Chinese corruption crackdown screwed Cartier watches
These aren’t things you’d really think would be connected. How much corruption there is or isn’t in the Chinese economy and the profits of a Swiss watchmaker. But there is indeed a link and it’s worth about £400 million.
The connection is that when people Out East make buckets of cash money from doing something they shouldn’t have done then they’ll invest some of the proceeds in a good looking watch. And the brand matters – because the watch is a signifier of being one of the rich guys. Therefore it has to be one of the brands which is seen as showing that you’re one of the rich guys.
Sure, it’s showing off but with a purpose. It shows you’re a player and if you can show you’re one of those them more games to play in will be offered.
Then what happens with a crackdown upon corruption? Fewer people have the cash to buy them of course. But also, even those who can legitimately buy them from properly earned money won’t – who wants to be market out as a player when there’s a crackdown?
The company took action after stocks of its wristwatches began building up in display cabinets in Asian markets amid a crackdown on corruption in China, where luxury products such as watches and whisky had been dished out as lavish gifts to curry favour with officials, as well as a wider sales slowdown. It was worried that unsold stock would end up being discounted in the so-called “grey market” of unauthorised resellers, damaging the image and pricing power of its brands.
There’s also that point that fewer “presents” were being bought. The effect is rather large:
Shares in Richemont fell sharply on Friday after the Swiss luxury goods group reported annual profits had been hit by more than €200m spent buying back excess stocks of watches to protect its brands from “grey market” discounted sales.
It was a couple of hundred million the year before too.
The real lesson here is that the world economy is a hellishly complex place. Less corruption in China means smaller Swiss watch profits. How can anyone plan something of this complexity? And that really is why planned economies don’t work, it’s just not possible to even know what’s going on let alone predict what will.
Posted: 19th, May 2018 | In: Key Posts, Money, News Comment | TrackBack | Permalink
