The Swatch Group Limited

founded: 1983

Contact Information:

headquarters: seevorstadt 6 2502 biel, bern switzerland phone: +41-32-343-68-11 fax: +41-32-343-69-11 url: http://www.swatchgroup.com

OVERVIEW

The Swatch Group is known for its trademark watches and time pieces. It is the largest watchmaker in the world and is responsible for the manufacture of many name brand watches and clocks. The company was formed through multiple mergers of smaller Swiss companies, which are now all operating under the Swatch umbrella. Although the main focus of the company is consumer sales of wristwatches, the company does have interests in battery making, telecommunications components and timing and scoring devices.

COMPANY FINANCES

The Swatch Group has posted double digit profit margins for nearly a decade. The company had a record setting year in 2000 posting $2,563 million in revenues and $403.9 million in net income. The resulting 16 percent net profit margin was an increase over the 12 percent margin established in 1999. During 2001 the company was forced to revise its prediction of continued double-digit growth. The decline was attributed to an overall poor global economy and the slowdown of in the sales of luxury items. The forecast for 2001 was dropped from a projected 10 to 12 percent sales growth to a more modest 5 to 8 percent increase. Management indicated in its statement that this revision is not a sign of more serious problems.

ANALYST'S OPINIONS

Analysts reporting on Swatch are optimistic about the future of the company. Although it has not met expectations in recent months, at least one analyst observed that the company was too optimistic in its forward looking statements. Christoph Bohli, an analyst at Bank Sarasin, questioned the outlook for the remainder of 2001, but concluded that there was no concrete reason to be concerned about long term prospects. Also in 2001 Swiss analyst, Gina-Luca Manca, of HSBC downgraded her rating from a "buy" to a "hold". She stated, "The company is wary of a deteriorating U.S. economy, and weak demand from Japanese tourists." Martine Rogonon of Banque Bordier offered a different opinion noting that Swatch does not have great exposure to Japan and that the decline in sales in 2001 was due to overall bad economic conditions worldwide.

HISTORY

The Swatch group was formed in 1983 by the merger of two Swiss watchmakers: ASUAG and SSIH. ASUAG was founded in 1931 with the goal of building and expanding the Swiss watch industry. SSIH was founded in 1930 as a result of a merger between Omega and Tissot. Both companies grew by acquiring other local companies, but struggled during difficult economic times. In addition, each company controlled so many small subsidiaries it was difficult for either to maintain consistent policies throughout operations.

In the 1970s both companies were in financial trouble. Japanese watchmakers were mass producing inexpensive watches and gaining valuable market share. Nicolas Hayek, who was the Chief Executive Officer at a consulting firm bearing his name, was asked to evaluate the situation. The Swiss financial community wanted to preserve the rich Swiss tradition of watchmaking and hoped a recovery strategy could be developed. Hayek completed his work, which would be known as the Hayek Study, and recommended that the two rival firms would benefit by joining forces.

In 1983 SSIH and ASUAG merged and became SMH (Societe Suisse de Microelectronique & d'Horlogerie). The first year the newly minted conglomerate posted $124 million in losses on $1.1 billion in sales. The company countered the Japanese domination of the low cost watch market by introducing the now famous Swatch Watch. It was high tech, low cost and much more appealing to the younger crowd. The launch was a huge success and did not diminish the polished reputation of the more upscale brands owned by the company. Nicolas Hayek apparently liked the potential of this new company he helped create. He soon took over the majority of shares and was named CEO of the new company. He revitalized the company, introduced new ideas, and is widely credited with salvaging the failing Swiss watch industry. The next ten years were very profitable for Swatch and Hayek, its new leader.

In 1998 the company officially changed its name to Swatch to increase visibility and create brand identity. SMH was a rather non-descriptive name and was often not even recognized by the buying public. Hayek decided to raise the company's profile in the United States by holding a gala event, a glitzy three day event in Las Vegas at Caesar's Palace, to publicize its new product lines. A group of international journalists were then transported by Swatch bus to a resort in Death Valley. Dinner was provided by celebrity chef, Wolfgang Puck, and the entertainment by the Cirque du Soleil.

The next few years would be all about marketing and brand development. There was never any doubt that the watches produced by the Swiss conglomerate were some of the finest timepieces in the world. The company merely needed to formulate a plan to keep new ideas flowing and the brand name in the public consciousness.

FAST FACTS: About The Swatch Group Limited

Ownership: Swatch is a publicly owned company traded on exchanges around the world including London, Frankfurt, Munich, Berlin, and the New York Stock Exchanges.

Ticker Symbol: UHRZ.S

Officers: H.C. Nicolas G. Hayek, Chmn. and CEO; Edgar Geiser, CFO

Employees: 17,719

Principal Subsidiary Companies: The Swatch Group is the largest watchmaker in the world. It is the parent company to many subsidiaries including: Longines, Omega, Tissot, and Endura.

Chief Competitors: The Swatch Group is primarily in the business of making watches. The company also has interests in chip manufacturing and electronic components. The main competition for Swatch products is other watch manufacturers, most notably Timex, Fossil, Guess and Rolex.

STRATEGY

Swatch developed its own strategy for presenting its merchandise to the watch buying public. Hayek felt strongly that U.S. department stores did little to enhance the image of his product. In most instances, department stores arranged multiple display cases in one crowded area with little means of differentiating one brand from the next. The company announced a plan outlining a major expansion of monobrand retail stores in locations worldwide. Hayek's plan called for 500 new stores to open globally. One hundred of the new stores were given U.S. addresses. The chain of stores allowed the company to create a unique atmosphere surrounding its products. In addition, management wanted to emphasize the high tech aspect of Swatch gear, which was often overshadowed by the attention dedicated to the colorful designs. It was able to implement this strategy in its own retail space.

INFLUENCES

The Internet, wireless technology, and entertainment outlets influence even the oldest and most traditional industries. Swatch is not immune to the wave of new products that continue to reach the market. Despite having roots steeped in tradition, Swatch is generally perceived as a youth oriented brand. In order to reach the youth in America and keep time with them, Swatch took to the net, the Internet. In a bold move, the company created a concept called "Internet time". The idea came from Nick Hayek Jr. Internet time is a standard time established online. It doesn't require mental arithmetic to determine conversion times in different zones. CNN.com has adopted the time for use on its Web site to schedule chats or games. Ericsson incorporated the feature into its latest cell phone prototypes to obtain a competitive advantage over its rivals.

Swatch's partnership with the Internet doesn't end with the time concept. Swatch and AOL/Time Warner have signed a marketing deal agreeing to collaborate on promotional activities. It is possible that one day soon the Internet will be accessible by wristwatch.

CURRENT TRENDS

The company continues to forge partnerships with technology providers to create new products aimed at the youth market. The majority of the company's brands, such as Omega and Tissot have long histories and are well respected among the customer base. They are impervious to trends and fads and never seem to go out of style. Brand loyalty is strong for the established company brand names. The company continues its efforts to market innovative products to a new generation of consumers.

CHRONOLOGY: Key Dates for Swatch Group

1930:

SSIH was founded

1931:

ASUAG was founded

1983:

The Swatch Group was founded by the merger of SSIH and ASUAG

1985:

Nicolas Hayek acquires a majority interest in the company and becomes CEO

1998:

Swatch Group sells its participation in Daimler Benz

2001:

Swatch enters partnership with AOL Time Warner to cross promote products; Swatch signs multi-year contract to be official timekeeper for the Olympics

BRAINS, BRAWN, AND BOND

Swatch has designed several advertising campaigns aimed at attracting young male customers. There is something for everyone, no matter who your hero. NBA star Shaquille O'Neal is featured in a campaign scheduled to roll out in spring of 2002. The theme of the ads is "I want to be." James Bond will also be a mainstay in one of the new promotions. Swatch plans to sponsor Bond nights at movie theaters, and will release a set of collectible theme watches. Twenty different watches will be created in honor of various movies. The watches will be released in set throughout the year and will commemorate the 40th anniversary of the Bond series. Finally, for the young man with more cerebral interests, Swatch will sponsor a chess match between two of the world's highest ranked players: Gary Kasparov and Judit Polgar. The game will be played on a Swatch chessboard and use Swatch timers.

PRODUCTS

The Swatch group produces wristwatches in every price range. The group controls more than two dozen brand name watchmakers: Longines, Omega, Renata, Rado, and Tissot. In addition the company creates sophisticated time keeping devices for and held interests in automobile maker Daimler Chrysler. In the year 2000 watches accounted for 73 percent of total sales, watch production and components 17 percent, and electronic systems 10 percent.

GLOBAL PRESENCE

The Swatch Group is the largest watchmaker in the world today, garnering about one quarter of the global market for time pieces. The watches are made in factories and production centers located in Malaysia, China, Thailand, Italy, Germany, France, United States, Virgin Islands and Switzerland. Watches are sold in "mono-brand" Swatch stores worldwide, as well as upscale brand boutiques for the luxury items. In an effort to expand its global appeal Swatch has signed on to become the official timekeeper of the International Olympic Committee. The company has signed a long term contract to provide timing and results reporting services through 2010. The company will also work with the ParaOlympic games in a similar capacity.

CORPORATE CITIZENSHIP

Since its formation almost 20 years ago, the Swatch Group has worked to be a role model for corporate citizenship. Much of the company's philosophy originates with CEO Nicholas Hayek. Hayek has long been vocal on the international scene and does not hesitate to take a stand on the issues. In 1992 Swatch marketed a special watch to commemorate the United Nations Conference on Environment and Development. Swatch also designed a self-winding watch in honor of Earth Day and called it "Time to Move." The company is also a supporter of the Olympics. Nicolas Hayek discussed his firm's partnership with the IOC and offered the following comments, "they are more than a sporting event-the Games are an emotional festival and the most perfect, peaceful and warmhearted competition between youth. The Olympic Games fit perfectly with Swatch's strategy."

MAKE YOUR OWN TIME

Swatch is encouraging customers to make their own time, or at least their own advertisement for time. The company is one of a growing number of cutting edge firms that are turning their advertising campaigns over to the customers. It asked animators to log on and design an ad campaign promoting its revolutionary concept of "Internet Time." Internet time is a standardized timekeeping system that allows users around the world to be on the same time clock. The company received original work from more than 300 artists in 30 different countries.

EMPLOYMENT

The Swatch Group boasts over 17,000 employees worldwide. Almost 60 percent of all workers are based in Switzerland and another 30% are in Asia. The remaining 15 percent are housed in offices throughout Europe and in the United States. The workforce has grown each year for the past ten years beginning in 1990. In 1990 the company claimed approximately 12,500 employees.

SOURCES OF INFORMATION

Bibliography

Dolbow, Sandra. "Swatch Bonds next mission with 007, Shaq." Brandweek 21 January 2002.

Ellis, Kristi. "Swatch at 15: A New Identity." Women's Wear Daily6 July 1998.

Freeman, Laurie. "User Created Ads Catch On" Advertising Age, 18 September 2000.

Hall,William "Swatch halves its target for sales growth." Financial Times21 August 2001.

"It's about Time." The Online Reporter, 13 November 2000

Lynn, Matthew. "Clock is Ticking as corporate Switzerland loses its sheen." Sunday Business, 26 August 2001

Shuster, William George. "Swatch Group's net profits fall." JCK's High-Volume Jeweler, November 2001

"Swatch Higher on FY Sales Figures." AFX European Limited, 6 February 2002.

Underwood, Elaine. "A self-winding eco-pitch." Adweek's Marketing Week, 13 April 1992.

For an annual report:

on the Internet at: http://www.swatchgroup.com/investor

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. The Swatch Group Limited's primary SIC is:

3873 Watches

Also investigate companies by their North American Industry Classification System codes, also known as NAICS codes. The Swatch Group Limited's primary NAICS code is:

334518 Watch, Clock, and Part Manufacturing