemic.
Baselworld’s Managing Director Michel Loris-Melikoff hasn’t noticed any reactions from the watch industry, “Baselworld is in May this year. Registrations are going with a normal rhythm. We're keeping a very, very close eye on the situation.”
Watchonista's co-founder Marco Gabella added, "With the rescheduled dates of Baselworld and SIHH (now Watches & Wonders) we knew that 2020 would be a transformative year for the watch industry – but none of us expected a virus to have this kind of effect. Only time will tell if the other tradeshows will be canceled or postponed."
Looking Back At The SARS Epidemic
In 2003 the SARS epidemic had an important impact on the world economy. Economists, Lee and McKibbin, put the global loss at $40 billion. But China’s role in the global economy has changed quite considerably since then. China represented 4% of Global GDP in 2003, where today, that percentage has quadrupled to 16%. Add to this the fact that the Chinese consumer is wealthier now than in 2003, and the impact of this virus on the luxury sector could be far more significant.
“What I remember from SARS in 2003 was the sharp drop in sales in Hong Kong and the disruption that affected Baselworld,” shares Jean-Daniel Pasche, President, Federation of the Swiss Watch Industry. “Exhibitors in the affected region were barred from opening their stands by federal authorities. I remember participating in an official mission with Federal Councillor Joseph Deiss to the Hong Kong authorities to prevent the affair from escalating and to restore the peace with the Hong Kong watch industry. Hong Kong exhibitors returned to Baselworld the following year. Fortunately, the market recovered well after the epidemic.”
Travel Disruption and Consumption Abroad
It is not only the Chinese consumer at home that could impact the watch industry as Denis Martinet, Executive Chairman of MAD Associates, a watch distribution company with offices in Hong Kong, China, and Australia, explains, “One important factor is the restriction on travel. Mainland China is a big driver of luxury consumption. Flights are canceled to Singapore, the UK, the Philippines, and Australia among others – all this creates isolation from a market that is key and will start to affect other countries.”
The Coronavirus Situation In Hong Kong
Hong Kong is in a particularly vulnerable position with its proximity to China, but also due to the recent unrest. As Martinet shared, “Hong Kong is like a petri dish right now. Business is completely dead, especially after the social upheaval we have had. Arrivals in the country are down 50% from 5 million per month to 2.5 million. There is nothing more frightening than an epidemic as you have no control over the situation. People are avoiding populated areas, such as shopping centers.”
“We have an office in Shanghai, and it is worse over there. No one is in the offices or the shops. Sixty percent of our business is digital, but I don’t know if the situation is having an impact on that, but I would imagine people have other things to focus on right now, and there is also the problem of shipping. Are people working in the warehouses to ship goods, for example?”
The Importance Of A Global Business
The brands with a healthy geographic split will weather the storm the best. Panerai’s CEO Jean-Marc Pontroué noted, “First of all, we take the situation seriously in consideration and specially the health of our employees in China. They are not particularly affected so far but we are in touch with them every day. Their wellbeing is our utmost priority."
"From a business perspective, Panerai has built an international network and one of the brand strength is the diversification of its clientele around the world. China is of course an important market but we have other opportunities that will minimize the impact of the existing crisis such as USA or Europe. Indeed, our local clients and markets represent the majority of our business. We are keeping monitoring the situation regularly and remain confident in the long term."
Watchonista’s Co-Founder Alexander Friedman agrees “After speaking with our clients, it’s certainly creating a volatile environment. For our business as well, it’s absolutely challenging. But one positive is that there will be more attention given to western markets including product allocation."
What Should We Be Most Concerned About?
“My fears depend on the scale and the duration of the epidemic, but also the negative effects on tourism and travel,” says Pasche. “Depending on the extent of the phenomenon, sales of watches could be more or less affected, not only in China but also in other regions of the world. The materials and components supply chain for some companies may also be disrupted as Chinese companies are shutting down.”
“The January 2020 figures (Swiss export statistics from the Swiss Watchmaking Federation) will be released on February 20th,” Pasche continues. “So far, we have not seen any effect on our exports. But it is indeed too early to notice any consequences.”
The question of how dangerous the coronavirus will be to the watch economy remains to be seen, but this isn’t the industry’s first storm, and it certainly won't be its last. And if there is one thing the watch industry has a good habit of doing, it’s bouncing back.