Swatch watches industry crisis from a pedestal

Swatch's CEO is Nick Hayek Keystone

The fact that watchmaking giant Swatch outperformed its competitors last year amid a disastrous export market is no surprise, says one industry insider.

This content was published on March 11, 2010 - 10:41

Revenues fell nearly nine per cent last year at Biel-based Swatch Group, a 20-brand empire employing 22,000 people, but the company began 2010 with much fanfare in an atmosphere of near panic among most of its peers.

The firm’s brashness surprised observers but Kalust Zorik, co-founder of the new watchmaking institute at the ARC technical school in the Jura region of western Switzerland, says that the company’s success has nothing to do with luck.

“They are industrialists,” Zorik said. “And that industrious spirit pays particular attention to the outside world.

Zorik is referring to the work of chairman, Nicolas G. Hayek, his son Nick who is the chief executive and their management team. The Swatch Group posted a net profit which was “only” down 8.9 per cent on the previous year and sales down by 8.1 per cent against a background of an industry that was beginning to panic.

Zorik believes the group, which has factories spread widely in the Jura region – watchmaking’s heartland – was able to see the signals the global financial crisis would have on the industry and were ready to act. Swatch took measures very quickly to absorb the shock that was coming.

The brainchild of Beirut-born Hayek senior, the Swatch family started life in 1983 with the merger of two ailing Swiss groups, which had more or less collapsed under pressure from Japanese competition.

Strength in range

Part of the group’s strength is its product range, Zorik told Brands range from a relative budget price – about SFr50 ($47) and upwards for a Swatch – to the most expensive Bregeuts, which can run into the six-figure range.

Prices for pieces from the company’s three leading brands of Longines, Omega and Tissot, range from a few hundred to several thousand francs.

“Tissot has a very important role in this range,” said Zorik. “It is the first brand that opens the ‘Swiss made’ door.”

It acts as the a kind of starting point, preparing the way for the more expensive brands, at the same time as keeping it in the family.

Zorik calls the market for the company’s mid-range offerings “very solid” and says the Tissot brand still has considerable potential for growth around the world. The brand “carries the excellence of a Swiss watch, unlike a Swatch, which is more a fashion timepiece.”

The three brands also weathered the storm through organisational improvements, for example by improving systems of distribution.

Another explanation for the company’s strength: its philosophy. “Despite everything, the Swatch Group is a little less parochial, a little more efficiency oriented,” Zorik said. “The other players are more related to the image of luxury.

Swatch manufactures all its product, another factor in its success, according to Zorik. “The better you control your key competencies, along with the resources that feed into them, the more efficient you are.”

Over the years, the company’s accumulated know-how and experience – and youthful mistakes – have allowed Swatch to supply movements to private label manufacturers. The result: “The margins within the group are higher. The margins and the image,” argues Zorik.

“A logical decision”

Hayek senior late last year announced the Swatch Group wanted to stop supplying the competition with components made by his companies, an announcement that generated a stir in the industry.

“This was a logical decision and I wonder why he took so long to make it,” says Zorik. “The Hayek family realised they had done too much to strengthen the position of those who were good at exterior design of the finished product.”

Zorik says the move will help Swatch bring in more revenue because they can sell their products to others at a higher cost.

The marketing expert welcomes the changing range of Swatch’s products but notes that the internationalisation of the group is not yet complete. Some brands, strong in certain locations, remain unknown in others. “The position of Longines in the United States is very low, for example.”

Zorik also has some apprehension about the future for the industry. He wonders who will provide the new generation of economic watches. Facing competition from Asia, the group, for all its dynamism, will require an economic edge. Is the Swatch Group up to this challenge?

And suppose Longines, Omega and Tissot were to move into even more upmarket segments, it “would leave a vacuum that China could fill.”

Pierre-François Besson, (Translated from French by Justin Häne)

Swatch plans

At a news conference on Thursday Nick Hayek said the group had started well in 2010 and was aiming for a record year.

"In January and February, we had extraordinary growth in all segments," he said.

"We stayed very quiet last year and always said that the crisis would be over soon."

Hayek did not rule out acquisitions with the SFr1 billion in the group's treasure chest but said the priority was existing brands.

"We are not sharks which want to gobble other brands. We first want to produce ourselves and continue to invest in our brand portfolio."

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Watch this

The Swatch Group’s net income fell 8.9% to SFr763 million in 2009.

Operating profit declined by 24.9% to SFr903 million.

Turnover fell 8.1% to SFr5.421 billion.

Across the board, Swiss watch exports plummeted 22.3% last year. At Swatch, the decline was 7.7% or SFr1.49 billion.

Swatch’s electronics division recorded a 25% fall to SFr394 billion.

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