Hengdeli Holdings Ltd. (3389), the retail partner of Swatch Group AG (UHR) in China, expects more-affordable Longines watches to outsell high-end timepieces, such as Breguet or Cartier, in 2012 as the nation’s economic growth slows.
“The sales of luxury watches with a price tag of 50,000 yuan or above will slow this year,” Zhang Yuping, chairman and founder of Hengdeli, said in an interview yesterday. “But Longines watches will be in the sweet spot as China’s middle class takes off.”
Watches from Longines, the Swiss brand owned by Swatch Group, cost between 10,000 yuan ($1,587) to 12,000 yuan in China, making them well-positioned to reach the country’s growing middle class, according to Zhang. Hengdeli, also a distributor of the Omega and Rolex watches, expects same-store sales in China to increase 15 percent to 20 percent this year, slowing from a 30 percent gain in 2011.
“It’s all about mass luxury goods in China this year, not the super luxury,” said Joohee An, Asia Pacific portfolio manager at Mirae Asset Investments. “The country wants to grow a bigger middle class.”
Chinese Premier Wen Jiabao set a 2012 economic growth target of 7.5 percent on March 5, lower than an 8 percent goal in place since 2005. Wen pledged to adjust taxes as the nation seeks to end the economy’s reliance on investment and exports. Government policy to increase domestic spending will help boost watch sales in the long term, Zhang said.
Hengdeli shares fell 3 percent to HK$3.27 at the 4 p.m. close of trading in Hong Kong after earlier dropping as much as 5 percent. The benchmark Hang Seng Index declined 1.1 percent.
Slower economic growth in China may push more consumers to switch to the “middle-end” watch segment, Zhang said. Sales of mid-priced watches are expected to grow at “strong double- digits” this year, he said, without elaborating.
Mid-priced watches can have higher profit margins because of lower commissions paid to the brands, he said.
Hengdeli, whose shareholders include Swatch and LVMH Moet Hennessy Louis Vuitton SA (MC), plans to add 40 to 60 new stores in China this year, mostly in second and third-tier cities, targeting the mid-end segment, Zhang said. The company now operates 405 stores.
The watch retailer also wants to expand its sales network through acquisitions.
“We are already the biggest watch retailer in China, my only concern is to prevent our market share from slipping,” Zhang said. “In that case, we need to look at different ways to expand our sales network.”
Hengdeli is considering opening stores in Singapore, New York, Paris and London, Zhang said, without giving a timeframe. The company posted a 47 percent jump in 2011 profit to 815 million yuan. The shares have jumped 29 percent this year, outperforming the benchmark Hang Seng Index’s 12 percent gain.
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