Deterioration in Swatch shares following a compulsory apology from the Swiss watch manufacturer over a racially insensitive promotional campaign
Swatch Faces Continued Struggles as Racist Ad Campaign Sparks Backlash in China
Swatch, the Swiss watchmaking giant, has been grappling with a decline in share prices due to a combination of strategic and market challenges. The latest setback came from an advertising misstep that sparked outrage in China, a key market, leading to withdrawals of ads and apologies [4].
On Monday, Swatch's intraday trading range was between 138.20 CHF (€146.74) and 139.55 CHF (€148.17) [1]. The offensive campaign, featuring an Asian model making a derogatory gesture, has intensified problems in the pivotal Chinese market and negatively influenced global perception and sales [4].
The racist ad campaign has been a significant factor in Swatch's ongoing struggles. In an image for the Swatch Essentials collection, an Asian male model is shown pulling the edges of his eyelids upward and backward with his fingers [2]. This gesture is seen as derogatory and racist, sparking consumer backlash in China and elsewhere [3].
Swatch immediately removed all related materials worldwide and apologised for any distress or misunderstanding this may have caused, both on Chinese social network Weibo in Chinese and English, and on Instagram [3]. However, the damage has already been done, with sales in the first half of the year falling short of estimates [1].
The sales slump in China has been a major contributor to Swatch's troubles. Greater China sales dropped sharply by over 30% in wholesale and about 15% in owned retail stores, reducing China’s share of total group sales from 33% to 24% over 18 months [2]. Weaker consumption in this region has significantly impacted overall revenue [5].
Other factors contributing to Swatch's decline include tariffs on Swiss exports to the U.S., internal issues, and a loss of brand relevancy in some markets [1]. Swiss watch exports to the U.S. face a 39% tariff, hurting demand, while other external factors, such as global premiumization trends and economic headwinds, have also contributed to difficulties [1].
There are also board disagreements and uncertainty about future company strategy, including ideas by the founding Hayek family to potentially privatize the company amid the slump [1]. These internal issues have added to the challenges Swatch is facing.
Swatch shares have been in a steady decline since a sharp peak in late July [1]. The advertising misstep isn't going to help Swatch's recovery, with the stock declining in 6 of the last 10 days, down by 4.3% [1]. Monday's volume fell by around 22,000 shares, signalling investor caution [1]. Analysts classify the stock as a "Strong Sell" currently, indicating low confidence in near-term recovery [4].
This decline signals a divergence with rising prices and potentially warns of near-term volatility [1]. Swatch must address these challenges and rebuild consumer trust in order to regain its footing in the global market.
[1] Reuters [2] Bloomberg [3] South China Morning Post [4] CNBC [5] Swiss Info
In light of the controversial advertisement and its devastating impact on consumer trust, Swatch's corporate strategy as a leading business entity in the global watch industry now includes a crucial focus on mending relationships and improving public image, employing technology-driven marketing strategies that prioritize cultural sensitivity, in an effort to revamp its finance and sales in the critical market of China. The recent slump in sales and share prices further highlights the urgency for Swatch to leverage technology and innovation to regain its prominence and relevancy in the ever-evolving landscape of the business and finance sectors.
