Submitted by Nick Colas of DataTrek Research
Today we have an odd but telling data set: Swiss watch exports. By value most of these are high end, selling for +$3,000 apiece. As such they are good indicators of global luxury demand. Year-to-date data is a mirror of other economic indicators: the US is doing fine, Europe and China/Hong Kong less so. Longer term, the data also shows how luxury markets really work. Swiss watch companies have been under-producing relative to demand for years, seeking to maintain exclusivity in a world where so many people can afford their wares.
In the 21st century no one needs a watch. We have smartphones, computers, tablets, and smart watches. All show the correct time down to the second.
That goes double for fine Swiss mechanical watches. No Rolex or Patek Philippe can keep time as well as a $200 Casio that synchronizes daily to an atomic clock radio signal. And you can repeatedly drop the Casio on a hard tile floor without incident. Don’t try that with anything that carries the Cotes de Geneve finish on its movement.
And yet, the Swiss watch industry shipped over $20 billion worth of product last year, the bulk of which (89%) cost over $500 apiece by dollar value. The high end (over $3,000/watch) represents 66% of total dollar value. And in 2018, the watchmaking centers of Switzerland shipped 1.6 million of those most-expensive watches all around the world. That’s a lot of bling…
The Federation of the Swiss Watch Industry reports monthly export numbers, and this is useful data for considering the health of the global high-end luxury market. Two points on this:
#1: Year-to-date export shipments by dollar value through September are a mixed bag:
- Hong Kong, the world’s largest luxury watch market, is down 6.2% YTD.
- China, by contrast, is up 15.3%. Combine that with China and shipments by value are basically flat, up 1.4%.
- European shipments by value are broadly lower: Germany (-0.4%), France (-2.8%), Italy (-5.7%), Spain (-1.8%), and Austria (-12.4%).
- The UK fine watch market is robust, however, likely due to the pound’s decline which makes cross-border trade attractive. Shipments here are +15.9%.
- Slack oil prices and geopolitical risks seem to have hurt high-end buyers in the Middle East: Saudi Arabia (-11.2%), Qatar (-10.2%), and Kuwait (-10.6%).
- North American shipments are doing well: the US – the second biggest market after Hong Kong – is +8.7% and Canada is +7.4%.
The upshot: watch shipments confirm what we know from other economic indicators. The US luxury economy is doing better than Europe or even the combined Hong Kong/Chinese market. Yes, these numbers only capture the high-end consumer but this cohort is an important driver of marginal consumption across the board.
#2: The longer-run data tell a broader story about the global luxury goods market and also highlights an oddity in this sector:
- Exports of Swiss watches in terms of value have more than doubled since 2000.
- The numbers: 10.3 billion Swiss francs in 2000, 21.2 billion Sfr. Since total exports YTD are running +2.8% over last year, 2019 should be higher.
- A large part of that growth is pricing.
- For example, a steel no-date Rolex Submariner cost $3,000 in 2000 according to industry website A Blog To Watch.
- Now, it retails for $7,500 but due to a global shortage you’ll likely pay closer to $9,000 on the gray market.
- China and Hong Kong are the other reason for the last 2 decade’s growth.
- In 2000, China represented just 45 million Swiss francs of export demand. Last year the country bought 1.7 billion Sfr’s worth of watches.
- Hong Kong’s demand for Swiss watches has more than doubled since 2000, to 3.0 billion Sfr last year.
- As much as the global economy has grown in the last 5 years, Swiss watch exports actually peaked in 2014 at 22.2 billion Sfr. If current sales trends continue through year-end, 2019 should finally (but barely) breach that old high water mark.
- That’s because exports to Hong Kong have dropped by 1.1 billion Sfr since then, only partially offset by a 300 million Sfr increase for China. Other markets have been more stable.
The upshot: that last point may sound dire, but it is really a function of the Swiss watch industry’s unique fundamentals. That global shortage of Rolex Submariners – a simple steel watch – is actually common to most high-end Swiss watch companies. As a group they are not producing to demand. That is a conscious strategy, meant to preserve brand value/exclusivity in a world where so many consumers can afford their wares. Flat sales numbers are the inevitable outcome, not any sign of a stagnant global luxury consumer.
Final thought: we can think of no other market than high-end Swiss watches that better exemplifies the changes in the global economy since 2000. The humble wristwatch has become a global symbol of social status. The cantons of Switzerland simply cannot keep up with demand without diminishing what their products actually “do”: not tell time, but rather say something about the wearer.
Source: Swiss Watch Federation data