‘Major Challenges,’ cause 2.8% drop in Swatch Group’s 2001 watch sales

The Swatch Group Ltd.-the world’s largest watchmaker-saw watch sales decline 2.8% in 2001, to almost US$1.8 billion. Several prestigious brands, though, showed strong growth.

Sales of its watch movements and other components dipped 1.5% (to about $824.3 million), though in terms of units produced, there was a 1% gain (to 113.4 million).

Total revenues for the conglomerate (including watch and movements production, electronics, retail stores, wholesale distribution companies and other operations) dipped 1.9%, for more than $2.4 billion for the year.

The Group, which makes and distributes 18 watch brands worldwide, released its results at its Biel (Bienne), Switzerland, headquarters on Feb. 6.

“Reluctant” consumer demand-“especially in the USA”-plus weaker financial markets worldwide since spring, the impact of the Sept. 11 terrorist attacks and “other worldwide, and local unrest” created “major challenges” for the company in 2001, says the report, leading to less than expected sales. “Turnover for the important last four months of the year turned out to be below our expectations,” says the report.

Ironically, revenues of the Group’s 20 wholesale distribution companies worldwide and its limited number of retail stores outside Switzerland, as expressed in the various local currencies, saw a tiny overall gain of 0.7%. When those were translated into Swiss francs, the Group’s reporting currency, though, the result was the 2.8% decline, due to the stronger Swiss franc compared to the previous year against main currencies such as the euro, the yen and a few others.

However, the Group’s products aren’t exclusively horological. The phasing out of other sections, including components for the medical sector, some measuring instruments, and components for the car industry at Universo-Plastik, diminished the Group’s revenues by more than $11.7 million compared to the previous year.

Watch business. In the past two years, Swatch has integrated its high-end brands Breguet, Leon Hatot, Jacquet Droz, and Glashutte-Original. These, combined with Omega and Blancpain, should enable the Group to “develop into one of the most important manufacturers in the top-end luxury and prestige market,” says its report. Capitalizing on their brand names, it notes, the Swatch Group in 2001 also opened three more Breguet stores in Cannes, New York, and Vienna; two boutiques for Blancpain and Omega in Cannes and Paris; a Glashûtte sales outlet in Frankfurt, and its first multi-brand top-range store in Paris under the name of Tourbillion. The Swatch Group also launched new jewelry lines under the Breguet, Leon Hatot, and Omega names.

“The foundations of a growing brand and market presence [in the luxury market’] arte being built,” says the report.

In talking of specific brands and categories, the Swatch Group says the venerable Breguet brand enjoyed “excellent growth” in 2001. Omega’s growth in the European markets, though, was offset by a similar decline in the U.S. market. Longines grew at “solid” rate, while Rado’s sales were “slightly negative.”

“Other brands in the luxury segment have considerable development potential, but during 2001 they did not yet make a notable contribution to the results of the Group as a whole,” the company said.

In the medium-price segment, Tissot, especially, showed strong growth. In the basic segment, there was a further drop in private label business. However, business generated trough Swatch’s e-commerce site in the USA showed “a remarkable rise.”

Sales of watch movements and components fell 1.5%. There was a rise in demand for mechanical movements in all price categories, noted the Group report. However, while orders for “higher price-range movements remained at a high level, [there was] a certain reluctance in placing orders for traditional, electronic, Swiss-made movements [by] our Swiss customers toward the end of the year.”

For basic movements produced and sold in the Far East, there was increased pressure on prices, especially in 2001’s second half, and sales revenues dropped.

The company said it expects “a slight drop” (about 10%) in operating profits for 2001.