For a watchmaker, Swatch Group has terrible timing.
Over the weekend, the group’s namesake brand found itself mired in controversy after it ran an ad featuring an Asian model pulling his eyes back in a gesture historically used in racist caricatures of Asians. In China, the group’s single most important market, the backlash came fast, with Chinese media and online platforms widely denouncing the ad as racially mocking.
Swatch swiftly pulled the campaign and issued apologies on Instagram and Weibo. “We sincerely apologize for any distress or misunderstanding this may have caused,” the brand said.
Investors appear to have been assuaged by the group’s response. After shares dropped almost 3 percent on Monday, deepening a stock slide that has persisted since March 2023, they fully recovered their losses on Tuesday.
Whether Chinese consumers will be so forgiving is another matter. Shoppers in the country have become increasingly nationalistic in recent years and shown a willingness to boycott Western brands that step wrong. Companies such as Nike, Adidas and H&M learned that lesson after expressing concerns about Xinjiang cotton.
While not every online backlash causes actual financial harm, brands never want to find themselves gambling on whether their avoidable mistakes will hurt them or not. Today, global brands recognise that they need to carefully consider their marketing, lest they suffer online outrage like Balenciaga did after its campaign with BDSM-inspired teddy bears, and that operating in China requires being especially mindful of local sensitivities, making Swatch’s blatant gaffe all the more notable.
“This really raises the question of governance,” said Jean-Philippe Bertschy, managing director at investment bank Vontobel. “Swatch Group is hardly the first company to encounter this kind of misstep, and there is no evidence of intent. But how could the campaign have cleared internal review? After several high-profile errors elsewhere in the luxury sector, one would expect strong, high-level screening and approval controls.”
The controversy could hardly come at a worse moment for Swatch Group. Beyond the reputational firestorm, industry headwinds have been mounting, meaning any stumbles now could be even more damaging.
Swatch’s Terrible Timing
One challenge Swatch was already contending with was President Donald Trump’s tariffs. In August, Washington raised duties on Swiss watches to 39 percent, up from an expected 31 percent, sharply raising costs in what had been a critical growth market. Because “Swiss-made” rules tightly bind production to Switzerland, brands cannot relocate manufacturing abroad to avoid tariffs. Analysts estimate price hikes of 12 to 20 percent are now likely across the industry.
“The US has been a key growth engine for the company in recent years,” noted Bertschy. “Should the 39 percent tariff be fully enacted, the impact could be severe — particularly on watches in the entry- to mid-price segments. Swatch Group’s sales exposure to the US market stands at roughly 15 percent.”
At the same time, exports of Swiss watches to China have slumped. After a short-lived post-Covid rebound, demand is showing signs of what analysts call “luxury fatigue.” Swatch’s revenues from China — which account for around 27 percent of group sales — fell by 30 percent in the first quarter of the year compared to the same time in 2024, and a further 25 percent in the second.
“A meaningful rebound is unlikely in the near term,” said Bertschy.
Greater China is not only a strategic pillar for Swatch but a fragile one, as the region’s real estate crisis continues to undermine consumer sentiment.
“Swiss watch exports to mainland China in June 2025 turned positive for the first time since January 2024,” noted Patrik Schwendimann, analyst at Zürcher Kantonalbank. “But with the Chinese property market still in decline, the industry cannot expect much support from that side. The weak development in mid-range watch segments has already weighed heavily on Swatch’s performance.”
The ad controversy may further point to structural weaknesses within the company that have been worrying shareholders for years now. “Swatch Group needs a fundamental overhaul of its strategic governance,” said Bertschy.
Despite owning enviable assets — from heritage brands like Omega and Longines to real estate valued at around 4 billion Swiss francs ($4.5 billion) and vast gold and diamond inventories — the group’s stock continues to trade below book value.
How Mistakes Are Made
For brand experts, the scandal highlights another problem: a disconnect between global consumers and the creative decision-making processes behind big campaigns.
Swatch Group has offered no explanation of how the ad was approved. (The group declined to provide further detail at the moment and said it would elaborate at a later date.) In many cases, even big conglomerates outsource their marketing campaign creation to external agencies.
“Having diverse leadership and senior creatives at agencies is critical — and often missing,” said David Ogiste, founder of the creative agency Nobody’s Café. “Brands put their faith in agencies to understand their audience, but many agencies are simply not diverse. In Europe especially, you see around 25 percent ethnic diversity in advertising agencies.”
Ogiste added that Swatch’s apology only compounded frustrations. “The statement didn’t really land. Consumers talk to brands as if they were people now. If you make a racist remark to a friend and your response is, ‘Sorry you feel this way,’ that doesn’t resolve anything. Brands need to show they understand and that they are course-correcting — whether that’s rethinking agency relationships or changing internal green-light processes.”
Such missteps might once have been shrugged off as minor embarrassments. Today, social media amplifies them instantly.
For Swatch Group, survival is not in question. The company remains the world’s largest watchmaker, with the balance sheet and brand portfolio to withstand reputational storms. The fact that shares bounced back quickly after Monday’s dip suggests some investors still see long-term value, using the turbulence as a buying opportunity.
Beyond its own balance sheet, Swatch serves as a bellwether for the wider Swiss watch industry — an industry that has weathered crises before and is unlikely to surrender easily.
But even a sector as steeped in tradition as Swiss watchmaking needs to keep up with the times. Swatch Group famously revived the industry in the 1980s by pioneering affordable quartz watches.
Today, survival depends just as much on innovating values and communication. Speaking with consumers rather than at them, and reflecting the diversity of the markets that sustain luxury growth, are now as essential to resilience as quartz once was.