3 Aug 2016

Chinas Watch Market

I. Market overview
1. According to mainland market reports, spending on watches has obviously 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 curbed the expansion of the
sales of high-end luxury watches purchased as gifts since the second half of 2012.
Nevertheless, according to Euromonitor International, overall sales of watches still
managed a 2.3% gain to top RMB64.2 billion in 2015.
2. According to a survey of mainland middle-class consumers conducted by HKTDC
Research in 2016, the main reasons that consumers wear watches are: bring out
ones personal taste and image (50%), like 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.
3. The HKTDC survey revealed that mainland consumers have three watches on
average. Among males 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.
4. Distinctive style/design is a main factor luring consumers into buying a watch. The
HKTDC survey showed that should a new watch brand be launched in the mainland
market, 66% of the consumers said they would easily be attracted by distinctive
styles/designs, 63% said they would give more weight to novel
technology/function designs, while 56% said that suitable prices would be the
most important factor after all.
5. A mainland website conducted an online poll on watch consumption of Chinese
consumers in 2015. According to the findings, 62.3% of the consumers would spend
less than RMB10,000 on buying a watch, 21.3% would spend RMB10,000-30,000,
8.5% would spend RMB30,000-50,000, 5.0% would spend RMB50,000-100,000, and
3.0% would spend upwards of RMB100,000.
6. As mainland consumers look for finer things in life and develop more discerning
tastes, they are more demanding about their watches. From traditional timepieces
with practical functions, watches have gradually evolved into special consumer
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goods that are trendy and ornamental and offer brand value. Watches sold in the
market 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: These have students and sports enthusiasts as main
consumers.
Other types of watches include antique watches, multi-function watches and
cartoon watches.
7. From product developers to tech-savvy consumers, smartwatches have recently
drawn much attention from the media and the fashion sectors. Some domestic and
foreign makers have ventured into the smartwatch business. According to a survey
on consumer preferences in the mainland wrist watch market, 26% of those polled
said they are happy to buy a smartwatch and 33% said they are happy to try one.
The main reason for the positive reception is that the smartwatch is a multi-function
gadget for making phone calls, tracking health and recording schedules, etc.
8. 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.
9. About 76% of imported watches are from Switzerland, Singapore, Japan, Thailand
and Hong Kong, with Switzerland accounting for the largest share.

10. Chinas imports of watch products in 2015:

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Chinas Watch Market

II. Market competition

1. According to a China Economic Weekly survey, China's watch market has always
been divided into high-end, mid-range and low-end segments. The high-end
category is dominated by Swiss products while the low-end segment is mostly made
up of domestic brands. The market in between is the main battlefield for US,
European, Japanese, South Korean, Hong Kong and local manufacturers.
2. In recent years, Chinese watch companies have gradually shifted their focus from
competing for a relatively simple and homogenous market to independent
innovation, protection of intellectual property rights and application of marketing
strategies. More established domestic brands like Fiyta, Tian Wang and Seagull even
have developed independent technology chains. These brands conduct thorough
market research before launching new models each year.
3. Some domestic brands have done quite well in securing their market share in spite
of strong competition from foreign rivals. Leaders of 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.
4. China has made a lot of headway in the development of watch movements, evolving
from "made in China" to "created in China" and from self-sufficiency to the export of
parts and components. Chinese watch movements now account for about 27% of
global sales. Greater consumer demand for watches of different grades makes it
imperative for watch movement manufacturers to upgrade their assembly
techniques and promote the further segmentation of the sector.
5. 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 for comprehensive brands. The former include Casio, Swatch
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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.
6. It is reported that in Switzerland, the ratio of male and female consumers of highend 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 highend watches targeted at female consumers in the domestic market. Secondly, fewer
Chinese women have the habit of wearing watches. Yet 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 in fact
strengthened their research, development and promotion of ladies' watches.
III. Sales channels
1. According to statistics compiled by Fortune Character Institute, there were 6,693
watch shops (including dealerships and directly-operated shops) in China in April
2013. Among these, 5,967 were dealerships and 726 were directly-operated shops
(including flagship stores, boutique stores and image stores). There is a higher
saturation of watch shops in Beijing, Shanghai, Liaoning, Guangdong and Zhejiang.
2. 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.
Consumption of high-end watches is also seen to be 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 local people but are people coming from
second- and third-tier cities. High-net-worth individuals in first-tier cities tend to
make purchases outside the country.
3. 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.
4. 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.
5. 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.

6. The internet has become an important channel for the sales 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 Tmall stores 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
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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.
7. Physical stores (department stores, large shopping malls and specialty stores, etc)
are the main watch buying channels for consumers. According to HKTDCs 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 aftersales service guaranteed. Of the respondents who have been buying watches via
physical channels, 79% indicated that if I come across a watch to my liking, I will
shop online and the price range they are willing to pay is RMB4,000-6,999. Only
21% of the respondents said I have reservation about buying watches online and
may not give it a try. Of respondents who have shopped watches online, the main
reasons are: more choices in brand/style, low prices and convenient/delivery
available.
IV. Import and Trade Regulations
1. The import tariffs of selected watch products in 2016:

2. 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. Earlier,
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considering the actual situation of the manufacturing of watches in Hong Kong, 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 band, 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 band, dial and battery,
etc.) into watch, testing, time adjustment and quality control. The exterior
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 the
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 shell 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.
3. According to the Circular on the Adjustment and Perfection of the Consumption Tax
Policy jointly issued by Chinas Ministry of Finance and State Administration of
Taxation in 2006, a consumption tax of 20% is levied on watches selling at
RMB10,000 or above (excluding VAT).
4. 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. The standard is now pending for review and accreditation. 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.
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5. 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.

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