SWITZERLAND’S WATCH INDUSTRY RISES AGAIN

One thing you’ve got to say for the Swiss watch industry: it’s resilient.

Twenty years ago, it was the world’s No. 1 watchmaker in volume, value and reputation.

Ten years ago, beset by what a leading Swiss bank called “a series of technological, economic and structural upheavals,” it seemed to be sinking into oblivion.

Now, it’s bounced back, thanks to major structural changes, innovative products and aggressive marketing. If no longer the world’s leading watchmakers, the Swiss have regained some of their market share. And they intend to keep it.

Downfall: In 1969, the Swiss were the king of the watch hill. One of every two watches (stuhrling reviews)– almost all of them mechanical movements — were Swiss-made. But that changed with the advent of electronic watches (quartz crystal analog and digital). Swiss technicians had been fiddling with the new technology, but the Japanese and Americans were the first to adapt it to the commercial watch market.

Many Swiss watchmakers thought digital and quartz watches were a fad, so they continued to concentrate on mechanical watches through the early 1970s. By 1975, they started to feel the heat as the U.S. and Japan snatched large chunks of the market. Swiss exports dropped 22% — serious for a land that exported 97% of its watch production — and sales in the U.S. — its largest market — were off 40%.

An enormous backlog of unwanted mechanical watches built up, tying up critical amounts of capital. Small companies closed, and for the first time in decades, Swiss watchmakers laid off workers in large numbers.

Making modules: The Swiss didn’t entirely ignore the quartz revolution. Major firms such as ASUAG, one of the country’s biggest watchmaking groups, made quartz modules (the equivalent of mechanical movements) for other firms’ electronic watches. And Ebauches S.A., a major movements producer, worked with Texas Instruments to produce liquid crystal display (LCD) digitals for a few Swiss brands.

But overall, the Swiss were slow to develop their own electronic timepieces and innovative, aggressive marketing campaigns. Other problems beset the Swiss also. Unlike the unified Japanese watch industry, the Swiss industry comprised hundreds of independent firms. And when the U.S. dollar was devalued in the mid-1970s, the Swiss franc sky-rocketed, making Swiss watches (read akribos watch reviews for more details) more expensive and less competitive in foreign markets.

In the late 1970s, the Swiss began to fight back. They invested heavily in electronic equipment, and by 1979 were making all their own quartz components. They entered the digital field in full force and put more stress on quartz analogs. The changeover to quartz technology also led to more coordination and consolidation among the country’s many small producers.

Facing `disaster’: But the changes came late, and the Swiss industry entered the 1980s facing its biggest crisis in decades.

In 1981, key Swiss watchmakers got a stern warning from Gedalio Grinberg, chairman of North American Watch Co., a successful marketer of upscale Swiss watches. He said the Swiss faced “disaster” if they didn’t challenge the Japanese advances in the low- and mid-price range in the U.S.

At the time, the speech seemed more epitaph than warning. Production of Swiss watches and movements was dropping (from 96 million in 1976 to a low of 45 million in 1983). Exports to the U.S. fell 50% from 1976-’81 (12 million to 6 million), and Swiss watch firms dwindled 47% from 1970-’79 (1,620 to 870).

Switzerland’s major watchmakers were in serious financial trouble. In 1980, SSIH, another large watchmaking group, lost some $80 million. In 1981, it got a $150 million credit transfusion in a rescue devised by a consortium of Swiss banks. Even so, SSIH and ASUAG lost a combined $50 million in 1982.

Shotgun wedding: In a surprise move the following year, ASUAG and SSIH announced they would merge to cut losses to Far East competition, to regain market share and to try to revitalize the Swiss watch industry. The merger included ETA, the largest Swiss movement maker and a subsidiary of ASUAG.

Actually, the merger was something of a shot-gun wedding, demanded by the bank consortium that earlier came to ASUAG’s rescue. The consortium wanted to help the two firms because they represented more than half the annual output of the Swiss industry. The bankers kicked in $300 million in credit in return for a streamlined, efficient firm with the product, financing and marketing know-how to compete with the Japanese.

The result was the ASUAG/SSIH Group, later renamed the Swiss Corp. for Microelectronics and Watchmaking Industries Inc. (SMH for short in English).

Enter Swatch: Even before the merger, ASUAG started to work on ways to beat the Japanese at their own game. In 1979, it developed the Concord Delirium, a luxury watch of record thinness (1.98mm) featuring a quartz movement integrated with the molded case, rather than assembled separately, then encased. If that one-piece construction could be applied to a mass-market watch, engineers reasoned, they finally might have something to use against the competition.

After almost two years of work, they came up with the answer: a one-piece, sealed, $30 watch called Swatch (short for “Swiss watch”). In a sharp departure from Swiss hand-crafted artisanship, Swatch watches come off an automated assembly line at ETA’s plant in Grenchen, Switzerland.

ETA test-marketed Swatch in the U.S. in late 1982 and formally launched it with an aggressive worldwide media campaign in 1983. The watch took the world by storm. Within in a year, Americans were buying 100,000 Swatches a month. Within five years, more than 50 million had been sold worldwide.

Fashion accessory: Swatch’s production was innovative, but even more important was its focus on watches as fashion accessories. Since 1983, Swatch has introduced more than 400 models in styles for every season, taste and activity. Among them have been the transparent Swatch, the Granita di Frutta Swatch (fruit-scented), Pop Swatch (oversized watches on elastic bands) and even metal-case Swatches.

The impact has been spectacular. Swatch almost single-handedly revived the fortunes of the ASUAG-SSIH group. In 1985 alone, Swatch watches accounted for most of the 12.2% increase in Swiss exports and led to the hiring of thousands of people in the Swiss watch industry.

It also spawned a variety of knockoffs and imitators, and led the movement of watch firms into nonwatch products such as clothing sporting watch logos. By the late 1980s, the firm opened Swatch boutiques in U.S. department stores and flirted briefly with Swatch merchandise (from sunglasses and towels to razors and phones), before deciding to concentrate again just on watch and watch accessories.

The innovation at SMH wasn’t limited to Swatch. Tissot, another SMH brand, brought out the RockWatch (case carved from granite), the ShellWatch and the Wood Watch. And Omega, SMH’s well-known upscale watch, streamlined its inventory and operations and made a strong comeback in the U.S. and globally in the late 1980s.

The innovation reached even the upper end of the industry. Most luxury watch manufacturers added quartz models to their lines, and some — such as Patek Philippe and Vacheron Constantin — started to use computer-aided-design technology to develop new citizen mens watches and movements.

Merging: Consolidation of the Swiss industry accelerated through the 1980s, especially among high-end watch firms.

For example, Audemars Piguet acquired 40% of Jaeger-LeCoultre. Top management acquired Girard-Perregaux then agreed with Italian jeweler Bulgari to set up a new firm to produce watch movements. And Mondaine Watch Ltd., best known for its mass-market M-Watch and its Gruen Swiss watch line, bought Lusa S.A, a Swiss watch-case factory.

But much of the consolidation was orchestrated by non-Swiss buyers. Sheik Yamani, former Saudi Arabian oil minister, acquired Vacheron Constantin. Cartier bought Piaget and Baume & Mercier (giving Cartier 40% of the global luxury watch market, up from 25%). Asia Commercial Co., one of Hong Kong’s biggest quartz analog manufacturers, bought Juvenia. And Stelux Holdings, one-time owner of Bulova and probably Hong Kong’s largest and best-known watchmaker and retailer, bought Universal Geneve.

The acquisitions and mergers have injected new funding into old-line firms, enabling them to improve or expand production facilities and marketing. By the end of the 1980s, it was apparent the Swiss had regained their footing in the slippery world watch market.