Luxury watch retailers in Singapore are facing dismal times if the financial results unveiled this week by Cortina Holdings and The Hour Glass are anything to go by.
Both retailers reported a sharp drop in full-year earnings, owing to the sluggish economic outlook and weak consumer sentiment.
Net profit at Cortina Holdings plunged 45 per cent to $8.4 million, compared with $15.2 million a year earlier. The Hour Glass booked a net profit of $52.3 million, down by 10 per cent from the previous year.
Experts told The Straits Times the luxury watch market here will stay challenging, given weak demand from local consumers and tourists.
Mr Eugene Ho, Deloitte South- east Asia's consumer and industrial products leader, said: "The uncertain economic situation, especially in China, is making mainland tourists more cautious about spending in the luxury watch segment."
China's growth slowed to a 25-year low last year at 6.9 per cent, as the economy rebalances away from manufacturing towards consumption and services-led growth.
Net profit plunged to $8.4 million, from $15.2 million a year ago.
THE HOUR GLASS
Net profit fell to $52.3 million from the previous year.
Chinese consumers play a key role in the growth of luxury spending, more generally worldwide, accounting for 31 per cent of global purchases, according to a December report by Bain & Company. That was followed by the Americans with 24 per cent of the buys and 18 per cent coming from the Europeans.
Singapore Polytechnic marketing and retail lecturer Amos Tan said Beijing's anti-corruption drive and crackdown on extravagant gift-giving have probably also hurt demand for luxury goods among Chinese tourists. "For Singaporeans, they may prefer to buy the luxury items in Europe during their vacation and enjoy the shopping experience. The pricing of products is also very competitive overseas," Mr Tan said.
Mr Ho pointed out that the strength of the Singapore dollar this year has made it more attractive for residents to shop abroad.
"This, together with watch retailers in Hong Kong and Europe willing to provide higher discounts, makes it more challenging for local retailers," he said.
Despite the challenging retail environment, Cortina Holdings and The Hour Glass still expect to remain profitable in the 2017 financial year, "barring any unforeseen circumstances".
Associate Professor Prem Shamdasani of the Department of Marketing at the NUS Business School said luxury watch retailers need to continue to provide more of the "bespoke customer experience".
"They can look at event marketing in collaboration with private banks or travel partners. The brand has to look at whether there's a need to innovate on the product side... and whether it needs to be more creative in engaging the wealthy clients."
The weaker appetite for luxury watches among consumers is, however, not unique to Singapore.
Data from the Federation of the Swiss Watch Industry this week showed that watch shipments fell 11.1 per cent to 1.6 billion francs (S$2.2 billion) in April, compared to the corresponding period a year ago.
This was partly due to the steep drop in exports to Hong Kong and China. Swiss watch shipments to Hong Kong dropped for the 15th straight month, falling 17 per cent to 216.6 million francs in April, while exports to China plunged 36 per cent to 89.6 million francs.
Hong Kong is the world's biggest market for Swiss timepieces, followed by the United States, Japan, Italy, Germany and China.
Swiss watch exports to Singapore fell 12.8 per cent in April to 85.1 million francs, down from 97.6 million francs a year ago.