In 2009, during the full “subprime crisis”, which saw sales of the struggling Swiss watch industry fall some 25 per cent, Alain Spinedi, owner of Louis Erard, heard Jean-Claude Biver talking on the radio. The very media-savvy boss of Hublot was describing the brands that were at risk of disappearing during the financial storm, namely those that were “young, employing less than 20 people, and active in the mid-range”. This was “exactly the case of Louis Erard” thought Alain Spinedi. The astute entrepreneur had launched his brand in 2004 based on two “sacred” credos: only mechanical watches, under CHF 2,000. And, at the time, he employed less than 20 people, although today there are 28.
Since 2007, Spinedi’s business has been in the black but he also was affected by ETA’s decision to decrease delivery of its movements. Starting in 2008, Spinedi was thus forced to give up one of his credos, that of keeping his sales price under CHF 2,000. Unable to grow in quantity, he was thus forced to grow in value. Prices climbed to CHF 3,000 for pieces with small useful complications, and the brand also introduced a ladies’ line. It even offered gold models selling at CHF 11,500. He had found his niche, Spinedi thought, which he defined as being “haute horlogerie at the right price”.
But, in the autumn of 2008, the collapse of Lehman Brothers rang the bell to signal the end of “playtime”. This time, things really did get worse. Still for all, Alain Spinedi would challenge the prophecies of Jean-Claude Biver. The crisis that affected watchmaking had, in fact, a side-effect—access to mechanical movements once again became a little easier. Spinedi acted quickly and was thus able to again offer mechanical watches in the lower end of the mid-range, at about CHF 800. The following year, 2010, would be his most profitable one yet. Louis Erard had emerged from the crisis relatively unscathed and the brand was stronger than ever. Now, with clear skies ahead, Alain Spinedi has been able to establish the brand in several price segments, ranging from CHF 600 to CHF 5,000. Between a rock and a hard place
But in 2011, the horizon again clouded over. The Swiss franc rose to nearly unsupportable levels and the Swiss competition commission (COMCO) ruled in favour of the Swatch Group, allowing them to drastically decrease their deliveries of movements to third parties. Louis Erard’s supplier of choice, Sellita, was unable to make up the shortfall caused by the reduction in ETA deliveries immediately. The brand therefore joined eight other companies in objecting to the COMCO ruling. Alas, their opposition was quickly brushed aside.
Alain Spinedi was now between a rock and a hard place, even though 2011 was, in the end, a good year for the brand. It sold 16,000 watches and for the first time passed the symbolic threshold of CHF 10 million. Convinced that ETA would never make a U-turn (he worked for the Swatch Group for 13 years and thus knows it very well from the inside) and also certain that the value of the euro would not rise so quickly, Spinedi knew that he had to find a new strategy.
If he did nothing, he was condemned to soft growth that would not allow him to make the necessary investments in marketing, and his distribution would suffer. If he completely abandoned his positioning and moved upmarket, he would be taking an even bigger risk. He would be forced to invest heavily in marketing while rethinking his distribution, not knowing if such a new image of Louis Erard would be accepted in the marketplace.
The only solution left was to find something between these two extremes—he would go back to his original positioning while at the same time ensuring growth by increasing volume. The strategy, however, meant renouncing his other basic credo—that of only selling mechanical watches, which he truly believed was sacred. Louis Erard would have to start using quartz and open its brand more widely to the market for ladies’ watches.
Identify a neglected niche
Although he believed that his product pyramid, ranging from CHF 800 to CHF 3,000, was relatively well balanced, Spinedi felt it necessary to also offer products below CHF 800, with an entry level price of around CHF 450. And, in this niche, he had to succeed without offering what had made Louis Erard successful in the first place—classically designed mechanical watches with small complications. But, he would conserve the watches’ fundamental parameters as well the specific character of each collection.
While the development of the brand’s mechanical collections remains essential for Spinedi, the introduction of a ladies’ line of quartz watches allows him to also grow production volume. He realised that, in this area, there is a niche that had been greatly neglected. In the price range of CHF 245 to CHF 450, there are many fashion brands that offer trendy watches for women. Between CHF 450 and CHF 850, however, which is the entry-level price for his mid-range competitors’ feminine collections (namely Maurice Lacroix, Frédérique Constant, and Longines), Spinedi saw a lot of open space and opportunity. This niche had been rather neglected, and he intended to fill it.
The debut of a Romance
The spearhead of this new strategy is the Romance collection. Produced in quantity and exclusively feminine, equipped with quartz movements, the prices start at CHF 480 on a leather strap and rise to CHF 610 on a metal bracelet. Available in three sizes, 30 mm, 33 mm, and a 36-mm chronograph, prices gradually climb to CHF 2,750 for a chronograph, on a metal bracelet, set with Top Wesselton diamonds. In stainless steel or rose gold PVD, with a dial in mother-of-pearl or finely guilloché, mounted on a leather strap or metal bracelet, the Romance collection retains the pure style of Louis Erard. Classic and slightly spirited, whose appearance is very much in tune with the art of timekeeping, the line seems to have been quickly adopted by the brand’s retailers, which comprise a distribution network of around 750 points of sale to which Alain Spinedi intends to remain closely aligned.
Romance will therefore not be distributed in department stores but should contribute, in terms of volume, to improving the profitability of its partners. Spinedi expects to increase the total 2011 level of production of 16,000 timepieces to 21,000 in 2012, with the hopes of reaching a turnover of CHF 12 million. This totally self-financed operation also involves new investments in marketing and advertising, as well as a new stand at BaselWorld in 2013. Up to now, BaselWorld has cost the brand CHF 200,000 per year but this will triple to CHF 600,000 in 2013, when the brand will be in Hall 1. “Just because of BaselWorld, I have to make an additional million in sales,” muses Alain Spinedi, “but this is a risk I must take.” Could his “quartz operation” also appeal to men, we ask. Nothing could be less certain, comes the reply. This is especially true since, little by little, more mechanical movements will become available.
Will the use of quartz thus be simply a temporary strategy for a brand that has always affirmed its proud slogan “Swiss Mechanical Watches” or will this co-habitation ultimately result in marriage? We must not forget that the prices of quartz watches are much lower than those of mechanical timepieces, often with more attractive margins—on condition, of course, that that there is sufficient volume.
Source: Europa Star August - September 2012 Magazine Issue