The watch retail trade
Hong Kong is a shopper’s paradise. Shops seem to stay open just as long as there are shoppers prepared to make a purchase. There is an abundance of every type of shop, but electrical goods and photographic equipment, wearing apparel, footwear and watch and jewellery outlets dominate.
From January to June 2005 v. the same period in 2004, increases in sales of electrical goods and photographic equipment was 16.2%, wearing apparel was +9.7%, footwear increased by 8.5% and watches and jewellery sales improved by 6.2%.
In 2004, Hong Kong imported Swiss watches to the value of 757.7 million US dollars and up to and including August of this year (2005) imports from Switzerland have already reached approximately 860 million US dollars.
One of Hong Kong’s leading retailers is the Oriental Watch Group. They have nine shops in Hong Kong and a further ten outlets in China where they began trading some fifteen years ago. Located in prime positions around the region, the company carries more than 100 different brand name watches, but specializes in high quality Swiss brands: Audemars Piguet, Cartier, IWC, Jaeger-LeCoultre, Omega, Piaget, Rolex, Tudor and Vacheron Constantin, to name just a few.
Established in 1961 as a single retail outlet, Oriental also worked as a wholesaler and developed its business from there based upon offering quality products, excellent customer service and a dependable after-sales service. The company acquired La Suisse Watch Company in 1973 and in 1976, established the Cathay Watch retail outlet aimed at the mid-range level of the retail watch market. In 1993, the Oriental Watch Group became a listed member of the Hong Kong Stock Exchange.
William C. K. Chan, who is a Senior Director of the company and also the Chairman of the Federation of the Hong Kong Watch Trades and Industries, explained that today, at least 70% of Hong Kong’s retail business comes from visitors from the Chinese mainland.
“Our Chinese customers tend to purchase Rolex, Omega or Longines watches,” William Chan explains, “since their preference is for a dress watch and at the moment they tend to have just one watch usually of a classical appearance. Our Hong Kong clients on the other hand, are more exclusive since they usually have a good knowledge of watches.
“Nowadays, we have more and more Chinese customers since China has eased travel restrictions and they now have access to Hong Kong where they come on buying trips. In particular they purchase quality timepieces since China has a 17.5% VAT and an import tax of 12%.”
William Chan feels that today, the real growth area in the watch retail business is in China, where Oriental began working 15 years ago. The company now has ten outlets in China and it intends to further develop in cities such as Shanghai, Beijing and Gaunezhou.
“Eighty percent of Hong Kong’s watch products are now made in China because the labour is cheaper, but although Chinese consumers are aware of this fact, they are ready to pay 30% above the prices of Chinese made watches for the Hong Kong brands,” he explains. William Chan also added that at a recent promotional event organized by the HKTDC in Houhan, in the heart of China, Hong Kong branded watches sold like the proverbial hot cakes.

Conclusion
Hong Kong manufacturers are facing increased competition from the famous Swiss watch companies, renowned for their quality, goodwill and horological expertise, and Japanese manufacturers, which have a superior technical reliability and large-scale automation. But the biggest challenge for Hong Kong is increasingly coming from Chinese low-end watch manufacturers where labour is cheap. The Chinese mainland has a long history of making low- to medium-range timepieces, particularly analogue watches and the mainland companies are taking advantage of the supporting industries established there to improve their competitiveness. That clearly poses a threat to the Hong Kong manufacturers.
In the US, consumers continue to buy inexpensive fashion watches to match their lifestyle. In Europe, where consumers are a little more formal, the tendency is to buy watches with fashionable designs that meet both formal and casual day-to-day use. But watches are becoming more and more a fashion item.
Design concepts and styling, along with reasonable prices have become the norm and manufacturers and even boutiques are jumping on the fashion statement concept which is so appealing to the younger generation. This has also become an important means for the watch industry to stimulate purchases, especially in mature markets like the US and the EU, where consumers are more willing to spend on technology products, such as computers and mobile phones, rather than conventional timepieces. In line with this development, fashion timepieces have become the preferred choice and stainless steel the preferred metal.
Hong Kong has at last caught on to the importance of design and as could be seen at the recent Watch & Clock Fair in September, Hong Kong is emerging as a major player in this particular market. However, as William Chan explains, “ Hong Kong manufacturers are slowly moving up-market (as the Swiss did years ago when they couldn’t compete with the cheaper products from Hong Kong and Japan) as Chinese manufacturers learn from the Hong Kong people how to produce better quality timepieces.”
Evidence of this manufacturing trend is that the Hong Kong Government has made 54 million dollars in grants available to Hong Kong watch manufacturers to develop their own automatic mechanical watch movements!

The author would like to thank the Hong Kong Trade Development Council and those people and organizations mentioned for their invaluable help in preparing this Market Focus.


Market Focus Hong Kong: Part 1
Market Focus Hong Kong: Part 2
Market Focus Hong Kong: Part 3


Source: October - November 2005 Issue


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