Luxury brands in China are grappling with a worrisome trifecta.
1. Policymakers cracked down on 'gift giving' at the start of the year, as citizens got increasingly frustrated with official corruption. 2. The impact of the economic slowdown on consumption. 3. Chinese are traveling more, and making their luxury purchases abroad, benefiting from weaker currencies and lower taxes.
Swiss watches have been pretty hard. Back in May China said it would cut import taxes on Swiss watched by 60% over 10 years after the two nations sign a free-trade agreement.
In a new report, Deutsche Bank's Francesca Di Pasquantonio writes that "de-stocking in China is not yet over."
"The results of our analysis suggest that while globally exports should hold up reasonably well in a normalizing demand environment, we see de-stocking in China as not yet over, and in light of still poor sell-out indications in Q2 provided by industry players, we do not see a pick-up in supply to that region in the short term.
"However, when demand normalizes, a substantial positive impact on the supply side should be reported. This could happen earlier for other luxury spending categories, but in our view it will require a bit more time for the watch industry.'
The chart above looks at Swiss watch exports to Greater China, including Hong Kong, which accounts for 28% of Swiss watch exports. This luxury watch indicator if you will, shows China's slowdown registering since May 2012 in China, and September 2012 in Hong Kong.
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