You can hear a watch tick in the marble emptiness of the Thoreau watch store at Central Place, Beijing’s massive Venetian-style mall. Given that the cheapest watch in the shop costs around US$1,500, only the seriously wealthy enter here. Most products by brands Breitling, Chopard and IWC Schaffhausen start at US$3,000.
In the less salubrious surrounds of the Yaxiu market a kilometer north of Thoreau, there’s a panicked, noisy rush on the watch stalls. American tourists hone in on US$40 Franck Muller watches, admired among horologists for their art-nouveau numbers and oblong faces.
They’re fakes, of course, but it’s hard to tell with a casual glance, and that’s the point.
While China is the great hope of the Swiss watch-making industry, it also represents its greatest threat. Swiss watchmakers estimate that counterfeits – 40% of them made in China – cost the national industry more than US$600 million per year. Counterfeiters here have become adept at knocking off Swiss timepieces, largely for export.
"Chinese counterfeiters copy the appearance rather than the technical parts of a watch," said Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry (CFH).
Despite the plague of counterfeiters, China is emerging as a major market for Swiss watches. It ranks seventh in the CFH league table of the top 30 export destinations (by value) in 2008. Sales in the first 11 months of the year totaled US$600 million, up from US$490 million in 2007 and US$300 million in 2006.
All this despite fears that China’s 20% tax on luxury imports like watches, introduced in 2006, would kill sales. The 20% tax didn’t harm the business at all, says Kang Weikai, editor of Calibre Haute Horlogerie, a glossy magazine on watches published monthly in Beijing.
"On the contrary, luxury watchmakers have increased their prices by an average of 7% each year," said Kang, "and sales still have gone up by 25% every year." According to a recent Calibre Haute Horlogerie ranking, China’s top three selling luxury watches are all Swiss: Rolex, Omega and Longines, in that order.
Studies by market research firm Euromonitor International show Chinese watch owners paid US$996 million for wrist timepieces in 2008, compared with US$710 million in 2003. Sales of Swiss-made watches in China grew 50% year-on-year in the first 11 months of 2008, while Swiss sales to the US fell by 1.3%, according to CFH figures.
Those figures probably don’t reflect true sales: More than half of exports of time pieces to Hong Kong, the top export destination for Swiss watches, are re-exported after tax-free sales in the territory, many of them going to mainland China.
Mechanical watches – more costly than battery-operated quartz watches – are particularly popular among Chinese. Li Siyun, who runs PR campaigns for watch brands and publishes the magazine Famous Watch, says Chinese luxury watch buyers prefer gold-plated and platinum body watches. These are the crème de la crème of watches, capped with a sapphire crystal face.
This is good news for Swiss watchmakers, keen to grow sales of costlier mechanical watches. While electronic watches make up 90% of the Swiss watch industry’s overall output, more complex mechanical watches account for 52% of export value.
The proportion of sales to men and women in China is 70 to 30, Kang says, although this balance may yet change. Faced with fierce competition at the top end, Omega has hired Chinese actress Zhang Ziyi as a brand ambassador. The hope is that more women will pick up premium mechanical timepieces in large department stores – where almost 97% of sales in Shanghai occur – according to a company representative in that city.
Building a presence
Competition for sales in China will intensify as sales fall in other major markets like the US. Swiss brands are increasingly leaning toward flagship stores and watches unique to China. Vacheron Constantin drew an A-list celebrity crowd to the opening of its "mansion" in Shanghai’s colonial quarter recently.
Blancpain, meanwhile, has come up with the Qiankun Carrousel, a collector’s wristwatch crafted from 18-carat white gold. Beneath the sapphire crystal case the watch’s hour and minute hands rotate over a silhouette of the Forbidden City.
Stamped with the date 1735 (the year of the coronation of the Chinese emperor Qianlong), the watch may prove a hit with counterfeiters. Or maybe not. The CHF promises a "relentless battle" against counterfeiters. It will also go after market salespeople targeting tourists and Chinese traders using newspaper ads and the internet to sell fake watches abroad.
The demand side of the equation will also be addressed. Since counterfeiters would have no market if it were not for customers with few qualms about using stolen intellectual property to impress, CHF information campaigns worldwide in 2009 will warn tourists that by purchasing fakes they encourage child labor and put jobs – and themselves – at risk.
"Their watch could be seized and they could easily be slapped with a fine," said Pasche.
Swiss watchmakers have also complained that Chinese watchmakers are using the "Swiss" appellation in their products. Asian upstarts have undercut them before: The manner in which Japanese-made electronic watches gobbled up much of Switzerland’s market share in the 1970s lives long in the memory. It led to the closure of about half of the country’s watch firms between 1970 and 2006.
Counterfeits aside, legitimate Chinese watchmakers are unlikely to repeat the feat of Japanese brands like Citizen and Seiko, which remain the only viable competition for Swiss watches, said Kang. Local brands like Hai’ou and Beijing are popular and cheap alternatives in the mainland but unrecognized abroad. In fact, domestic watchmakers are also indirect victims of counterfeiting, as China’s national reputation as a source of low-quality, counterfeit watches seeps into the images of legitimate Chinese brands.
If there is one success story it is Feiyada, a local brand that grabbed valuable headlines when it was chosen over Swiss brands by the astronauts aboard China’s history-making Shenzhou V spacecraft. Whether this sort of government-sponsored marketing nationalism will resonate with consumers remains unclear.
The numbers also count against local Chinese watchmakers. China may be the world leader in volume of watches exported, shipping 638 million timepieces in 2007, but Switzerland remains the top exporter by value.
The average retail price of the 25.9 million watches Switzerland exported in 2007 came to US$479. By comparison, Hong Kong, which exported 473 million watches in 2007, sells watches for US$9 each. Chinese watches cost an average US$2. To catch up to Switzerland in terms of watch export revenue, China would have to export nearly five billion more two-dollar watches.
While Kang does expect sales of Swiss luxury watches in China to slow in 2009, he doesn’t foresee a collapse. Rather, the big names will likely intensify efforts to win over consumers. Swiss brands have China’s luxury market sewn up, but this could just add more spice to the battle for national bragging rights.