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21st Century Business Herald reporter Gao Jianghong and interns Tao Chang and Zhang Yizhen report from Beijing

On July 16, Swiss luxury giant Richemont announced its financial data for the first quarter of fiscal year 2025 ending June 30.

During the period, Richemont Group's sales increased by 1% year-on-year to 5.268 billion euros (approximately RMB 41.7 billion) at a constant exchange rate, a decrease of 1% at the current exchange rate, and an increase of 19% in the same period last year.

As a hard luxury group that is famous for its jewelry and watches, the latest performance results show that the jewelry business of Richemont's three brands, Buccellati, Cartier and Van Cleef & Arpels, has grown, driving the jewelry department's performance to surge to 3.656 billion euros (about 29 billion yuan), further accelerating to 28% from the 24% growth rate in the same period last year.

However, the sales of the watch department were not optimistic, with its sales falling by 13% to 911 million euros (about 7.2 billion yuan), which is less than 20% of the group's total performance.In this report, Richemont Group pointed out that the main reason for its decline was the particularly significant decline in the Chinese mainland and Hong Kong and Macao markets.

Is this really just a problem in the watch business or Greater China?

Swiss watches are not popular around the world

According to the latest data from the Federation of the Swiss Watch Industry, affected by the decline in the Asian market, the total export value of Swiss watches in June was 2.3 billion Swiss francs, a decrease of 7.2% compared with the same period in 2023. In the first six months of this year, the total export value of the entire watch industry to overseas was 12.9 billion Swiss francs, a decrease of 3.3% compared with the first half of last year. Looking specifically at the performance in June, the Hong Kong and mainland China markets continued to perform poorly, with severe declines of 23.1% and 36.5% respectively.

Richemont Group’s watch woes have been going on for quite some time, and it was hit hard throughout the 2024 fiscal year, with sales falling 3% year-on-year to 3.77 billion euros and operating profit falling sharply by 22%.

Coincidentally, another Swiss watch giant, Swatch Group, also suffered from declining revenue in the first half of this year.

In the six months ending June 30, 2024, Swatch Group recorded net sales of 3.45 billion Swiss francs, a year-on-year decline of 14.3% at current exchange rates. This is also the first time the group has experienced a decline in revenue since 2021.

In addition, Swatch Group's net profit in the first half of 2024 fell by more than 70% year-on-year, recording only 147 million Swiss francs, far lower than the net profit of 270 million Swiss francs in the first half of 2021.

The group also stated in the report that the decline in sales was due to a sharp drop in demand for luxury goods in Greater China (including Hong Kong and Macau).

The significant decline in sales and net profits of leading brands has also cooled the second-hand market for Swiss watches.

According to a report jointly released by Morgan Stanley and WatchCharts this month, in the second quarter of 2024, the prices of the most traded watches in the second-hand market fell for the ninth consecutive time, a drop of 2.1%. This trend affected all major brand groups, and even the price of second-hand Rolex watches fell by 2.2%.

Morgan Stanley analysts further analyzed in the report that it is difficult for prices in the secondary market to stabilize in the short term. This situation is putting pressure on the pricing strategies of top Swiss watch brands and weakening their pricing power.

Regarding the current decline of wristwatches, Zhou Ting, director of Yaoke Research Institute, once again emphasized their “useless use” attribute.

She pointed out,As consumers become more rational, the market for useless consumer goods will decline. In the future, the key to the competition among watch brands will be to compete for the leading brand status, product innovation ability, and customer service ability.

Greater China's performance suffered a setback

Looking at Richemont Group's financial report from a regional perspective, sales in Europe increased by 4% to 1.171 billion euros (about 9.3 billion yuan) in the first quarter, sales in the Americas increased by 11% to 1.215 billion euros (about 9.6 billion yuan), sales in the Middle East and Africa increased by 9% to 470 million euros (about 3.7 billion yuan), and sales in the Asia-Pacific region decreased by 19% to 1.809 billion euros (about 14.3 billion yuan).

Sales in Japan surged 42%, but sales in Greater China plunged 27%. However, this is not the first time that Richemont has seen a sharp decline in Greater China.

According to official data, Richemont Group's sales in Greater China have fallen sharply for two consecutive quarters, and the rate of decline has gradually accelerated.

In the last fiscal quarter, the fourth quarter of fiscal year 2024, Richemont Group's sales fell 1% to 4.8 billion euros (about 38 billion yuan), and the Asia-Pacific market excluding Japan fell 12% to 1.909 billion euros (about 15.1 billion yuan), becoming the only region in the global market to decline.

At present, not only high-end luxury brands are facing unprecedented challenges in the Chinese market, but also light luxury brands that are more "affordable" in price are not doing well.

The performance of Danish light luxury jewelry brand Pandora in the Chinese market is very bleak. In fiscal year 2023, Pandora's revenue in the Chinese market fell by 9% year-on-year to 564 million Danish kroner (about 580 million yuan), and organic revenue grew by 18%. Even though the company implemented the "Phoenix Plan" reform strategy to promote brand rejuvenation, its reform was relatively unsuccessful in terms of performance.

M&A crisis?

In addition, last month there were reports that LVMH Group was secretly increasing its stake in Richemont Group, and the M&A crisis once again surfaced.

However, Richemont has always been tough. Chairman Johann Rupert still controls 51% of the group's shares, and other shareholders hold less than 3%. In early 2022, market insiders revealed that Kering expressed its interest in acquiring Richemont, but was rejected by the latter.

Guo Jianguang, a professor at Xi'an Jiaotong-Liverpool University, pointed out that the current M&A trend in the industry is high-end luxury sports brands such as Lululemon and Hoka. The hard luxury category operated by Richemont Group is not the best choice for other giants to acquire.

When asked about the valuation, he saidThe synergy value after the acquisition is low, and the current market value (the product of the number of outstanding shares and the average closing price for one week) can be multiplied by about 1.5 times.

Zhou Ting has a different view. She saidThere is a high possibility that Richemont Group will be acquired as a whole, and its future operations will face tremendous pressure, which is exactly the opportunity for capital to hunt it.

Finding direction again

Is it true that the performance of the Greater China region suffered a Waterloo because Chinese consumers stopped buying? The answer is obviously not as simple as stated in the brand's press release.

While the Chinese and Asian markets are under pressure on each brand's report card, the Japanese market, listed as an independent unit, plays the role of an excellent student for each brand.

It is reported that the Japanese market is the only market in which LVMH Group and Kering Group recorded double-digit sales growth in the first quarter reports, and it is far ahead of Prada and Hermès in the first quarter reports, with a surge of 45% and 25% respectively.

According to a research report by Global Blue, the average duty-free spending of Chinese tourists in Japan increased by 117% compared with 2019. When LVMH Group released its first quarter report for this fiscal year, some analysts said that a large part of Chinese consumers' shopping took place in Japan. During the recent May Day holiday, the news that Chinese consumers were buying LV crazily in Japan also caused heated discussions.

As the yen tumbled to a 34-year low against the dollar, the price gap for luxury goods between mainland China and Japan is almost at its highest level in 18 months, according to data from Paris-based consultancy Luxurynsight.

Barclays analyst Wendy Liu said the craze for top luxury brands reflects that Chinese consumers are more value-conscious than ever.

Zhou Ting pointed out that in addition to the outflow of consumption caused by the price gap between the Chinese and Japanese markets, the long-term accumulation of comprehensive factors such as insufficient confidence in high-end consumption and a serious decline in mass consumption upgrades have also limited the current incremental growth in the Chinese market, which is an important reason for the current lack of domestic luxury consumption. In addition, she also said that the Chinese market needs a change in the retail model to solve the efficiency problems of existing development.

at the same time,Different from what overseas brands are facing, some Chinese local brands are showing signs of rising.

In terms of traffic, domestic light luxury jewelry brands such as HEFANG became popular on the entire Internet due to the hit TV series "The Story of the Rose", and the number of stores surged to more than 60; returning to the traditional jewelry track, Caibai Co., Ltd. and Mancaron also achieved double growth in revenue and net profit in fiscal 2023.

Bloomberg luxury analyst Deborah Aitken estimates that Chinese consumers will account for about 23% of global luxury spending in 2024, compared with 33% before the outbreak.

She said that proportion could increase further by 2025, as the luxury market will grow by only 5% to 6% this year, while Chinese consumers' luxury consumption will still maintain double-digit growth.

Guo Jianguang said,Richemont needs to stabilize its performance by adjusting its store network and reducing the number of stores in non-international tourist cities, while increasing the promotion of low-priced and top luxury product lines and reducing financial pressure and investment risks through cooperative store opening plans. The Chinese market is crucial to regaining market share and improving performance.

Brands like Cartier have to keep rediscovering their direction in the Chinese market.