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Swatch Group: is Swiss time running out?

The one-time saviour of the Swiss watch industry, Swatch Group, is now the proud parent of a stable of icon brands.

But Swatch Group stands at a crossroads as its board battles to stabilise its share price in bleak economic conditions.

With a rich legacy and leading position in the global industry, should Swatch push further into the realm of luxury watches, or widen its appeal with more accessible offerings?

This one isn't just about profit, it's about nurturing the equity of brands to protect cashflow in the future.

Welcome back to Strategy Standoff. This month we dive into Swatch Group brand portfolio strategy to take a look at how they plan to maintain growth.

Can you guess which they chose?

In the 90s, Swatch singlehandedly saved the Swiss watch industry from oblivion after the quartz crisis threatened to replace mechanical watches for good.

From there Swatch Group grew into a global giant, acquiring a large and impressive portfolio of high-end watch brands just in time for the rise of the luxury industry in the 2000s.

A Luxury Behemoth

In 2024, it owns Omega, Longines, Rado, Tissot, Breguet and Blancpain, and many more.

It also runs hundreds of luxury retail shops and owns its own manufacturing facilities that make “white label” Swiss clockwork movements for other fashion brands around the world.

Swatch Group is huge, employing 31,000 people and turning over $8 billion Swiss francs (about $14 billion Aussie pesos).

The Strategic Challenge.

As an exporter, the stubborn appreciation of the Swiss franc is a big issue for Swatch Group.

The Swiss Franc is the most overvalued currency on the planet according to the The Economist Big Mac index. (If you’re curious a Big Mac in the US is $5.69 but in Switzerland it is an equivalent of US$8.17 - about AUD$12).

Swatch CEO, Nayla Hayak sees it as a critical issue for Swiss manufacturing and export, saying: "The Swiss franc has continued to strengthen. There is no recovery in sight….The preservation of thousands of jobs and the innovative capacity of the businesses based here are at stake."

Concerned about a possible share price slump, Swatch Group wanted to push for value growth. Fortunately, it has a huge portfolio of brands to work with.

This week’s Strategy Standoff:

To jumpstart demand under a strong Swiss franc, should Swatch Group double down on high-end luxury, or reach to the masses with lower priced options?

The Strategy Standoff

Strategy A: Prioritise Premium

Go even further upmarket using ultra-premium brands and increasing exclusivity and pricing.

This option follows a proven model (think, Hermès and LVMH) and would tap the seemingly insatiable global demand for luxury goods by the global upper and middle class.

This option would create profitable growth while enhancing perceptions of brand value. However, it could hit headwinds during a cost-of-living crisis if wealthy households hit the brakes on discretionary spending.

Strategy B: Aim for Affordability

Reach downmarket and build some serious extra volume (and cashflow) by launching inexpensive, versions of its luxury brands.

After all, the group was founded on the low cost Swatch brand so this is a back to-the-future approach.

It would make their luxury watches more accessible but risk eroding equity in their prestige brands. Grabbing the attention of younger customers might also push big volumes through their own manufacturing plants.

answer

So, Which Did They Choose?

Cast your vote to find out!

Better luck next time, Strategy B was chosen!

Good Job, Strategy B was chosen!

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But how will this work out for Swatch...

Expert Facilitator Commentary By Matt

Matt Braithwaite-Young

Managing Partner

t +61 2 9002 3100

Contact Matt

Swatch Group made a bold move. It cross-promoted its luxury brands with its mass market brands, starting with Swatch x Omega.

This made branding professionals wince. Swatch Group not only cross promoted luxury with cheap but they developed a hybrid brand model.

Take a look at this. Can you see the difference? They are pretty similar, aren’t they!

The hybrid Swatch version on the right, was only US$260 which is 4% of the base price for the flagship Omega Speedmaster, worn by US astronauts on the moon.

No wonder it sold 1,000,000 units. It looks identical.

And Swatch Group printed money with an +18% sales increase despite the Swiss franc appreciation.

A short-term success. But is this a good idea in the long term?

As a parallel example, should BMW Group, who own Rolls Royce and Mini, make a Mini x Rolls Royce model for $40,000?

If they did, they – like Swatch x Omega – they would probably sell a lot of cars, but the truth is, they’d also drain equity and aspiration from Rolls Royce. No self-respecting oligarch wants to drive a brand the local drug dealer can pick up for a mere $40k!

Back to Swatch Group.

Interestingly, many in the watch industry saw this as a genius move.

François-Henry Bennahmias, CEO of family owned Audemars Piguet, said: “Their collaboration is a great idea which does not affect the integrity of Omega at all because it educates the younger generation about the icons of watchmaking.”

Really? What Swatch Group are doing is cashing in on their luxury brand equity by allowing young people to buy into a luxury brand without having to shell out the big bucks.

If you’ll allow me to be a bit cynical, I wonder if Audemars Piguet and the other independents are happy to watch Swatch Group devalue their luxury portfolio overnight.

When your biggest competitor is destroying the longterm future of its luxury brands, it’s a good idea to encourage them!