China’s Market Demand Cools, Luxury Watches, Jewelry and Even Swatch See Revenue Declines, Stocks Plummet

Affected by the weak demand in the Chinese market, the Swiss watchmaking giant Swatch (UHR.SW) saw a year-on-year decline in revenue in the first half of the year, and expects the market situation may not improve by the end of the year, causing its stock price to plummet nearly 10%.

According to reports from Reuters and The Wall Street Journal, Swatch announced on the 15th that in the first half of this year (2024), the group’s revenue decreased by 14% year-on-year to 3.44 billion Swiss francs (about $3.85 billion), lower than the analyst estimate of 3.75 billion Swiss francs compiled by FactSet. Swatch is the world’s largest watch group.

The financial report shows that Swatch’s net profit for the quarter plummeted from 486 million Swiss francs in the same period last year to 136 million Swiss francs, and its operating profit also shrank sharply from 686 million Swiss francs to 204 million Swiss francs, both worse than market expectations.

Luxury Goods Industry Sales Also Declining

The performance of both the watch and jewelry divisions was significantly worse than last year. Analysts expect this year to be a challenging one for the luxury industry, as the important premium market China’s economy continues to deteriorate, and performance in Europe is also affected by geopolitical conflicts. Swatch pointed out that some distributors are reluctant to place orders due to concerns about excessive inventory, leading to a 10% year-on-year decline in wholesale sales. However, the company expects its performance to improve in the second half of the year as its efforts to cut spending since the beginning of the year take effect.

Swatch CEO Nick Hayek pointed out that Chinese consumers have become more price-sensitive recently, and wealthy people also tend to avoid showing off their wealth and turn to low-key fashion. Recent data shows that China’s economic growth in the second quarter was lower than expected, and the job market is also deteriorating. Swatch’s stock price plunged 9.78% to 170.70 Swiss francs on the 15th. Luxury giants LVMH and Kering (Gucci’s parent company) fell 2.65% and 5.28% respectively on the 15th. The British luxury giant Burberry (BRBY.L) also issued a profit warning due to poor quarterly performance and replaced its CEO, causing its stock price to plummet more than 16% on the 15th.