Chinese consumers are becoming more cautious when it comes to spending on big-ticket items such as luxury goods, Swatch has warned.
The increased cost of living, as well as a slowing economy still dealing with the lingering effects of the Covid-19 pandemic, have significantly contributed to this, the Swiss watchmaker explained.
Increasing youth unemployment, as well as a struggling property sector has ensured that consumers are now thinking much more before making a purchase, preferring to buy fewer but more long-lasting pieces. Deflationary concerns have also led to clients choosing to save and invest more rather than spend on consumer goods.
Swatch group CEO Nick Hayek was quoted by Swiss newspaper Neue Zuercher Zeitung as saying: "The Chinese have money and they continue to show interest and come into business. But they currently hesitate for a long time before buying something.
"They have also become even more price sensitive, as there have been excessive price increases in many areas. I expect the Chinese market to remain difficult until the end of the year. But what's a year? China's potential remains great: people are hungry for success, want to work, earn more, go out, travel and certainly buy watches."
According to the Federation of the Swiss Watch Industry, Swiss watch exports to China dropped by about 25% year-on-year in February 2024, while exports to Hong Kong fell around 19%.
China’s luxury slowdown hits Gucci, LVMH amongst others
Luxury goods company Kering recently issued a profit warning, warning it expected lower Gucci sales in China for the first quarter of the year. Gucci brought in new creative director Sabato de Sarno last year to revamp the brand.
However, Chinese consumers have been increasingly dissatisfied with Gucci's new minimalistic designs, with several feeling that they are far too similar to other high-end brands such as Prada, Valentino and Celine.
Along with the general downturn in the luxury sector, this has also contributed to lower Chinese Gucci sales.
Kering said in a statement: "In a first half that Kering expected to be challenging, current trends lead the Group to estimate that its consolidated revenue in the first quarter of 2024 should decline by approximately 10% on a comparable basis, from last year's first quarter.
"This performance primarily reflects a steeper sales drop at Gucci, notably in the Asia-Pacific region. Gucci comparable revenues in the first quarter are expected to be down by nearly 20% year-on-year."
Other luxury brands such as LVMH have also struggled to attract Chinese customers since the end of last year. LVMH is also considering reducing its presence and investments in Hong Kong and China, partly because of the escalating tensions between the two countries.
