Swatch boss sees no need for strategy shift

Nick Hayek reacts during a press conference earlier this year. Keystone

Nick Hayek, CEO of Switzerland’s Swatch Group, denies his company is experiencing a crisis, despite collapsing earnings and criticism from some shareholders.

This content was published on July 22, 2016 minutes

The outspoken head of the world’s largest watchmaker sees no need to change his company’s strategy, calling it an “exceptional situation” that profit slid as much as 60% in the first half, which caused a steep drop in shares last week.

Describing the situation as a crisis was “not only false but also exaggerated”, Hayek told French-language newspaper Le Temps on Friday. He has led Swatch since 2003, and his father is credited with rescuing Switzerland’s watchmaking industry three decades ago.

Net income for the Biel-based group fell by 52% or CHF263 million ($267 million) in the first half of the year.

One French expert says the Swiss watchmaking industry is in trouble:

“Our turnover is certainly down 11.4% in local currencies, but we see many countries – Japan, mainland China, Thailand, Canada and so on – where our sales are growing in a quite positive manner,” Hayek said.

“The problem comes mainly from three countries: Hong Kong, France and Switzerland. In the first case, sales are improving in our own stores from -10% to 5%, but with our retailers we are still sometimes -50% ... It’s a psychological problem; they are afraid to stock.”

No surprise

Hayek said it was no surprise that tourist shops experienced a sales drop after the terror attacks in France. He also noted that biometric visas demanded of Chinese tourists, who like to buy Swiss watches, were causing problems in Europe and Switzerland.

“I’ll give you an example: we have an Omega store in Lucerne which usually generates between CHF60 million and CHF80 million in sales annually,” he said. “With 40% fewer tourists, we can write off 40% of those sales. In short, these are extraordinary phenomena in exceptional situations.”

Asked about Swatch’s financial statement, which says the company plans to retain all of its employees in Switzerland, Hayek called this a normal practice for temporary contracts.

“There are perpetual adjustments, even during periods of growth. And some employee losses due to natural attrition were not replaced. But again, this is something completely normal,” he said, adding that the company had no need to develop a new “plan” for itself, because there was no structural crisis.

“If clients think you are going to lower your prices, they will wait before buying. And wait. This is the spiral of deflation. Swatch Group’s strategy does not rely solely on luxury, but on all segments of pricing staying strong, constant and unchanging,” he said.

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