Why brands need to adapt if they are to thrive in new markets
The luxury watch industry in Asia has seen significantly fewer sales over the past few months, with the latest figures showing a decline of 20 per cent or more. Long gone are the high-flying years of doubledigit growth when it seemed that insatiable shoppers, many from Mainland China, would continue flocking to luxury boutiques in Hong Kong and around the region. Now the recurring theme is the decline in the number of mainland shoppers and the impact this is having on luxury sales.
However, a closer examination of the data shows global sales of watches are not following this trend; they’re holding steady or growing a little. The downturn in the Greater China region is being counterbalanced by a significant increase in other parts of the world. According to the Federation of the Swiss Watch Industry, which represents 90 per cent of the country’s watch sector, France saw an astounding increase of 53.4 per cent in July compared to the same month last year. The Richemont Group, which owns many high watchmaking and jewellery maisons, also reports double-digit growth, not only in Europe, but also in Japan.
I’m sure it’s not a sudden new interest in watches or economic growth in those regions that is driving such an increase in demand.
Even without diving into more statistics, a recent personal visit to Paris and its boutiques shows that there, too, it’s Chinese tourists doing the spending. The queues once present in front of the Hong Kong boutiques of the most famous luxury brands are continuing to form in front of their Paris boutiques.
Many will point to the political and economic climate in China and Hong Kong for this shift in buying patterns, with a mainland clampdown on the giving of expensive gifts in particular affecting the Hong Kong and Macau markets. But given that the Chinese customer is still very active in other parts of the world, the demand is still strong. There are other social and economic reasons for Chinese tourists being willing to travel such long distances for their luxury purchases.
Price, of course, is a significant factor. Tax-free shopping and volatile currency exchange rates have made the savings in Europe much more compelling. But it’s not the only reason. For many, the shopping experience is more authentic when it is part of a trip to the homes of many of these luxury products.
Regardless of the reasons, the landscape of the retail industry has changed and luxury brands must contend with the fact that their markets are truly global, and that containing their efforts to local or regional markets may be a thing of the past. Traditionally, the expectation was that a majority of purchase decisions would be made locally, and that marketing efforts and retail presence should reflect that. The past 10 years have seen innumerable boutiques opening all over Greater China, admittedly in response to the growing demand.
Today, the brands are finally acknowledging that marketing efforts made in Hong Kong, Singapore or Mainland China may lead to a purchase being made in an entirely different region, be it in Europe, North America or Japan. Our permanently connected world facilitates this because price comparisons can be made and product availability can be checked very quickly, such that the purchasing decision is not so much which boutique you go to in your city, but which one you go to in your favourite travel destination.
This has a significant knock-on effect on both sides of the sales counter. For the customer, it means there is an expectation of after-sales support on a global basis. For the brands, they now have to contend with performance metrics that are difficult to localise, as their regional marketing spending is now having an impact across the globe, rather than in the immediate geographical vicinity. Pricing will also have to be more carefully adjusted, even with uncertain currency exchange trends, for pricing comparisons are made within a few minutes. Also, the “convenience factor”—the point at which the price differential is big enough to encourage the customer to make the purchase overseas rather than at a local boutique— is greatly reduced.
Of course, it’s not just about pricing; service is becoming increasingly important as the luxury customer gains knowledge and experience, particularly with the high-end watch market. Salespeople have to be better trained and able to relate to the customers, understanding their needs and interests. There are numerous stories of blasé salespeople in Hong Kong ignoring local customers to focus instead on mainland tourists with empty suitcases and long shopping lists. Today, these same customers are considerably more knowledgeable about the brands they like and the watches themselves—and let’s not forget that the local customer is still present, considering their purchase options with overseas locations just as much in mind as local boutiques.
In short, when it comes to fine watches, my impression is that the demand is still very much there, but changes in the market environment have given the customer a much more global perspective. The brands need to bear this in mind, not only when it comes to pricing, but at every level, from marketing to after-sales service. There’s little reason to think this new environment will devolve, with luxury customers refocusing locally, for the flow of information is global and hard to contain. It will be interesting to see how the brands adapt.
THE LANDSCAPE OF THE RETAIL INDUSTRY HAS CHANGED AND LUXURY BRANDS MUST CONTEND WITH THE FACT THAT THEIR MARKETS ARE TRULY GLOBAL, AND THAT CONTAINING THEIR EFFORTS MAY BE A THING OF THE PAST