Saturday, July 7, 2012

Oriental Watch 東方表行

A business school classmate who is a fund manager in the US wrote me on Facebook the other day about Oriental Watch:

Hope all is well! Had a quick work related question for you. I'm trying to reconcile 2 conflicting datapoints on luxury sales in HK and greater China. On the one hand Swiss watch export data to China continues to be strong however same store sales data from Oriental Watch is indicating a slowdown specific to watches. Just curious whether Oriental Watch is a truly high end place to buy an expensive watch or whether there are even more lux shops to go to do buy an expensive watch (think price point of US$5K and up)

My answer:

Nice to hear from you! Let me speak from my personal experience as I haven't read their annual report. 20 years ago, Oriental was THE place to go for luxury watches and I got my first Swiss watch there. While the market has greatly expanded given the influx of mainland tourists, Oriental probably lost market share to the OEMs selling direct and chains like Emperor and Chow Tai Fook that have deeper pockets to rent expensive retail space in downtown Hong Kong (Note: Central, TST and Causeway Bay). That said, I think there will be fewer mainland customers due to the softening of the mainland economy and affluent mainlanders shopping directly in Switzerland given the depreciating Euro and Swiss Franc (pegged to the Euro recently) and the even softer European economy. Oriental should be able to withstand the downturn better as they rely more on loyal local customers. But then this group is aging and you can get a Grade A fake Swiss watch in Shenzhen for about US$100. Some of their locations (Note. intersection of Hennessey and Percival) are there forever and I suspect they own the real estate so a lot of the value of the company is probably tied up there (Note: possible that the real estate is owned by the key shareholders in a separate private entity), but many of these tightly-controlled Hong Kong public companies have considerations besides increasing shareholder value, so proceed with caution ...

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