41. time-business


Europa Star

SWATCH GROUP, CHAMPIONS OF THE MEDIUM RANGE

VERBATIM

Français
March 2017


SWATCH GROUP, CHAMPIONS OF THE MEDIUM RANGE

Of the three major Swiss watchmaker groups, only the Swatch Group has fundamentally industrial origins. While Richemont and LVMH have, with a forced march, gradually caught up some of the ground between them and industrialisation, their tropism is still the luxury segment (with the exception of TAG Heuer at LVMH, which is making major inroads into the medium range, and Baume & Mercier at Richemont – see further on).

T

he historical and geographical heart of the Swatch Group lies in the town of Biel/Bienne, which developed into a watchmaking centre relatively late, around the middle of the nineteenth century. While Geneva and the Joux Valley specialised for centuries in top-range, “artisanal” watches, the Bienne watchmaking sector was from the outset a highly industrialised affair and thus geared to mass production. In other words, to medium-range watches.

This historical industrial heritage can be observed at the heart of the Swatch Group, the different brands of which “are highly disciplined”, as Rado CEO Matthias Breschan explains. Each of the Group’s brands covers a precisely delimited territory: “To the Swatch Group’s way of thinking, there’s the entry-level range, the medium range, the high-end range and the prestige range. That way, the positioning of the Group brands is clear at all times. That said, the different segments are defined by price: the entry-level range is priced at under CHF 1,000 and the medium and high end between CHF 1,000 and 5,000, while the prestige range is anything above that,” he explains. So, the group’s spread consists of a rock-solid portfolio of brands which are carefully “terraced” to cover the entire, broad, medium-range spectrum: Certina, Tissot, Mido, Longines, Rado and, right at the top, Omega, which has one foot in the upper medium range and the other in the high-end range.

TISSOT, THE FLAGSHIP OF THE MEDIUM RANGE

Tissot is without any doubt the Swatch Group’s most iconic mid-range brand. Its CEO François Thiébaud recently responded to questions from Europa Star.

François Thiébaud, CEO

  • By going for quantity, you can create an industrial tool at the service of people!

“With an output of four million watches a year, Tissot is an industrial brand, but our objective is and has always been to produce quality watches at affordable prices. Our products are situated in the 400-1,200 franc range and our annual output is around two million quartz watches and two million mechanical watches. We have 350 boutiques and are represented in some 13,500 outlets worldwide.”

  • Gold watches for the price of silver

“We make affordable luxury. Like the slogan says, it’s a gold watch for the price of silver! One example of this philosophy is that in 1998, not long after coming to Tissot, I wanted to introduce a sapphire crystal for the watches, but a crystal cost 22 francs per piece. To keep the price of a model down to 295 francs, I needed a crystal at 17 francs. Well, Nicolas Hayek Sr. came down on our side! Today, a sapphire crystal costs 5 francs. By going for quantity, you can create an industrial tool which is at the service of people! And the quality is no lower. Thanks to automation, the welds of a Fiat have a better finish than those of a Ferrari!”

  • The strength of the Swatch Group is that it covers all segments

“Everything is relative when you talk about price or social class. Sometimes, you don’t make the right comparisons. We’re still number one in terms of volume in China. But those who used to earn 200 francs yesterday might earn 1,000 francs today and can go on to another brand of the Swatch Group. Our strength is that we cover all segments. The intermediary classes are in the process of increasing their purchasing power. And when that happens, things that used to be rare become banal. The advantage of our watches is that they’re mobile: our playing field is global and we can move from one market to another. And people are a bit fed up with extravagance at any price: 60 percent of the watches we sell are classic in style. There’s a return to greater simplicity. A blue dial is all very well, but does it go with all the clothes you wear on an everyday basis?”

  • The active class

“I prefer to talk about the “active” class, rather than the middle class. It’s the active class that makes society work, all those people who really keep the world ticking over every day. They shouldn’t be forgotten – a society made up of only rich and poor can’t function. We have to come back to this active class, which creates businesses, innovates.”

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THE RETURN TO MINIMALISM IS GOOD NEWS FOR RADO

Rado, the pioneer and grand specialist of ceramic watches and a historically strong brand in China, is something of a special case in the medium range: few other mid-range brands place their stakes primarily on design and materials. An interview with Matthias Breschan, Rado’s CEO.

Matthias Breschan, CEO

  • The important thing is the relationship between price and substance

“The pertinent thing in my view is to know what you’re offering: it’s the relationship between price and substance. In the past 15 years, we’ve seen a lot of repositioning. But it was often just a repositioning of prices, with no adjustment to the substance. That‘s dangerous, because it’s a kind of deceit, it’s cheating! The brands that indulged in that kind of manoeuvring were the first to suffer.”

  • The average selling price has fallen

“Rado is situated between Tissot at the bottom and Omega at the top. Our prices range from CHF 1,000 to CHF 3,000, with a few models at CHF 4,000. That was true of the past ten years, and it will be of the next ten to come. Our price range hasn’t changed: it is situated between CHF 1,000 and 3,000. But what has changed these past two or three years is that sales have been better at the lower end of the range than at the upper end. The market is more price-sensitive and the average selling price has fallen.

But this average price differs from region to region. In China for example, which is a market of automatic watches, it’s different from Europe, the United States or Japan, markets where people are more inclined to buy quartz chronographs. The Basel trade fair attracts numerous top-range watchmakers. In the midst of all them, Rado almost looks like an entry-level brand. But let’s not overlook the fact that CHF 1,000 is a lot of money for lots of people! We address the middle class – which has grown hugely in emerging economies like China and elsewhere.»

  • Investing efforts in the look

“It is true that current trends are more for a pared-down, minimalist style than for watches with character. And that’s a good thing for Rado. Others try to set themselves apart through the movement or complications. We don’t: we invest our efforts into the look – the materials and design. But as luck would have it, today we’re seeing ceramic used by lots of brands, even in the top range! So over the past few years, ceramic has grown into a noble material, and that’s helped us a lot.”

  • The group’s industrial strength

“Innovation is and has always been one of our top priorities. If you stop innovating, you’re dead… And incidentally, Rado has launched highly innovative products, not only as far as the materials are concerned but technologically too, such as the Esenza Ceramic Touch, which instead of a crown has sensors in the ceramic case. This kind of innovation is a good example of the group’s industrial strength: the movement is made by ETA, the electronic components were developed at EM Microelectronic-Marin, the ceramics at Comadur, and so on. It’s crucial for the Swatch Group to conserve this kind of industrial fleet in Switzerland. As for any potential projects in the field of connectivity, the Swatch Group has just announced a partnership with CSEM of Neuchâtel to develop an ‘operating system’ for connected objects. That’s of interest to Swatch, Tissot and Hamilton first and foremost, but to Rado too, of course.”

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MIDO – “HUGE” GROWTH

Less well-known in Europe than Tissot, Mido is highly reputed and occupies a historically strong position in Latin America –a position that the brand, situated in the CHF 700 to CHF 3,000 price range, is seeking to extend to other regions of the world, notably Asia. Franz Linder, CEO of Mido, answered our questions.

Franz Linder, CEO

The Swiss middle class is not the same thing as the Indonesian middle class

“Mido addresses the middle classes. But you have to remember, for example, that between a teacher in Switzerland and in Indonesia, although they’re both middle class, the difference in purchasing power is huge. A teacher in Switzerland can buy a Swiss watch without any problem, while in Indonesia they have to make far more sacrifices, as it represents more than a month’s salary.”

  • Customers want more – and more – for their money

“Recently, customers have begun looking more and more closely at what they get for their money. This preoccupation with the right ratio between price and quality is nothing but an advantage for us. And recently we’ve felt a reversal in our favour. At one time, when we looked around for retailers many of them wanted to sell only very expensive watches. But things have changed these past few years. There are numerous high-end retailers today who are looking to round out their offer with affordable watches because they also bring in custom. The winds of distribution have turned in our favour.”

  • We sell timeless timepieces

“We specialise in mechanical watches. We sell timeless timepieces that can survive through several generations. That’s one of the reasons for our success. We’re in the long-term business. Smart watches are short-lived. Up to 200 francs, that’s impulse buying, there’s a market for that. But spending 1,000 francs on something you use for two years – I don’t think that’s really a viable business model.

If you look at the 25 million watches Switzerland exports compared with the world population, there’s still plenty of room for growth, volumes, besides smart watches. Looking at our sales, Mido is still gaining market share. We’ve experienced huge growth these past few years because we’ve remained true to our principles: offering the best watches at the best price. Our automatic watches offer extraordinary quality for price. And customers are looking first and foremost for quality watches with a sound after-sales service.”

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CERTINA: SPOTLIGHT ON SPORT

Completing the Swatch Group’s would-be exhaustive mosaic of mid-range brands, Certina fills the space marked “sports watch”. A large majority of chronographs suited to all disciplines, extremely reasonable prices and – fashion oblige – a vintage line called Heritage. An interview with Adrian Bosshard, CEO of Certina.

Adrian Bosshard, CEO

  • We sell a lot of watches in countries where the average income is a tiny percentage of the average Swiss income

“The terms ‘entry level’ and ‘medium range’ reflect the way of thinking of watchmaking professionals. Since Certina works principally in the CHF 300-CHF 2,000 price segment, our ambition and strategy is to offer premium products in that price range: a high-quality, Swiss-watchmaking product at a reasonable price. For many Swiss customers, a price situated between CHF 300 and CHF 2,000 still represents a lot of money, so we have to remember that we sell lots of watches in countries where the average income is a tiny percentage of the average Swiss income.”

  • It’s crucial to generate volumes

“In the Swatch Group, we never neglect entry-level and mid-range products, because we’re aware that a great majority of the global population buys watches in the price segment below CHF 1,000. A brand like Certina proves that it is possible to offer major innovations and Swiss watchmaking skills in that segment too. These skills allow us to generate the volumes that are crucial both from the industrial production perspective and from that of footfall in our retail outlets.”

  • We don’t change strategy at each glitch in the economy

“A product’s finish, quality control, communications, distribution and customer service have to be flawless, and the brands that succeed in maintaining all these competencies to near-perfection succeed in winning customers’ hearts. And our strategy doesn’t change at each glitch in the economy: both the group and our brand always work with a view to the long term.”

  • Focus on opportunities

“Whatever the economic changes, there are always opportunities and risks. We focus on the opportunities, in other words, even if a local market is shrinking in comparison with the economy as a whole, there will always be customers in search of a product with the kind of exclusive, specific DNA that we offer – that is, a broad collection of watches that are both sporty and sleek. But it’s only befitting that a brand with a history going back to 1888 should also have a Heritage watch collection. Sales trends for both these collections are currently excellent.”

  • The watchmaking industry is cyclical

“Smart watches are not impacting us, because you can’t compare Certina with the electronic giants. We aim to sell emotion, as well as the horological values of product longevity and durability, not just functions. Watchmaking is, and has always been, a cyclical industry. Since I started twenty years ago, watch exports have more than doubled. That’s why I feel it’s an exaggeration to talk about crisis. Distribution is production’s other half: you have to keep a cool head when the economy goes into overdrive, and when the going gets tough be brave in the knowledge that the economy will soon bounce back. That’s why Certina is able to perform well both when the economy is buoyant and when indicators are down.”

Illustration: DRAWING ARCHITECTURE STUDIO www.d-a-s.cn