The world of watches. An industry of luxury, style and class. Within the world of watches most individuals are familiar with the big luxury brand such as Rolex, Omega and Breitling. The watch company Swatch broke industry standards and became a competitor to these brands listed. The watch company Swatch was founded in 1983 by Lebanese and Swiss businessman Nicolas Hayek. The owner and subsidiary of Swatch is The Swatch Group. Swatch is a contraction for the phrase “second watch”, this is because the whole sales purpose of Swatch is casual second hand watches that were suitable for all occasions. Since its creation Swatch has thrived in the watch industry and has matched itself with prestigious competitors such as Tag Heuer, Fossil, Zenith and Tissot.
In order to understand future strategies for Swatch and how they operate in their current market a PEST analysis will be conducted. A PEST analysis is an acronym for Political, Economic, Social and Technological factors that are crucial in understanding a market. Swatch is based in Switzerland so the political factors will primarily be focussed on Swiss business, tax and trade policy. Corporate Tax policy in Switzerland stands in several brackets. The highest corporate tax rate in Switzerland stands at 25% which is the threshold that Swatch stands at. Comparatively to the rest of the world Switzerland is no tax haven but is significantly lower than that of other western countries. This tax rate is not high enough to alternate production or manufacturing as all Swatch watches are made in Switzerland. When it comes to trade Switzerland's primary trade recipient is the European Union's single market followed by China and the United States (European Trade Commission, 2018). Switzerland has good standing the United States at the moment so there are no issues with tariffs or trade, which is subject to change. The second factor that must be examined is that of the economy.
Macro environmental analysis
When it comes to the watch industry, companies segment their clients into two main parts: demographic and behavioural. When it comes to the demographic aspect of it, companies mainly focus on age and gender. Age is a very important aspect, as buying patterns determine the style and look of the watch. A younger person might be attracted to more “original” designs with many different colours and with more spontaneous habits, as opposed to an older person which probably is going to be more attracted to a more conservative look and is going to want to see the watch a couple of times before making a decision on whether or not to buy it. The price of the watch is also a very significant, as younger people are increasingly buying watches. Usually, they would be looking at something with great and innovative design at a fairly low price.
Gender plays an important role in watchmaking. In the past, men and women watches looked very different. Nowadays, the gap between a man's watch and a woman's watch has been significantly reduced. Sometimes, the only difference you can find that determine for what sex a watch is, is the colour of the watch. This helps watch manufacturers as they need to spend less time and money on designing different watches for both demographics.
Nowadays, with the introduction of smartwatches, the watch market has changed considerably. If we take the Apple Watch for instance, it is now the highest selling wrist watch after Rolex. Consumers, especially the watch affectionate, have seen all there was to see with watches. This is why new ideas have to be created in the industry; and technology is the way to go. Leading watch executives recognise the importance of understanding what the client wants and to do whatever it takes to find more of them. According to Richemont co-chief, Jerome Lambert: “The world is changing faster, everywhere, and this has huge consequences on the way we have to think our business. One (size) fits all is over. It means it is vital we recruit new customers. We have to show we have not aged but have embraced dynamism. Modernity is the key. If there is something that the (Apple Watch) has shown it's that with the right proposition you can speak to millions of people.”
Political & Economical forces
A number of political events have had a strong effect on the watch market. Mainly those are the clamp-down on China's corruption issues, Brexit in the United Kingdom and the political mood swings in the US since the last presidential elections. When it comes to the Swiss market for watches, their number one market, Hong Kong, has had a 43% crash in 2017, after hitting a peak in 2014. The demand from the United States has had a 10.9% crash and China's demand for Swiss watches has also dropped to 11.1%. The only good news is coming from Australia where the Swiss watch imports have edged in value from CHF 180 million in 2014 to CHF 190 million in 2017.
The sustainable business in the watch industry has made massive advancements over the years. The biggest watch groups worldwide all have in place or want to have in place a full environmental management system such as the ISO 14001. When manufacturing s watch, several stages of production are involved. Each of them must be assessed in relation to its environmental impact and understand how the ecological footprint can be reduced through each stage. The first stage is mining to find the minerals such as gold, silver and platinum. This requires for a lot of rocks to be displaced and these researches are often made in the South American and African continents where environmental protection laws are not rigid or simply are not followed. This can result in water and soil pollution amongst other ecological issues. The second and most seriously impacting stage is the assembly and extra activities such as packaging and R&D. This stage is involved with noise pollution, atmospheric pollution and contribution to global warming, mainly coming from transport, the offices and the packaging.
Competitive environment analysis
Analysis of sector using Porter's 5 Forces
Threat of New Entry
High competitiveness. Power is divided between dominant firms. High Barrier of entry which include manufacturing costs, distribution selection, brand image/heritage. However, there is also high product differentiation and high economies of scale. Here, Swatch might be easier to attack, as their products are relatively simple and accessible; the exact opposite of high-end brands such as Rolex.
A very broad and varied amount of watches are offered on the market. Each are different in design, style and price. This means that customers do not usually easily switch between brands. Although, sometimes, a buyer may prefer one brand, they can often have several watches of different high-end brands as a "collection". Buyer can be divided into two main categories: the consumers (us) and the retailers (shops). These two groups differ in terms of volume of purchase and buyer concentration. Consumers have medium bargaining power in the industry. Even taking into account two high-end watchmakers such as Patek Philippe and Rolex, buyers will not easily change between brands as, although the prices are in the same range, all brands differ in their own positioning and history, increasing brand loyalty.
Suppliers have medium to high bargaining power. When it comes to brands such as Swatch, that create their own watches as they own factories to create and assemble mechanisms, obviously supplier power is low, almost nonexistent. However, when it comes to brands that are not watchmakers such as Tommy Hilfiger or Gucci, that use external suppliers to create and assemble mechanisms, suppliers have significant/high bargaining power.
Threat of Substitution
When we first look at watches, the threat of substitution seems fairly low, as watches are not easily replaced, being a unique timepiece. However, with the constant development of smartphones the circumstances are now changing as people do not necessarily need a watch to look at the time anymore. To that you can also add: computers and tablets and the threat of substitutes becomes high. For this reason, watchmakers need to incentivise buyers to purchase watches. This is why watches are now often seen as a style accessory that reflects the owner's personality and fashionableness more than just a gadget that tells the time.
Competition is high/strong. Most watchmakers are portfolio brands, meaning that many different brands are under the umbrella of one. An example is the Swatch Group, which owns brands such as Breguet, Tissot, Omega and naturally Swatch. As a result, the Swatch groups covers different segments of the market (from high-end to affordable). Moreover, companies compete against each other through highly expensive marketing campaigns to increase brand loyalty and to attract new buyers.
The wrist-watch market has mainly been focused in Europe, to be more specific, in Switzerland. However, Asia has predominantly grown as a market after the introduction of quartz clockwork. Nowadays, the market of watches has been focused mainly in Hong-Kong and Japan (Asia) and Switzerland, Germany and France (Europe).
Switzerland leads the chart with slightly more than 20 billion dollars' worth of exports over
the year 2017, resulting in a 2.7% increase in the local currency aspect.
Interestingly enough, according to Figure 1, the main exporter of watches in value is Switzerland. However, according to figure 2, when it comes to units, China has the lead although the country does not even appear on the value chart. This confirms the argument of mechanical and quartz watches. When it comes to watch making, the Quartz ones are produced in a greater scale, compared to mechanical ones. This is due to the fact that mechanical watches are more complex (labour force needs to be more knowledgeable) and more expensive to produce (many small and complex parts). As a result, mechanical watches are produced on a much smaller scale. Switzerland tends to be more traditional (mechanical) which costs a lot more to make, as well as on the market, produced at a low scale and mostly linked with luxury watches. Contrarily to China who tends to make more affordable watches for everyone (quartz) that are produced at a huge scale.
When it comes to importing, Hong-Kong is at the top of the chain with a value of slightly more than 8 billion dollars in imported watches. A minor fall of 0.6% in local currency aspect compared to 2016.
In addition to being major producers, Europe and Asia are also the main consumers of watches. The biggest consuming continent is Europe, followed by Asia and the United States.
When looking at Swatch, unlike the Swatch Group, it has one top competitor: Casio. Casio's mission is very similar to Swatch; they want to create totally original products and bring fun and convenience to daily life users. Both Casio and Swatch target youngsters, from 15 to 34 years old. Moreover, they have similar prices which make it more affordable compared to brands such as Rolex.
When it comes to Casio, their strength includes sub brands such as the well-known G-Shock and Baby G that target different groups of people. Also, they are seen as a good, reliable brand, especially in the technology sector and they are well known for sponsoring major sports events. Both Casio and Swatch are seen as pioneers of the value for money, creating high quality watches at a low, affordable price.
As previously mentioned, Casio is a pioneer in innovation and technology. They were the first brand to design LCD watches with full-auto calendar. Moreover, they are well-known for their adverts in sports and other, ranging from TV ads to newspapers/magazines and sponsorships.
However, Casio also has weaknesses. For instance, their selling scale is smaller than Swatch. Moreover, some of Casio's watches are seen as not very user-friendly due to some advanced functions that make the watch too heavy and too complicated for the vast majority of its customers.
When it comes to Swatch, their product line is both for men and women aged between 15 to 19, 20 to 24 and 25 to 34 years old. They are usually students and professionals or simply people who like the creative and innovative approach to watchmaking. According to “Kidd” 2007, the age group 25 to 34 have the highest spending power on the market. Moreover, the number of women buying watches for themselves and their partner in the United Kingdom has had a significant increase in the past few years.
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