Swatch struggles with "grey market"

Swiss watchmaker Swatch has seen its turnover and profit drop over the past six months, due to political tensions in China and what it calls the “grey market”: unofficial traders selling the watches at discount prices.

Dumping in China

For Swatch, the first half of 2019 ended with a turnover of 4.1 billion Swiss francs (slightly less than four billion euros), which is 4.4 % lower than a year before (excluding currency fluctuations). Net profits also went down considerably: there was a decrease of 11.3 % down to 415 million Swiss francs (380 million euros). According to Swatch, the most important cause of this decline is the “grey market”, especially for the group’s luxury brands (Blancpain, Omega and Tissot). That is a term that refers to unofficial dealers, mostly in China, who buy large quantities of unsold supplies and sell them for very low prices.

Not only does the company believe that the group loses hundreds of millions of turnover this way, but the grey sales also undermine the image of the brand, harming the sense of exclusivity of these luxury watches. CEO Nick Hayek did admit in Swiss Info that it may be interesting for dealers to ship (unsold) products to China, where demand is higher. Still, the group took immediate action and Hayek is acting forcefully against the unofficial sales.

Tensions in Hong Kong

Political turmoil and street protests in Hong Kong are another factor: since China is the biggest export market for Swatch, the tension of the past few months has led to a turnover drop of more than 10%.

Still, the group remains optimistic about the rest of the year. Hayek is expecting strong growth and solid demand, especially in the core markets of China, Japan and the United States. Turnover growth for the full year is expected to end around or below 5 %. At the stock market, the half-year figures and prognoses were well-received.