Amid much discussion of the watch industry's ongoing challenges, Swiss watch and jewelry manufacturer the Swatch Group helps quantify the situation with some hard numbers. The Swatch Group has announced Key Figures for the year ended December 31, 2016, ahead of more details to follow in its Annual Report in March. The announcement mostly shows falling numbers for 2016 but "anticipates healthy growth in 2017..." Headline-grabbing figures include a decline in net income of 47% from the previous year, from CHF 1.119 billion in 2015 to CHF 593 million for 2016.
With 18 Watch & Jewelry brands representing a broad range of price segments from brands like Breguet and Harry Winston at the very high end to inexpensive plastic Flik Flak watches, the health of the Swatch Group is linked to that of the Swiss watch industry in numerous, symbiotic ways. We know the industry overall is currently struggling, but here are a few more Swatch Group figures: Net sales for the Watches & Jewelry segment (including Production) were CHF 7.305 billion, representing a decrease of 10.7% from the previous year, a performance reflected across the group that overall reported net sales down 10.6%.
The operating result (aka operating income, meaning profit after deducting operating expenses) of CHF 805 million represents a sobering 44.5% decrease from the previous year. Swatch Group specifically refers to "massive shortfalls" in third-party purchase and order volumes for things like watch movements and components - even though the group's movement super supplier ETA was once confidently moving to cut off supply (as David Bredan fully explains here) to companies outside the Swatch Group.
We get a sense of scrambling amid the industry-wide "crisis" at the other big Swiss luxury conglomerates as well. At Richemont, a major management shakeup announced in November last year recently continued with CEOs replaced at a number of top brands. At LVMH, the indefatigable Jean-Claude Biver recently added interim CEO at Zenith to his broad-ranging responsibilities and mission to make Swiss watches great again in any and every way possible. LVMH actually reported 5% growth in revenue for the year ended December 31, 2016. Seeing Richemont and LVMH's frantic activity, followed by Swatch Groups notably poor 2016 results, one may reasonably ask what actions Swatch Group is taking in order to keep it together.
As mentioned above, the Swatch Group's announcement attempts to give shareholders cause for optimism. The operating margin (basically, a ratio of how much profit a company is making from each dollar of sales) was down (now 12.2% from the previous year's 18.8%) for the year. The Swatch Group, however, points to an improvement of 2 percentage points in its operating margin for the second half of the year over the first half. (For more in-depth business and finance analysis on this subject, also check out this article on the site Watch Ponder by aBlogtoWatch contributor Aaron Stark.)
There's more good(-ish) news. Just as Richemont noted back in November, the Swatch Group also confirms that some regions, like the Middle East and, particularly, Mainland China, saw strong sales growth in Watches & Jewelry at the end of 2016 and into 2017 - apparently being the main basis for 2017's overall positive outlook. "Healthy growth" is also forecasted for the USA and Europe. That is a good portion of the globe and some bold optimism considering the numbers just released. Their Electronic Systems segment is also cited as an area of potential growth. Swatch Group Chairman Nick Hayek says that a 7-10% rise in revenue in 2017 can be expected in local currencies, while growth for the company will depend a lot on exchange rates, according to Bloomberg.
The Swatch Group agrees with our assessment that the industry's problems are not due to a lack of interest in Swiss watches. They seem to offer reassurances to employees and say that their e-commerce and extensive production chain is in a strong position to take advantage of consumer enthusiasm - but not so much why it failed to do so in recent years. You don't need an MBA or even to know all the finance terminology to get the picture that the industry has been treading water, but after the recent SIHH 2017 watch industry trade show, we concluded that the Swiss are indeed "holding on tight."
Swatch Group also gives enthusiasts something to look forward to by promising that "the year 2017 will be marked by many new product launches by our brands." Specifically, the 60th anniversary of the Omega Speedmaster is cited as a "strong stimulus," further praising their recent successful #SpeedyTuesday limited edition watch. Also, Swatch has promised to launch a "unique new very slim Skin collection," as well as the second generation of the Swatch Bellamy as a contactless payment device. We'll keep you posted...
For now, we can say that we hope for a healthy industry, more great products, with more realistic value propositions. swatchgroup.com