Blog: You, us, everyone

Introduction:
The Swatch Group, based in Biel, Switzerland, has grown into the world’s largest and most diverse manufacturer and distributor of timepieces. Its products are sold worldwide in more than 16,000 shops, which are either its own stores or franchises.

Swatch has created and controls the entire value-chain i.e. design, procurement, manufacturing and the sale of timepieces. This gives the company the cutting-edge advantage of being able to offer products below effective market prices. Swatch operates across all price segments, from the low-cost fashion based Swatch brand, the mid-class brands such as Longines, Tissot, and Omega, to luxury brands such Breguet, Harry Winston, Blancpain and Glashütte Original. In addition to components for watches and jewelry, Swatch also produces components for the medical and automotive industries.

More than 52% of its sales are from Asia (China accounts for 20%), which is the company’s principal growth driver. European markets contribute about 35% to sales, the Americas about 9%, Japan about 3% and Africa 1%.

The recent Swiss-Chinese free trade agreement, which includes a 60% reduction of the import tax rate for 10 years, will reinforce Swatch’s market position. Asian sales are expected to increase annually by about 8% over the next 5 years to reach 60% of the group’s sales by 2018.

Since the company’s foundation in the early 1980s, management has applied a visionary strategy and has been able to operate successfully in a highly sensible sector. Sales are largely affected by macro-economic trends, counterfeit, exchange risks and rapidly changing consumer demands.

Strengths and weaknesses analysis / Fundamental analysis:
Strengths:

• Swatch has extremely well managed balance sheets; it disposes of about CHF 1.5 billion in cash for R&D or acquisitions,
• Since 2009 the amount of invested capital has increased. In the same period, revenues  have moved in parallel,
• The company controls and defends its value chain well, - Swatch exploits its brand name, “Swissness” and Swiss product styling extremely well.
  

Weaknesses:

• Sales depend largely on the success of the Asian market,
• The company has changed its reporting to meet Swiss GAAP accounting standards,
• Sales in mature markets such as Europe and the Americas are stagnating,
• Given the complex structure of the conglomerate, with more than 160 affiliated companies, it is difficult to properly determine the growth drivers.