November 29, 2023

At Swatch, an Enviable Problem: An Excess of Eager Customers for Its Products

Swatch, the world’s largest watchmaker, is rushing to add factory capacity so that it can make enough watches to meet demand. It wants to add as many as 2,000 employees this year — about 1,500 of them at home in Switzerland. But it is struggling to find enough qualified people.

“Managing our stock is at the moment not an issue for us because demand is so big that we unfortunately don’t even have the time to build up any stock,” Mr. Hayek said last month at Baselworld, the watch industry’s biggest fair. “I hate that feeling of missing sales because of a shortage in products.”

Swatch’s production and hiring problems reflect the overall health of a sector that has rebounded from the world financial crisis. Demand for watches has soared in Asia — a region that accounted for more than half of Swiss watch exports last year — with makers of mechanical watches capturing an increasingly large slice of the market. Exports of mechanical timepieces rose 32 percent in unit terms last year, compared with an 18 percent increase for less expensive quartz watches.

Swatch had a 42 percent increase in net profit last year, to a record 1.08 billion Swiss francs ($1.22 billion), from 763 million francs in 2009, on a 19 percent rise in revenue, to 6.44 billion francs.

While the company does not break down earnings by brand, revenue in its main watch and jewelry division rose 28 percent last year at constant exchange rates, compared with an increase of 8 percent in revenue in its parts production business, which accounts for about a quarter of its revenue.

Still, Mr. Hayek is pushing to change the modus operandi in his sector, from tightening rules on what defines a watch as “made in Switzerland” to forcing rivals to make their own components. Swatch has been talking with competition regulators about how far it could cut back its supply business, without endangering manufacturers that rely on Swatch parts.

“People assume that it’s a good business to sell components, but the only really attractive business is to sell finished products of our brands,” he said. “We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it.”

Swatch’s withdrawal as a supplier would be a sea change for the sector. As a result, such a move “cannot happen overnight,” said Jean-Frédéric Dufour, chief executive of Zenith, which is owned by the French group LVMH Moët Hennessy Louis Vuitton and is one of the few Swiss brands that does not buy from Swatch.

Still, Mr. Dufour said, by forcing rivals to invest more in production, Mr. Hayek “could help bring back the watch sector to how it was operating 100 years ago, when each brand really differentiated itself from others by the quality of its movements.”

Swatch’s hegemony over watch production is part of the legacy of Mr. Hayek’s Lebanese-born father, Nicolas, who died last year.

As a management consultant, Nicolas Hayek had been hired by banks to close two manufacturers in the early 1980s, at a time when Swiss watchmakers were getting crushed by less expensive Japanese competitors. Instead, he merged and acquired a stake in the struggling companies and revived the industry with the introduction of the inexpensive plastic Swatch watch.

The fashion frenzy generated by the colorful Swatches in turn required the group to develop mass volume production, building its leadership by later acquiring more component manufacturers.

In terms of volume, Swatch controls 70 to 80 percent of the sector’s watch movement production, according to a research study published last month by the investment firm Sanford C. Bernstein Company.

The Hayeks own about 35 percent of the group’s equity, ensuring that Swatch remains essentially a family business. Mr. Hayek is joined by his elder sister Nayla as chairwoman, while the next Hayek generation is led by her son, Marc, who had a stint in the restaurant business but now oversees part of the group’s luxury watch business, including the Breguet and Blancpain brands, which Swatch acquired in 1999 and 2000.

Nick Hayek, meanwhile, cut his teeth in movies before joining his father at Swatch in 1994, initially in a marketing role. Having studied filmmaking in Paris, he started a production company making documentaries, short movies and two feature films, including “Family Express,” which starred Peter Fonda.

Nowadays, his movie-making is limited to occasional involvement in advertising campaigns, but he plays down the suggestion that he was pushed into making a U-turn in his career ambitions.

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