TOKYO -- Casio Computer's G-Shock line of wristwatches is clocking up strong profits for the company, thanks to better-than-expected sales in China.
The Japanese consumer electronics company had an operating profit of 7.5 billion yen ($70.5 million) in the April to June quarter, beating the consensus forecast of 6.5 billion yen compiled by Quick. The result was fueled Casio' strong watch sales in China, revenues from which surged 36% on the year.
Kazuhiro Kashio, Casio's president, acknowledged that sales beat expectations, helped by a marketing strategy that has raised the brand's profile in the country.
On May 9, Casio's red G-Shock was pitched part of a "new wave" of highly recommended products on "Brand Day," a one-day promotion on Alibaba Group Holding's Tmall shopping site. Brand Day highlights a few dozen products chosen by the Chinese e-commerce leader.
The promotion helped double sales of G-Shock watches on Tmall in May and June, compared with the previous year. In July, they were up more than 60% from the previous year.
Casio held a number of promotions in and around Brand Day to create buzz. In the southwestern city of Chengdu, it hosted a hip-hop dance event a week before the sale, aimed at people in their 20s. The event attracted 28,000 spectators, and 9.6 million people watched a live broadcast of the show.
Coinciding with Brand Day, and into the summer, Casio held several sporting events, including three-on-three basketball and skateboarding competitions, in seven big Chinese cities.
The company also got some help from Alibaba. In the run-up to the Brand Day sale, Casio used big data from the online retailer to place targeted ads on the popular video-sharing app TikTok, and Weibo, China's answer to Twitter, attracting nearly 200 million views during the two-week campaign.
Casio's success may be a turning point for G-Shock in China, where it has lagged rivals. Of around 9.5 million G-Shock watches sold worldwide in the fiscal year ended last March, just over 1.1 million were sold in China. In Asia excluding China, around 1.8 million G-Shock watches were sold.
Given China's population and income level, the brand's market share is low. A brand-recognition survey conducted by Casio showed that G-Shock's penetration rate -- which measures the share of a company's target market that it has reached -- in China is only about half that in Thailand. The brand took off in Thailand in 2010, and it now has a solid foothold there.
In China, Casio is focused on selling G-Shock models priced between 20,000 and 30,000 yen that have done well elsewhere in Asia. The company also plans to push higher-end watches that retail for 70,000 yen or more, targeting people in their 30s and older.
The trick for Casio will be to make G-Shock cool in China. The company aims to raise global sales of G-Shock to 12 million watches by the fiscal year ending in March 2022, up 2.5 million watches from the previous year.
The company wants more than half of that increase to come from China and the rest of Asia. It is unlikely to reach that ambitious goal without significantly increasing sales in China
Many stock market watchers are taking a wait-and-see approach to Casio's game plan in China. Analysts' target share price for Casio averages 1,400 yen, slightly lower than its current price.
"Many analysts are cautious," Tomoki Komiya of Mitsubishi UFJ Morgan Stanley Securities said of Casio's strong sales figures. "The company's explanation is insufficient as to whether these sales are sustainable."
There is also a persistent view that smartwatches will be formidable rivals for G-Shock, as their target customers are similar and the products are close in price.
Casio's current forward price-earnings ratio is between 15 and 16, below that of the typical growth stock. Attention will now focus on whether the company can repeat its recent marketing success and keep its winning streak in China going.