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For the Swiss watch industry, the new decade got off to a super start. Swiss watch exports rose 9.4% in value in January compared to January 2019. Sure, Hong Kong was still a worry, down 25% that month due to the ongoing political turmoil there. But Switzerland's new number one market, the United States, was going great guns, up 15%. So were the other top markets, including China (+7%), Japan (+15%), and Singapore (+23%). Twelve of Switzerland's top 15 markets were up in January, most by double-digit percentages.
Then the world as we knew it ended.
The corona virus pandemic has been a breathtaking global calamity. What follows is a review of its impact on the watch industry.
The impact was immediate. The corona virus struck first in China, the engine of Swiss watch growth over the past decade. China memorably rode to the rescue of the Swiss watch industry after the Great Recession of 2009. Now, overnight, the China market went from hero to victim as the government-ordered lockdown closed retail stores and shut down air travel.
In February, Swiss watch exports to China fell 51.5% in value. The long-time, rock-solid #3 market fell to #9 that month, with obvious repercussions for Swiss watch sales.
"Given our strong position in China, of course we are massively hit by the temporary closing of hundreds of stores," Swatch Group CEO Nick Hayek told Switzerland's SonntagsZeitung.
Bulgari CEO Jean-Christophe Babin told CNN, "The fact that we are relying on e-commerce only in China is hurting sales significantly."
Exports to Hong Kong fell 42%, "its worst monthly decline in the last 20 years," according to the Federation of the Swiss Watch Industry (FH).
We are massively hit by the temporary closing of hundreds of stores [in China].– SWATCH GROUP CEO NICK HAYEK IN MARCH
Globally, Swiss watch exports declined 9.2% in February. But they are a lagging indicator, a measure of wholesale orders placed by retailers, not actual store sales. "This does not fully reflect the actual situation," the FH warned.
Meanwhile, as the COVID-19 virus spread around the globe, watch exhibitions planned for March and April were canceled in February. First, a Grand Seiko Summit in Japan and the Swatch Group "Time to Move" event in Switzerland, followed by Watches & Wonders Geneva on Feb. 27 and Baselworld the next day. The cancellations sent watch companies scrambling to come up with alternative plans to launch new products.
Lockdowns and Shutdowns
March brought a wave of lockdowns outside Asia. Between March 9 and 23, Italy, the U.S., Spain, France, Switzerland, Germany and the U.K. were shut, in that order. It was not widely reported in the U.S., but in the early stages of the pandemic, Switzerland had the highest rate of infection per capita of any country in Europe.
Swiss watch factories started closing in mid-March, including Rolex, Patek Philippe, Audemars Piguet, TAG Heuer, Hublot, and many more. Most watch companies put employees on short-time. Ludovic Voillat, of CPIH (Swiss Watch Industry Employers Convention), told the Swissinfo news organization, "Of 50,000 people working in companies subject to a labor agreement, 40,000 are currently partially employed. It is unprecedented in the history of Swiss watchmaking."
Adding to the Swiss watch woes was the Swiss franc, which became a safe haven currency during the pandemic, causing another "frankenshock." In March, the franc rose to a four-and-a-half-year high against the euro.
On March 26, FH President Jean-Daniel Pasche issued an extraordinary message to FH members. "Who would have thought it?" it began. "Who could have imagined, just a few months ago, at the end of 2019 when we found out something was 'in the making' in China, that Switzerland would be facing a wave of such magnitude today?
"Remember SARS in 2003, when we felt as if we had seen it all with Asian exhibitors being banned from opening their booths at Baselworld (Zurich venue)? Yet it was nothing compared to what is happening today and life indeed is proving stranger than fiction. What a lesson in humility when confronted with 'natural' events that are beyond our grasp!
"In the face of this human, social and economic tragedy, out first thoughts go out to the families of the victims, to people who are sick and to those who are alone or whose jobs are threatened.
"We are naturally also thinking of all the watchmaking and non-watchmaking companies that are deeply affected in terms of their operations or whose very existence is in jeopardy."
The pandemic hurt the entire global watch industry, of course. On the same day that Pasche released his message, Efraim Grinberg, chairman of the Paramus, NJ-based Movado Group, met with financial analysts. "The pandemic has created a severe decline in discretionary income," he said. "As I speak to you today, all of our offices around the world with the exception of China and Hong Kong are closed. All of our retail stores in the U.S., Canada and the United Kingdom are closed. Most of our customers have closed their stores, as have many malls around the world."
One week later, Grinberg announced that 850 employees, 80% of its North American workforce had been furloughed through the end of May at least. All remaining salaried employees took a salary cut of 15% to 25% during the furlough period; Grinberg himself is taking no salary for the duration of the furlough period.
On March 27, Seiko Holdings Co. in Tokyo issued a "Notice Concerning the Impact of COVID-19 Pandemic." It outlined the steps it was taking to deal with the pandemic and warned, "In the global market including Japan, the status of sales of watches and clocks is expected to become severe due to a decline in demand mainly from Chinese tourists to Japan, as well as weak demand in countries where the disease is spreading."
Credit by Joe Thompson, 28th May 2020