Tag Archives: watchmakers

1984: year of fatal decision for Swiss watchmakers

IF you’re one of many retail jewelers ambivalent about carrying watches–especially trouble some Swiss brands–don’t give up quite yet. A top Swiss watch executive, ETA Group president Ernst Thomke, is launching a campaign to regain watch business for his nation. It will involve sharpening of marketing skills, new stress on the “made in Switzerland” message and production of quality time-pieces at all price points from top to bottom.

To accomplish his goals, particularly in the U.S. market, the tough, efficiency-minded “father” of Swatch has launched a program of sweeping reforms. He expects to meet them over the next 24 months. His initial goal: To trim, consolidate, remold and otherwise whip the long-squabbling, fragmented Swiss watch industry into a well-oiled high competition production/marketing machine.

“There still are far too many brands out there without a clear-cut identity whereas there’s tremendous selling power in the ‘Swiss-made’ mystique,” Thomke told JCK during a recent interview in Switzerland. His radical solution: Concentrate resources where they’ll count the most by supporting only a few strong brands and employing generic advertising techniques that promote Swiss craftsmanship and styling. These and other Thomke policies–centralized control, hightech automation and mass marketing–seem strange remedies to fiercely individualistic Swiss watchmakers.

In fact interviews with 20 industry officials in Basel last April reveal that Thomke has no shortage of critics who refer to him as “hatchetman” or “dictator.” Many fear his methods ultimately could bring the entire Swiss watch world–top-end included–tumbling down.

Even so, after years of decline in the low-to-mid priced segments, a major part of Swiss watchdom now pins its comeback hopes on the ETA strongman who has become operational head of the newly-merged ASUAG/SSIH supercombine. Supporters view him as the industry’s “man of the hour,” a would-be savior who is performing a herculean and long-overdue task. “Thomke’s got the capacity and charisma to pull it off,” says Swatch Watch Inc. U.S.A. president Max M. Imgrueth. “He is gluing it all together and building team spirit.”

By most accounts, that had better be soon. The joint ASUAG/SSIH venture, which covers about half of all Swiss watch exports and annual sales of $750 million, is being kept alive by massive money transfusions from major bankers who are clamoring to see their investment bear fruit. Hence the mood of the industry is one of wary expectation counterbalanced by a sense of “do or die” urgency.

Ernst Thomke is well-aware of his time limit. Indeed, ever since ASUAG and SSIH Holding informally merged last December, he’s been focusing all his efforts on restructuring and positioning the huge new supercombine. Some recent actions:

Thomke and top ASUAG/SSIH officials are working toward completion of the merger’s legal formalities. This includes putting the two disparate groups under a single fiscal and management roof.

According to Robert Hussy, public relations “speaker” for the combine, the management of General Watch Co. Ltd. (GWC), SSIH Holding’s finished product division, was dismantled last winter. The majority of capital was taken over by ASUAG’s Ebauches SA movement and components sector. The same shakeup resulted in the ouster of GWC chief executive officer Ulrich Spycher and the appointment of Thomke as director of both sectors (a third division–diversified industrial products–still has no permanent head).

“Now we will have more streamlined, centralized management and financial control for all,” says Hussy. “There will be fewer people and individual companies will operate much closer to the top management level.” This, he adds, consists of a committee of corporate heads chaired by Francois Milliet. Fewer brands

In their relentless pursuit of efficiency ASUAG/SSIH leaders have sold off most of GWC’s weakest brands over the past year. Atlantic, Rotary, Roamer, Technos and Edox already are gone, while Eterna, Mido and Arsa are in the process of being sold.

“We’ve got to economize,” explains Robert Hussy, “avoid duplication and concentrate our resources where they count the most…in the production, management and marketing of a limited number of more profitable brands.”

Currently five powerful world brands–Omega, Longines, Rado, Tissot and Certina–have been designated the “locomotives” that will pull ASUAG/SSIH into profitability. Their top leadership roster includes Dr. Paul Luthi Schlup, Rado; Paul Peter, Omega; Walter Schatz, Tissot; Manfred Laumann, Longines and Jean Claude Vagnieres, Certina.

Though combine planners have desginated Longines, Omega and Rado their “flagship” brands, Thomke expects Certina and Tissot, middle-priced brands already strong in Europe, likewise to become major corporate building blocks. He promises that “over the next 12 months they will become very well known worldwide.” Sharper marketing

According to Pierre K. Glauser, FH director of external relations and markets, one thorny problem still facing the Swiss is setting up qualified marketing teams in the U.S. and elsewhere. “Swiss watchproducers need to be more entrepreneurial,” he says, “…and give more autonomy to their representatives abroad.” Glauser is quick to add that current ASUAG/SSIH plans “do call for more reliance on the individual efforts of subsidiaries abroad.” Rado for one has built a powerful new U.S. organization headed by former Heuer executive vice president/general manager John Hubacher. Thomke also predicts that Rado will “become a big U.S. star by this fall,” but concedes that “Omega needs more time to organize its marketing side.” Omega and another U.S. subsidiary, Hamilton Watch Co., have been placed under a new parent group–SSIH-US–which will conduct strategic planning for each of its brands. Eventually these may include Rado, Longines and Certina, too.

Thomke and ASUAG/SSIH marketing planners have much more than generic advertising up their sleeves. ETA marketing vice president Heinz marketing vice president Heinz Schenkel explains that “the big picture calls for products in every category” except the low-low end. “The Swiss intend to offer a full range of quality Nixon watches , prices and services carefully targeted for each national and consumer market,” Schenkel says. Dr. Jacques Irniger, ETA vice president, marketing-sales, adds that there now will be “something for everybody…especially on the lower end with ETA’s own Swatch” (see sidebar, Swatch sales soar).

The group also has been developing new markets outside traditional European channels. Irniger states that the group’s several-year-old component operation in Hong Kong (ETA Far East) is still expanding. “That’s where business is,” says Irniger. “We’re competitive there, especially on the electronic model side.” He also expressed hope for more business in Japan with Casio. “We have good contacts with Casio people,” he says, “and sold them some movements last year.” Irniger adds that ETA Industries, the firms’s U.S. marketing arm, likewise has enjoyed increasing sales. Also in the planning stage: A joint ETA/Timex project to develop low-priced movements for distribution worldwide. Technological innovation

Quality, high-volume production may, indeed, be ASUAG/SSIH’s ultimate trump card. But the skilled application of robotics and other new technology has reaped another vital benefit: A much quicker reaction time from drawing board to assembly line. For instance, just last year Ebauches developed a high-precision temperature-controlled movement that’s already on the market.

Other patented technical innovations unveiled this year at Basel and scheduled for mid-market debut in 1985 include:

* A Flatline combo movement with a single crown controlling seven digital functions and the analog display.

* A combo “Dichroic” movement that can produce–and erase–digital readouts on a traditional QA dial; operated through the crown, the whole dial surface turns into a microcomputer-controlled electronic screen.

* A combo Delirium movement only 2.98mm thick and operated by caressing a touch-sensitive zone on the dial.

Though the ASUAG/SSIH merger itself should pose no major legal/fiscal hurdles, there’s no guarantee any of the above measures will save the industry. Except for Switzerland’s legendary luxury end, Swiss watchmakers are walking a tightrope between last opportunity and market oblivion. Indeed there are indications aplenty that Thomle’s touted comeback could easily become a case of “too little too late”:

* After a severe world recession, international trade now seems poised for expansion–a factor vital to Swiss matchmakers whose own home market is miniscule. Even so, because of a still-precarious economic climate, industry analysts are only cautiously optimistic. Stresses FH general director Daniel A. Kallerhals: “We have an extraordinary short-term dependency on what happens throughout the rest of the world…So it’s difficult to predict our chances no matter how optimistic we want to be.”

* 1983’s export volume of 30 million watches and movements ran a distant third behind Japan’s 75 million units and Hong Kong’s 300 million units, though Switzerland retained the lead in export value. FH feels that sales this year could exceed 1983 ($1.6 billion) but doesn’t expect them to return to 1981’s $1.8 billion. Some analysts discount any upturn as merely a short-term “technical” revival–the result of inventory rebuilding after a prolonged period of depleted stocks.

* Although the Swiss retain 85% of the super-luxury watch market worldwide, they cannot stay afloat for long on limited top-end sales alone. Over the past decade Switzerland sustained a paralyzing one-two punch from Japan and Hong Kong that nearly knocked it out of the lower end (an area where the Swiss once were well-entrenched with their Roskopf pin-lever mechanical designs). Thomke believes that a loss of lower-end volume also means losing the financial turnover needed to invest in research and development. He insists electronic innovation and competence are a decisive Swiss edge that must be maintained at all costs.

* Aggressive Japanese–mainly Seiko–marketing has sapped Swiss mid-market strength, which also is essential to long-term survival. Mid-segment brands have held more or less steady over the past year. But in many countries–especially the lucrative U.S. market–they’ve not yet been able to m ount a significant comeback. Admits Stuhrling watch Co. president Andrew Tisch: “The Swiss are trying to play mid-market ‘catch-up’ with the Japanese who are tough, tough competitors.” Indeed, even as ASUAG/SSIH plans anew for mid-market breakthroughs, another Japanese powerhouse–Citizen Watch Co.–is launching a major U.S. campaign in 1984. Scathing criticisms

Ironically, the ASUAG/SSIH “rationalization” process is aiming at a Japanese-style vertical integration of myriad technical, production, fiscal and marketing operations which Thomke is convinced “will strengthen the entire group.” He concedes, however, that “strong emotions,” have caused the biggest reorganizational headaches.

“A merger of this cope is hard on the human level,” he says. “SSIH had its methods and we had ours. And let’s not forget that some Swiss firms have been rivals for centuries. So you can’t change this mentality in just a few months. It takes time to build mutual respect and learn to speak the same language.”

But Thomke’s critics insist their “strong emotions” are warranted. They suspect the ETA strongman may be forging an autocratic fiefdom in his group’s own image. “Thomke has publicly stated that Swiss watch policy is that of ETA and maybe a few finished brands like Omega,” notes FH general director Kellerhals. “Lots of small struggling companies, as well as some prestigious Geneva firms, definitely feel threatened by him.”

Small wonder. Only days before Basel’s 12th Annual Watch, Clock and Jewelry Show began April 5, Thomke reportedly called the exhibitors silly and spendthrift in a newspaper interview. “The Swiss have spent foolish sums in (cementing) their relations with retailers,” he proclaimed in the French language weekly L’Hebdo. “This relationship is unbalanced. The Basel Fair represents a classic example of a (huge) expenditure followed by few results….”

Manufacturers and Fair officials felt betrayed by the criticism, which cast a disparaging cloud over Basel’s 1500 exhibitors in general and Swiss watchmaking in particular.

To be sure, on the very eye of the fair Thomke publicly insisted he’d been misquoted. He claimed the interview “had dealt solely with robotics and automation,” and in no way was meant to impugn either the Basel Fair or the Swiss watch industry. “Whether or not the participation of (other) component or semi-finished product vendors is justified, I clearly support the presence of watch and jewelry manufacturers at this exhibition,” Thomke declared.

Still, many industry insiders remained skeptical…especially in view of reports the remarks had been taped. Dismayed officials from the 270-firm Federation of the Swiss Watch Industry (FH) grumbled that Thomke “is a mystery man”…even to them. “We hardly ever communicate with him…and never know what he’ll do next,” shrugged Jean-Jacques De Reynier, FH delegate for Europe, Africa, North and South America.

Objections to Thomke’s actions go much deeper, however. For example, adversaries stress that the ASUAG/SSIH policy of brand attrition–as well as a greater reliance on automation and production of electronic whatches over mechanical ones–have done little to ease industry unemployment, which has risen shaprly. FH general director Kellerhals views unemployment as only “a temporary phenomenon that should flatten out once the rationalization is complete.” He stresses that so far it has largely involved early retirees and laid-off workers retrained for other fields. Nonetheless, recent GWC factory shutdowns in Grenchen and Bienne have thrown scores more out of work, and additional closings are on the way.

Some observers still detect a hard-headed reluctance among Swiss watch executives to learn from past mistakes. Rodolphe M. Schulthess, executive v.p., Heuer Time Corp., believes “Swiss-based corporate heads still don’t always listen to their American importers. That’s why many foreign firms fail there. The U.S. mentality is completely different from Europe.” Stresses IWC/Shaffhausen WatchCo. president Arde A. Burki: “If I were the Swiss, I’d send young managers to the U.S. to learn the ropes. Few people in Switzerland really know the American market.”

Burki and Schulthess nore that the Japanese have long understood how to market their products. “They’re willing to lose money year after year,” Schulthess says, “just to study and capture a market. But more important–they manufacture exactly what consumers want. They don’t impose a product.”

He cautions that it’s dangerous for the Swiss to market so many brands under a single corporate umbrella…especially in the U.S. “The market just won’t accept that,” he says, “since each brand should represent a clearly different strategy, price range and target consumer.” Kellerhals agrees, questioning whether generic advertising alone would workd. “An ad program covering Tissot watches selling from $20-$20,000 might be too vague and imprecise, especially in the U.S.,” he says. “The consumer doesn’t buy a Swiss watch, but rather a brand.” He terms generic advertising only a “partial strategy” that must be combined with brand name identificaion. Schulthess in turn suggests that healthy individualized marketing and competition may still be the best approach.

Kellerhals professes neutrality, but observes: “Many believe it’s up to the individual entrepreneur, not the watch industry or the government, to invest…to get out into the market and take risks…that it’s a free market which actually determines who’s strong enough to prevail.”

Most disturbing to critics, though, is the notion that the merged ASUAG/SSIH is no more than an “artificial” concept dreamed up by underwriting Swiss banks and management consultants who know nothing about watch marketing. “This whole Swiss thing is a bit diseased,” exclaims Harmon Marketing Corp. president Joe Harmon, a long-time American observer in Basel. “It’s obvious the banks are calling the shot…and are suffering from mild hysteria.”

Clearly the Swiss have the technology, product, price structure and marketing potential to succeed. Failure, by most accounts, would be an incalculable tragedy not only for them, but the watch world as a whole. Declares Seiko president Robert Pliskin: “I wish the Swiss well and hope they can find some way to get it together. The marketplace needs them…and wouldn’t be as good without them.”

But Pliskin’s sentiments beg the inevitable question: Are Swiss watch producers at last ready to march to the regimental drum of ASUAG/SSIH and Ernst Thomke in a coordinated crusade against Far Eastern foes, or will they stubbornly remain “Swiss” and divided among themselves? One thing is certain–the ASUAG/SSIH merger and Ernst Thomke are destined to shape the fate of this problem-racked industry for decades.