Around the world, people are carefully watching news about the protests in Hong Kong. From the popular #OccupyHongKong hashtag and bloggers on the streets to the mainstream press, I think the world is curious to see how Beijing will handle the delicate political situation in China’s strongest economic market. Something that is beginning to make itself clear is that the protests in Hong Kong related to free rule will hugely impact on the luxury watch industry, now and going forward.
Let’s put things into context. Hong Kong isn’t just the “gateway to the Asian watch market,” but is one of the world’s most important places for the watch industry. In an article on this exact topic, John Revill at the Wall Street Journal reports that exports to Hong Kong alone represent between about 15-20% of the overall global sales at corporations such as the Swatch Group, LVMH, and Richemont. Hong Kong represents a huge part of their business.
Furthermore, Hong Kong has been the focus of massive investment and attention by the watch industry over the last few years, as they have shifted many resources to the once booming Chinese watch market. Hong Kong was a primary focal point for the Chinese market, because most of the luxury sales in Hong Kong were by “mainlander” Chinese tourists, who traveled there exclusively to shop. This is not only because Hong Kong has an excellent selection of luxury goods, but prices cheaper than those in mainland China. aBlogtoWatch has covered the watch industry in Hong Kong in the past, as well as visited the long-running Hong Kong Watch & Clock fair, which our Managing Editor David Bredan last visited earlier in September 2014, just before the protests began.
As a testament of their dedication to Asia, the Richemont Group even started a watch and jewelry show exclusively for the Asian market in Hong Kong, known as Watches & Wonders, which celebrated its second year in 2014. At the exact same time as Watches & Wonders was taking place, the Hong Kong protests were in full effect during late September 2014. Avery important question to ask is what the attitude toward the watch industry will be while the protests are going on. What some people may not understand is that the Hong Kong protests are taking place in many of the areas where the best timepieces are sold.
Hong Kong and the Swiss watch industry have traditionally enjoyed a very friendly, and of course, prosperous relationship. As a bastion of free market economics and a friend to conspicuous consumption, Hong Kong has thrived as a mega-spot for luxury watch shopping. It is easily one of the best places in the world to be a watch lover. Right now, the luxury watch industry finds itself in a very sticky spot between a few competing interests. A spot that may preclude its ability to show support for a city that has been very good to it for so long.
Neutral by culture, the Swiss watch industry has possibly angered some Hong Kong locals by its lack of taking a position on the issues related to the protests. A blog post by Jason Fung in Hong Kong explains his anger with the organizers of Watches & Wonders for seemingly taking “Hong Kong” out of its discussion of the recent 2014 event. In his opinion, the show was wrong to make no mention of the protests that were “literally outside the Exhibition Center’s front door.” Fung’s main complaint is the feeling that when the luxury watch industry needed Hong Kong it was there for them, but now that many locals are seeking support for their political cause, at least Watches & Wonders isn’t taking a stand.
Looking at it from the perspective of the Richemont Group (whose brands mostly populate the Watches & Wonders exhibitors), you can see why they would be loathe to take a strong position either way. First of all, Richemont, like other watch companies are in the business of selling watches. Remarks made in support of Beijing or Hong Kong will only make the opposite side upset, and resulting backlash or sanctions will only hurt their legitimate business interests.
Sources such as CNBC and others are already reporting that the Hong Kong protests are having a rather negative effect on luxury sales in Hong Kong overall, with watches being a big part of that. Arjun Kharpal at CNBC reports that up to 70% of luxury watch buyers in Hong Kong are Chinese mainlanders, and they are clearly not visiting Hong Kong to go shopping during the protests. Contributors on Business of Fashion explain recent slow luxury sales during “Golden Week” shopping as part of China National Day celebrations in Hong Kong. In addition to slowed growth in the Chinese market overall, now luxury shop owners have to face the fact that the doors to their stores are literally blocked by protestors. Even those that aren’t in the heart of the protests are trying to deal with the fact that the current sentiment in Hong Kong is not particularly receptive to luxury sales and tourism.
What exactly should the watch industry do? According to MarketWatch, even the US Consulate in Hong Kong hasn’t taken a position on the issue of whether they support the Chinese government or the protesters in Hong Kong. The major players in the watch industry have a lot to lose by becoming an outspoken critic or supporter of either side of the issue. At the same time, they are trying to not only deal with decreasing sales in Hong Kong, but slowing demand for luxury watches in China which apparently started in 2012.
Having said that, the luxury watch industry has a lot to lose if Hong Kong loses its ability to be a major watch shopping hub. Though, it wouldn’t be the first time the long-standing Swiss watch industry has had to shift focus from one market to another as economic conditions change. The turmoil must nevertheless be unpleasant, and will likely have a chilling effect on their desire to invest in product, marketing, and expansion around the world. News reports indicate that executives at major watch groups are beginning to acknowledge “difficulties in Hong Kong,” and that for them, it is an “area of concern.”
I don’t blame the luxury watch industry, or any other industry for not wanting to get in the middle of the conflict between the Chinese government in Beijing and the protestors in Hong Kong over new rules related to Beijing’s approval of candidates for the 2017 elections in Hong Kong. A question the watch industry is probably asking themselves is “what next?” In other words, if Hong Kong loses its luster when it comes to watch sales, where else will Chinese buyers go to get watches? CNBC claims that the gambling-friendly island of Macau off China is a probable venue, and even that Japan – despite the ongoing conflicts between the Chinese and Japanese – is an attractive place for Chinese consumers seeking luxury goods. This is an interesting issue that perfectly illustrates how global political and economic issues can have great impact on the seemingly remote watch industry.