Richemont and Swatch feel strong headwinds from China
Published: Tuesday, Jul 16th 2024, 11:20
Updated At: Wednesday, Jul 17th 2024, 01:59
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The economy in China is weakening and this is affecting the luxury goods industry. Watch manufacturers in Switzerland are also feeling the effects. While its largest representative Swatch Group had to report a slump in sales and profits for the first half of 2024, the Richemont Group's business is still doing well thanks to the resilience of its jewelry division.
On Tuesday, Richemont presented its figures for the first quarter of the 2024/25 financial year, i.e. for the months of April to June. After strong sales growth of almost a fifth in currency-adjusted terms in the same period of the previous year, sales rose by 1 percent in the new financial year. In the reporting currency of the euro, however, there was a slight decline of 1% to 5.27 billion.
The Geneva-based watch and jewelry group thus held up reasonably well in a market environment burdened by geopolitical tensions and economic uncertainties. The declining consumer confidence in the important sales markets of China, Hong Kong and Macau in particular is causing the industry problems. Richemont also recorded a decline of 27 percent compared to the very high figures of the previous year.
Growth in America and with jewelry
In Europe, however, sales of jewelry and watches increased by 5 percent and in America by as much as 10 percent. Richemont achieved the strongest growth in Japan (+59 percent). According to the report, growing sales to tourists, particularly from China, had a positive impact on business.
One driver of Richemont's success in recent years has always been the jewelry houses Cartier, Van Cleef & Arpels and Buccellati, while the watch division with brands such as Piaget, IWC and Panerai is increasingly suffering from the deteriorating consumer sentiment. However, the strong Cartier brand is also successfully selling timepieces, including in the USA.
The different trends in the divisions were particularly pronounced in the first quarter of 2024/25: This was when sales of "Specialist Watchmakers" fell by 13 percent, while "Jewellery Maisons" increased by 4 percent. The "Others" segment, which includes fashion and accessories brands, increased its sales by 6%.
Swatch Group suffers from weakness in China
The weakness of the Chinese market was reflected even more clearly in the Swatch Group's half-year results. It cannot rely on the support of a broad-based jewelry business. From January to June, the Group generated around 30 percent less sales in China, Hong Kong and Macau than in the previous year, Swatch Group CEO Nick Hayek told AWP.
Expensive watches from Blancpain, Breguet and Omega in particular have been sold less in the "Middle Kingdom". Hayek added that the desire to buy on the part of many Chinese people had been curbed by the real estate crisis and growing unemployment. Business was better with more affordable timepieces, such as those from the Swatch brand.
Across all brands and regions, Swatch reported a 14 percent drop in sales to 3.45 billion Swiss francs. And as the Group is maintaining production capacities even in difficult times and is not laying off any employees, operating profit fell by as much as 70 percent in the first half of the year and the operating margin plummeted to 5.9 percent from 17.1 percent in the previous year.
The Swatch Group wants to be prepared for the hoped-for upturn in China with as few cutbacks in production as possible. Initially, however, Hayek expects the "difficult market situation" to continue for the industry in the "Middle Kingdom" in the coming months.
©Keystone/SDA
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