BIEL, Switzerland — Brisk business at Swatch Group looks set to continue, executives said at the company’s annual results presentation, countering evidence that demand for modestly priced watches is drying up.
Swatch Group chief executive officer Nick Hayek cited the day’s sunshine as symbolic of its results last year and the outlook for 2018.
“You have seen a very strong acceleration during the second part of the year, and certainly the last quarter, and this acceleration has continued through January and February and also March,” he told a news conference.
As reported, operating profit rose 24.5 percent in 2017 to one billion Swiss francs or $1.05 billion, boosted by strong demand from China.
“We are facing months that are either the best, or second-best or third-best in the history of the Swatch Group over the last November, December, January, February and, as it looks, also March,” Hayek reported.
“We see no reason why it should not continue. Everything is there: the mood is good, the products are good, innovations are there,” he added.
The conference was held in Omega’s sleek new headquarters, featuring cement walls and raw wooden beams. The new group headquarters are under construction. Hayek said he insisted that production at Omega carry on despite the meeting “to catch up on some delays, the demand is so big.”
With his trademark optimism, the executive said he sees the success of connected watches as an opportunity. “It will grow the overall market, it has not cannibalized at all,” he said, citing the group’s sales growth over the last five months.
The company is issuing a new connected watch through its Tissot brand next year, which will feature its own operating system. The brand already has a watch with tactile technology, the T-Touch watch.
For the new model, Swatch Group is focusing on keeping data secure, extending battery life to between three and six months, and limiting software updates so they aren’t needed every year. The price range will reflect the label’s range, between 400 Swiss francs and 1,000 Swiss francs, Hayek said.
Questioned about declines in Swiss exports of lower-priced watches, while the company has posted growth in the segment, the executive made the case that retailers are shunning the products but that customer demand remains steady.
The company said it registered a “massive” gain in market share last year, even as the Federation of the Swiss Watch Industry reported an 11.6 percent drop in value terms in exports of watches priced under 200 Swiss francs — a decrease widely attributed to the impact of the Apple Watch.
The rising Swiss franc has eaten into the small margins afforded by entry-level watches, Hayek noted. “Swatch has a long-term strategy, we accept lower margins,” he said, adding that the group is gaining market share by sticking to its strategy rather than abandoning the business.
He expressed frustration with the hesitancy of third-party buyers of its components during times of downturn, portraying the clients as running back to place orders when things pick up.
“We are at this phase where people are knocking at our door saying, ‘It would be nice if we could have more,'” said Hayek.
According to the terms of the amicable settlement signed with the Swiss Federal Competition Commission in 2013, Swatch Group subsidiary ETA has an obligation to supply watch movements to third-party customers until 2019.
Hayek noted that several of the group’s brands are struggling to meet demand, citing Blancpain, Omega and Longines. “More practical might be to say we would not deliver at all anymore, from 2020, because demand is so big we need it for us,” he said, declining to provide details of contract renewals with third parties.
To show off the company’s digital prowess at the presentation, executives designed a watch face with input from the audience, delivering copies before the end of the conference.
Thanks to a breakthrough in digital printing, Swatch Group has shaved time off of the process which now takes minutes, rather than hours to produce watch faces that previously took days or weeks.
“It is a really big advantage in order to speed up the time to market…for brands of the Swatch Group,” said Jean-Luc Bazin, a Swatch executive in charge of the group’s center for developing new products.