20 Sept 2017
China’s Watch Market
I. Market Overview
According to mainland market reports, spending on watches has been dampened by political factors over recent years and the market is basically in a state of digesting inventory. The reasons are twofold: First, the difference in price between the domestic and overseas markets for imported high-end brands has caused some consumers of high-end watches to make their purchases abroad. Second, the implementation of institutional reforms has, since 2012, curbed the expansion of sales of high-end luxury watches purchased as gifts. Nevertheless, according to Euromonitor International, overall sales of watches still rose by 2.1% to top RMB65.8 billion in 2016. The size of the market is expected to reach RMB79.4 billion by 2020.
According to a survey of mainland middle-class consumers conducted by HKTDC Research in 2016, the top reasons that consumers wear watches are: “to bring out one’s personal taste and image” (50%), “a liking for watches” (49%), “as an accessory” (48%) and “time telling” (40%). A considerable number of respondents agreed that “wearing a watch would give an impression of maturity, stability and punctuality to others”, or that “wearing a watch would give a better image on business occasions”. Respondents also cited “rewarding oneself/making oneself happy” (59%) and “attending special functions” (40%) as major reasons for buying watches.
The HKTDC survey revealed that, on average, mainland consumers have three watches. Among male consumers, ownership of business watches was highest (69%), followed by casual fashionable watches (69%) and smartwatches (55%). For female consumers, ownership of casual fashionable watches was highest (83%), followed by smartwatches (55%) and business watches (51%). When buying watches, men are generally concerned with brands while women are concerned with style and design.
Distinctive style/design is a main factor luring consumers into buying a watch. The HKTDC survey showed that if a new watch brand was launched in the mainland market, 66% of consumers would be attracted by “distinctive styles/designs”, 63% would give more weight to “novel technology/function designs”, while 56% said that “suitable prices” would be the most important factor in deciding whether to buy. Factors like “brand origin” (43%) and “historical and cultural legacy” (33%) also influenced consumers’ desire to purchase.
As mainland consumers develop more discerning tastes, they become more demanding about their watches. Watches have gradually evolved from traditional timepieces with practical functions into specialist consumer goods that are trendy and ornamental and offer brand value. Watches mainly fall into three categories: work/business watches, casual fashionable watches and sports watches.
Work/business watches: Consumers mainly wear these to work or to attend important functions, but may also wear them during leisure hours. They have become a kind of status symbol in the eyes of high-income male consumers.
Casual fashionable watches: Fashionable in design, these watches mainly serve ornamental purposes like necklaces and bracelets. They are welcomed by young female consumers and are mostly worn during leisure hours. Sometimes they are also worn to match business outfits.
Sports watches: Students and sports enthusiasts are the main consumers of these.
Smartwatches: These watches have built-in intelligent systems and can perform different functions, such as voice calls, receiving and sending messages and emails, and playing music, using Bluetooth.
Other types of watches include antique watches, multi-function watches and cartoon watches.
Watch makers have been developing new watches with functions such as mobile payment, health monitoring, and voice call, to tap the growing trend of smart wearable devices. Verily, the Google/Alphabet arm that focuses on research, has launched a smartwatch that can monitor a large range of signals, including electrocardiogram, heart rate and inertial movements. Apple’s research team is also working on the sensor functions of Apple Watch to monitor the blood sugar level of the wearer.
Sales of smartwatches for children have also been growing in recent years. Parents are beginning to use smartwatches to monitor their children’s safety. Besides normal time display, these watches have GPS, voice call and SOS alarm functions. Parents welcome these products because they can use these functions to locate their children and find out if they are safe.
Over 200 brands of domestic and imported watches are sold on the mainland. There are more than 60 imported brands, including Casio, Citizen, Rolex, Tissot, Longines, Omega, Rado, Tudor, Titoni and Seiko. Domestic brands include Fiyta, Ebohr, Rossini, Tian Wang, Poscer and Kingtis.
According to a survey by Euromonitor on the preferences of Chinese consumers, 36% of males and 12% of females like watches more than personal items such as clothing and shoes. In another survey on factors affecting watch buying, brand awareness (56%) and product design (43%) are the most important.
According to the 2016 Industry White Paper on Watch Consumption in China, people of the post-80s and post-90s generation have now become the mainstay of watch consumption. The under-35s make up 80% of watch enthusiasts and the main reason they buy watches is to suit the occasion and project their social status. In terms of spending power, people aged 25-30 are more inclined to buy watches priced between RMB1,000 and RMB6,000 while those aged 30-50 have the strongest spending power. In terms of geographical distribution, these mainstay consumers are found in first- and second-tier cities, especially Beijing, Guangzhou and Shanghai.
About 77.1% of imported watches are from Switzerland, Japan, Hong Kong, Thailand and Singapore, with Switzerland accounting for the largest share.
China’s Imports of Watch Products
Country/region 2016 2016/15 Change
Value (US$ million) Share (%) Total 3,220 100.0 -7.6 Switzerland 1,724 53.5 -4.3 Japan 438 13.6 -11.6 Hong Kong 172 5.4 312.8 Thailand 99 3.1 -7.4 Malaysia 51 1.6 170.7
Source: Global Trade Atlas
China’s imports of watch products in 2016:
China’s Imports of Major Watch Products in 2016
HS Code Description 2016
91011100 Electric wrist-watches with mechanical display and precious metal case 43 -17.3 91012100 Mechanical wrist-watches, automatic winding, with precious metal case 185 -6.8 91012900 Other mechanical wrist-watches, with precious metal case 107 63.9 91019900 Pocket-watches & other mechanical watches with precious metal case 5 391.4 91021100 Electric wrist-watches with mechanical display only 470 -17.0 91021200 Electric wrist-watches with opto-electronic display only 35 -21.5 91021900 Other electric wrist-watches 90 4.7 91022100 Other mechanical wrist-watches, automatic winding 932 -5.8 91022900 Other mechanical wrist-watches 13 -1.0
Source: Global Trade Atlas
II. Market Competition
China has become the world’s largest manufacturer and exporter of watches. There are six major production areas in the country – the Pearl River Delta region, Fujian, Zhejiang, Jiangsu, Shandong and Tianjin, each with its own fairly complete processing chain. The Guiding Opinions on Accelerating the Promotion of Own Brand Building in China’s Watch Industry published in early 2015 said that Tianjin, Guangdong (Shenzhen) and Shandong (Yantai) will be designated as major areas for brand-building and serve as models in influencing other areas.
According to the 13th Five-Year Plan for the Development of China’s Watch Industry, the ratio of high-end, mid-range and low-end own brands will be changed from the current level of 1:14:85 to 3:22:75 by 2020. The market for high-end watches is dominated by Swiss products and the low-end market is mainly the domain of domestic enterprises. The market for mid-range products is a battleground between manufacturers from Europe, North America, Japan, Korea and Hong Kong, as well as the Chinese mainland itself.
Some domestic brands have done quite well in securing market share in spite of strong competition from foreign rivals. Leading domestic brands include Rossini, Ebohr, Tian Wang and Fiyta. Tianjin Seagull has mastered the three most advanced technologies of Tourbillon, minute-repeater and moon phase perpetual calendar in watch-making in recent years and is now able to mass produce these types of watches. The company has proprietary intellectual property rights for over 90% of its products.
Watches have become fashion accessories and changes in consumption concepts have also broadened the market for fashionable timepieces. This is as true for specialist brands as it is for general brands. The former include Casio, Swatch and Tissot while the latter include Armani, LV and Gucci. The marketing strategy of fashionable watches is to launch a few hundred new models each year as fashion accessories for different seasons.
It is reported that in Switzerland, the ratio of male and female consumers of high-end watches like Montblanc is 60:40. In China, the ratio is 75:25. The relatively small share of female consumers is, firstly, attributable to the limited choice of high-end watches targeted at female consumers in the domestic market. Secondly, fewer Chinese women have the habit of wearing watches. However, the situation is changing and more women are buying luxury watches thanks to the growing opportunities for women to move up the corporate ladder. This shows that there seems to be considerable market potential for ladies' watches in China. Many brands have strengthened their research, development and promotion of ladies' watches.
III. Sales Channels
Another China watch industry report pointed out that as the pace of urbanisation quickens, people in places other than the big cities have quickly amassed wealth. Possibly as a result, consumption of high-end watches is expanding from first-tier cities to second- and third-tier cities. Meanwhile, the principal consumers of high-end watches in first-tier cities are no longer locals, but people arriving from second- and third-tier cities. High-net-worth individuals in first-tier cities tend to make such purchases outside the mainland.
Imported brands usually join hands with mainland companies to market their products. By setting up dedicated counters in department stores and high-end malls, they can make full use of existing sales channels to expand their market. This is the principal means adopted by most mid-range and high-end brands.
Opening specialty stores to attract new franchisees is another major sales channel for imported brands as well as a strategy for achieving diversification in marketing. This can also provide consumers with more products to choose from and with better after-sales service.
Low-end watches have basically been relegated to small shopping centres and wholesale markets. For example, there are many wholesale watch markets in the vicinity of the Guangzhou Railway Station West Road, Guangzhou Railway Station South Road and Huanshi West Road. The Shenzhen Watch and Clock Components Market is a major supply base for Chinese watch and clock enterprises.
The internet has become an important channel for the sale and marketing of watches. Consumers can buy watches that are great value for money through C2C online stores and B2C e-commerce platforms like flagship stores on Tmall and official websites of famous brands. Merchants can establish and promote their brands using the B2C mode. Vertical (industry-specific) B2C websites have also gained popularity in recent years. Consumers can shop online at websites such as Wanbiaowang (wbiao.cn). As e-commerce platforms are becoming more mature on the mainland, industry experts addressing the 12th China Watch & Clock Summit Forum have called on mainland watch makers to capitalise on the internet to expand sales.
Physical stores (department stores, large shopping malls and specialty stores, etc) are the main watch buying channels for consumers. According to the HKTDC survey, 84% of the consumers said they would buy watches in physical stores, the main reasons cited are “genuine products guaranteed”, “trying on in person” and “after-sales service guaranteed”. However, of the respondents who had bought watches via physical channels, 79% indicated that they would shop online if they found a watch to their liking; and the survey found that the price range they were willing to pay was RMB4,000-6,999. Only 21% of respondents said they had reservations about buying watches online and probably wouldn’t give it a try. Of respondents who had bought watches online, the main reasons for doing so were: “more choices in brand/style”, “low prices” and “convenient/delivery available”.
The Guiding Opinions on Accelerating the Promotion of Own Brand Building in China’s Watch Industry stressed the need to continuously expand the market for multi-tier consumption and gradually implement the strategy of internationalising the watch industry. Steps will be taken to develop e-commerce and other new models of sales and foster and spread the watch culture through the establishment of watch museums and collections, the development of watch industry tourism and other means.
IV. Import and Trade Regulations
The import tariffs of selected watch products in 2017:
Import Tariffs of Selected Watch Products in 2017
HS Code Description % 91011100 Electric wrist-watches with mechanical display and precious metal case 11 91011910 Electric wrist-watches with photoelectric display and precious metal case 16 91011990 Other electric wrist-watches, with precious metal case 15 91012100 Mechanical wrist-watches, automatic winding, with precious metal case 11 91012900 Other mechanical wrist-watches, with precious metal case 15 91019100 Electric pocket-watch & other watch, with precious metal case 15 91019900 Pocket-watches & other mechanical watches with precious metal case 20 91021100 Electric wrist-watches with mechanical display only 12.5 91021200 Electric wrist-watches with opto-electronic display only 23 91021900 Other electric wrist-watches 15 91022100 Other mechanical wrist-watches automatic winding 11 91022900 Other mechanical wrist-watches 15
Source: Customs Import and Export Tariff of the People’s Republic of China 2017
In principle, all goods of Hong Kong origin are eligible for zero tariff treatment on the mainland under CEPA and watch products are eligible for this treatment. This benefits Hong Kong manufacturers looking to enter the mainland market. The General Administration of Customs has revised the CEPA Rules of Origin for Watches by adopting the principles of "manufacturing procedures + value-added content requirement" and "manufacturing procedures + own brand". The new rules were intended to encourage Hong Kong manufacturers to export ODM watch products to the mainland under zero tariffs.
"Manufacturing procedures + value-added content requirement" principle:
Assembly of component parts and accessories into watch. The principal processes are assembling watch movement into the watch body, assembling of component parts and accessories (watch buckle, watch strap, dial and battery, etc) into watch, testing, time adjustment and quality control, as well as fulfilling the value-added content requirement.
"Manufacturing procedures + own brand" principle:
Assembly of component parts and accessories into watch. The principal processes are assembling watch movement into the watch body, assembling of component parts and accessories (watch buckle, watch strap, dial and battery, etc) into watch, testing, time adjustment and quality control. The appearance design of the watch should be carried out in Hong Kong. The watch should belong to a "Hong Kong brand" jointly determined by Hong Kong and mainland authorities. There should be clear Hong Kong origin marking (e.g. "Manufactured in Hong Kong", "Made in Hong Kong" or "Hong Kong", etc) on the case of the "Hong Kong brand" watch.
There are three criteria determining a CEPA "Hong Kong brand" applicable to watches:
i. owner of the brand must be a Hong Kong registered company with a valid business registration, and a valid factory registration for at least one year;
ii. owner of the brand must complete the trademark registration of their brand name goods under the Trade Marks Ordinance (Laws of Hong Kong Cap. 559), and be the registered owner of the brand; and
iii. the registered trademarks/brands mentioned above include Hong Kong original brands and foreign brands wholly acquired by a Hong Kong registered company.
Luxury watches sold at RMB10,000 or above in China are subject to a 20% consumption tax.
According to the National Technical Committee on Watches and Clocks of the Standardisation Administration of China, the working group responsible for drafting the Specifications for the Limitation of Harmful Substances Found in Watch Components Having Direct Contact with People's Skin has already completed and submitted the draft. Since the harmful substances named in these specifications concern people's health, these rules will likely become mandatory standards for watch-making to protect the interests of consumers.
According to the China-Switzerland Free Trade Agreement which came into effect on 1 July 2014, China will ultimately apply zero tariffs on 84.2% of all imports from Switzerland. Among these imports, tariffs on Swiss watches will be reduced by 60% over the next 10 years and by 18% in the first year. Since the agreement does not cover import-related taxes, VAT and consumption tax, the price of Swiss watches is not likely to drop significantly.
The Standardisation Administration of China has promulgated a series of industry standards to regulate the development of the watch industry. The Methods of Evaluation of the Battery Life of A Battery-Powered Watch (GB/T 32485-2016) which came into force on 1 September 2016 specify two methods of determining the battery life of a battery-powered watch as well as the labelling methods for manufacturers and sellers to inform customers. Horology – Procedure for Evaluating the Accuracy of Quartz Watches (GB/T 33724-2017), which will be implemented on 1 December 2017, specifies the procedures for evaluating quartz watches both individually and in batches, as well as the relationship between the measurement of accuracy and the accuracy grades set by manufacturers.