Upheavals in the discreet world of the private label watches


Europa Star WorldWatchWeb, 1 December 2016   
by Serge Maillard

They are the watchmakers in the shadows, making the watches that bear the logos of others. Europa Star met with the principal players in Switzerland’s private-label market. Faced with competition from Asia which has tarnished the reputation of their trade, the watchmakers who usually serve as a gateway to the “milieu” for outsider companies are hoping that the stricter definition of “Swiss made” will be followed by an effective re-localisation of production – to Switzerland.

The offices of Walca, near to Bienne, resemble the headquarters of virtually any other Swiss watchmaking company, with its administrative, technical, logistic and quality control divisions. But there is just one difference: here, nothing is produced in the company’s own name. Discretion is the watchword. This private- label company, which this year is celebrating its 40th anniversary, does not divulge the names of its customers, a golden rule respected by all the players in the sector. “We are the manufacturing arm of those brands,” sums up  Walca’s director Markus Zaugg.

Markus Zaugg, Walca
Markus Zaugg, Walca

“Our main competition comes from private labels produced in China. We hope that business will be repatriated from Hong Kong to Switzerland.”

The boom in Swiss-made watches, sales of which have doubled in fifteen years (exports have risen from 10 to 20 billion Swiss francs since 2001), has attracted players from outside the watchmaking industry – manufacturers of clothes, pens and even glasses. All have jumped on the bandwagon, usually with no prior watchmaking knowledge. The private-label companies are there to accompany them as they enter the watchmaking market, with a vast array of services ranging from simple design through to whole watches manufactured from A to Z, and in all price segments, from cheap quartz – Swiss-made or not – to large mechanical complications. Unlike the licensing giants (such groups as Fossil, Movado or Mondaine), they “content” themselves with making the watches, leaving the customer the task of selling and marketing the products.

Although for a long time the main privatelabel companies were Swiss, the porosity of the “Swiss-made” label – currently being made more watertight – attracted a large number of Asian companies, generally based in Hong Kong, which helped devalue the genre. If it wasn’t the budding watchmakers themselves, opting for Chinese components and taking it upon themselves to find assemblers in Ticino, without even looking for an intermediary operating in the private-label market. In short, in the past few years we have seen just about everything, but more to the point, any old thing – which obviously did little to boost the credibility of the “Swiss-made” label, nor that of privatelabel manufacturers in general.

Upheavals in the discreet world of the private label watches Upheavals in the discreet world of the private label watches Upheavals in the discreet world of the private label watches

 SIMILAR PROFILE

Mostly based in Bienne, medium-sized businesses with a workforce of 20 to 100, the largest Swiss private-label companies are Roventa-Henex, Walca, Grovana, Timestar, Blanchefontaine and Xantia. All are hoping that the stricter criteria defining “Swiss-made” (under the “Swissness” bill which becomes law on 1 January 2017, 60% of the value of a watch will have to be Swiss) will benefit them in face of the tough competition from Hong Kong. This competition has cost them huge market share. But so has the impermanence that is all part of the game when you have ultra-fashionable customers: they can rapidly – and logically – fall out of fashion. “In the 1990s, our principal customer was the brand Sector, which was enjoying a real boom at the time. We produced huge quantities,” Markus Zaugg remembers.

During the same decade, recalls Jean-Pierre Loetscher, who heads up Xantia, a company founded in 1962, “we might produce 800,000 to 1 million quartz watches a year, mainly for the Swiss Army brand that has been taken over since then by Victorinox.” While for many manufactories the noughties were synonymous with shrinking volumes, due largely to Asian competition, they were nevertheless highly profitable for the Switzerlandbased private-label companies thanks to the arrival of myriad newcomers attracted by the manna-like margins of Swiss-made horology, as well as by the potential association between their products and the watches. For example, Xantia helped Phonak, a major Swiss hearing-aid manufacturer, design a watch to regulate its appliances. “These are niche markets, just like the models with specific functions, such as altimeters, or alarm or healthcare watches, for ‘non-horological’ customers,” underscores Jean-Pierre Loetscher.

Upheavals in the discreet world of the private label watches

 VERTICAL INTEGRATION OF THE WATCHMAKING SECTOR

The largest name in the sector in Switzerland, Roventa-Henex, founded in 1959, has its own assembly facility in Tavannes, whereas the majority of its fellow companies use the services of external “finishers” in Ticino or the Jura. The company turns out several hundreds of thousands of items a year. “We have around forty customers, of whom thirty or so are regulars. Some of them have been working with us for several decades,” notes company director Kurt Grünig. “But when a brand is taken over by a group, that’s when it considers producing in-house more seriously.”

Kurt Grünig, Roventa-Henex
Kurt Grünig, Roventa-Henex

“When a brand is taken over by a group, that’s when it considers producing in-house more seriously.”

Added to this vertical integration is the current slowdown in demand. “Today, too many regions are experiencing problems simultaneously, what with oil prices in the Middle East, terrorist attacks in France, the war in Ukraine, the slowdown in China and too much stock virtually everywhere,” Grünig goes on. “We are subcontractors, and our customers are much more cautious.” The result is sluggish demand, especially where re-orders are concerned.

 SWISSNESS – OPPORTUNITY OR THREAT?

Enter the new legislation on Swiss-made goods. For the Swiss private-label companies, this represents both an opportunity and a threat: an opportunity because a reinforcement of this prized seal of approval could mean that production will be repatriated in the face of Asian competition; a threat because if the value of the components rises, costs will also rise, which is a difficult pill to swallow, especially for customers operating in the lowend and quartz watch segment.

“Our main competition comes from private labels produced in China itself. We hope that private-label business will be repatriated from Hong Kong to Switzerland. Because the Swiss-made aspect is our strong point and we have the structure to meet the new legal requirements,” says Markus Zaugg at Walca. “Until now, a large number of potential customers did the prototyping and development in Asia, and only the assembly in Switzerland. We have development and prototyping managers inhouse and we’ve been penalised by this Asian competition by our higher costs. I hope this new legislation will help us. Some will stop making Swiss-made goods, because they won’t meet the requirements any more, but some might come here,” is the view of Kurt Grünig of Roventa-Henex.

 EDUCATING THE CUSTOMER

The company director explains that he began talking to customers about the changes the new act is set to bring at an early stage, and even “anticipated” the rise in Swiss-made value starting from the product launches of late 2015. “We began by calculating what we can still allow ourselves to purchase in Asia as regards case design. We’re looking for solutions and are planning to buy more in Switzerland. But there are still some legal points to be clarified.”

In fact, 2017 and 2018 will represent a “grey zone”, explains Markus Zaugg of  Walca. “The technical development and all the cases in stock at the end of 2016 will not be included in the calculation. The act states that stocks of finished watches and cases can still be sold under the Swiss-made label for two years. Some companies may be tempted to build up as much stock as possible, but that’s risky, especially given the current economic climate! The situation will be clearer from 2019: by then, proof will be needed that development took place in Switzerland.”

Jean-Pierre Loetscher, Xantia
Jean-Pierre Loetscher, Xantia

“Most of our customers are finding the adjustment deadline too short because the Federal Council set the date of entry into force of the revised Swiss made only last June.”

What is certain is that the new legislation will raise production costs. “Some customers are ready, others not,” Zaugg adds. “There’s a lot of educating to do. But it’s sometimes difficult to reconcile their demands with the real price. We’re looking for solutions together. We can find cases in Switzerland, but customers won’t necessarily agree with raising their prices.” At Xantia, Jean-Pierre Loetscher does not beat about the bush: “The price increase will create problems for certain customers. Either they’re going to have to reduce their margins, or they’ll have to redesign their collections. We’re part of the FH, but most of our customers are finding the adjustment deadline too short because the Federal Council set the date of entry into force of the revised ordinance only last June.”

 IMAGE IN NEED OF IMPROVEMENT

Even so, for many people “private label” spontaneously summons up images of promotional watches. Will its image improve with the market “clean-up” which could result from this new legislation that redefines “Swiss-made”? “We don’t only make cheap watches; a large proportion of our products are made using sophisticated, 100% Swiss parts,” underscores Kurt Grünig of Roventa. “Moreover, we allocate every model to one customer: we have no standard catalogue where you can just take your pick, with products you then find on the market under different names. The Asian companies create models and sell different variants of them to several brands.”

As for Markus Zaugg, he is seeing a less frivolous attitude in the watchmaking market: “The time when watchmaking attracted lots of new players, some of them rather questionable, is over. Today, we tell potential customers ‘if you want a technical study, you have to pay first’. We used to be asked to conduct studies and then never heard from the customer again. And companies interested in making watches realise that it’s no simple matter producing their watches themselves in China in a complex environment. It’s an asset to have a contractor in Switzerland who provides not only the design but also the engineering support. We also handle the after-sales service on behalf of our customers. Everything is à la carte. Let’s hope we’re going to see a return to the real values of the private label.”

 VAUCHER, THE “ROLLS ROYCE”OF THE PRIVATE LABEL

The Fleurier-based manufacture of Sandoz Foundation’s watchmaking business is reputed first and foremost for the quality of its calibres, which it supplies to the major watchmaker names, such as Hermès (which has a minority shareholding in the company). But three years ago, Vaucher Manufacture launched a private-label venture producing whole watches. Why? “On the one hand, there was a demand, but it was also a logical move to take advantage of our strong point, which is in-house expertise in all the lines of business. Our comparative advantage is also that we’re able to offer small volumes to certain, small brands. We’ve developed a genuine range of products, from three-hand watches to tourbillons,” explains Vaucher Manufacture director, Jean-Daniel Dubois. The company produces some 2,000 private-label watches a year, but aims ultimately to double that figure. “We get all kinds of requests: a well-established brand that wants a movement, a turnkey product, a sales network, a freelance designer… We provide intensive support and we’re not dependent on third-party contingencies, including for assembly,” says Dubois.

Jean-Daniel Dubois, Vaucher Manufacture
Jean-Daniel Dubois, Vaucher Manufacture

“Genuine manufacture-produced movements are rare! Incidentally, we’re advocates of ‘100% Swiss-made’.”

Unlike most of the players in the marketplace, Vaucher Manufacture works at the very high end of the private label segment. “That comes at a price, but genuine manufacture-produced movements are rare! Incidentally, we’re advocates of ‘100% Swiss-made’ and offer certification such as the Qualité Fleurier label.” So how is business, given the extremely difficult economic climate? “For sure, watchmaking is suffering, but we work a lot with small, creative brands, many of which are organised around a central name: independent watchmakers, as well as jewellers who want to create a watch. Moreover, we’re in the process of setting up an after-sales structure for customers who don’t have their own. So our private label business is doing fairly well – but our principal line of business is still, and will always be, the production of mechanical calibres.”

Upheavals in the discreet world of the private label watches

Source: Europa Star 5/16 Winter 2016 Magazine Issue



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