Can Swatch Bring Back the Good Times?

To Swatch or not to Swatch? That is the question many U.S. retailers are asking as the watch brand struggles to win back the success it enjoyed in its heyday.

In the 1980s, Swatch helped resuscitate the Swiss watch industry by transforming the way consumers perceive watches. The brand popularized colorful, fashion timepieces, gave consumers a reason to buy multiple watches, and bucked traditional methods of marketing. With its finger on the pulse of American tastes, Swatch became the industry’s most creative player.

How times have changed. Today, Swatch is at a dangerous crossroads, with many retailers questioning whether the 15-year-old brand still retains its cachet and deserves prominence in their stores. Some stores have even dropped it. Now Swatch is struggling to reposition itself by branching out into new technologies and into retail stores of its own.

Stumbling blocks. How could a brand fall so far off its pedestal in the United States in recent years? Are the young Swatch wearers of past years graduating to more exclusive brands as they move up the corporate ladder? Are there too many Swatch products on the market, diluting the brand? Has the brand suffered in the face of increased competition from the likes of Fossil and Guess? Or did Swatch simply fall prey to arrogance? All are likely factors, according to retailers and other industry sources.

Nicolas Hayek Sr., Swatch Group chairman, admits Swatch has encountered problems here. But he insists the brand is doing well and improving. “In the United States, we expect sales to be between 10% [and] 12% higher than last year – if things don’t deteriorate by Christmas because of the Russian situation, Wall Street problems, and Clinton and Monica,” says Hayek.

Many retailers are considerably less sanguine about the brand’s prospects. Some even say that Swatch is “dead.” While that may be an exaggeration, it reflects the passion retailers feel for a brand that once brought heady profits. “Swatch came out with more product than the market could bear, and the consumers seemed to back off,” says Steven Rosdal, co-owner of Denver-based Hyde Park Jewelers, a luxury jewelry store that no longer carries Swatch. “I guess if you use the word ‘fad’ for anything, it could be used for Swatch.”

Many say the brand was blindsided by Fossil and Guess, which ran with the fashion watch momentum initially created by Swatch. Both have chipped away at Swatch’s market share ever since.

Discontented department stores. Swatch distributes its product to major chains, independent jewelers, department stores, luxury retailers, and its own boutiques. The perception that Swatch is struggling comes primarily from disappointing department store sales, says Yann Gamard, president/CEO of the Swatch Group USA.

Hayek and Gamard say department stores haven’t given Swatch the respect it deserves. They complain that some department stores bury Swatch among no-name brands. “Department store business is very volatile,” says Gamard. “They are trying to sell their name, and we are selling an image. So there may lie the conflict.”

Sources say some department store managers resent what they consider Swatch’s dictatorial approach, prompting them to take on Guess and Fossil. For example, sources say the Swatch Group leveraged its cK watch brand in Swatch’s favor by demanding that Swatch get a more prominent presentation in department stores. In fact, some department stores have scaled back their Swatch display significantly. Others have done the unthinkable – dropped Swatch altogether. (Hayek says that Swatch pulled out of those stores.)

“Swatch is one of the 30 best-known brands worldwide,” says Hayek. “Department stores are very democratic. They present all watches in the same way. When Swatch is treated as it should be, it’s a hell of a big brand. Department stores aren’t used to treating big brands the way they deserve.”

Meanwhile, the brand is aggressively expanding its network of Swatch Store boutiques. Its retail clients may balk, but Gamard insists that the boutiques boost the brand’s image and exposure, which helps Swatch sales in all competing stores in a particular city, including department stores. He believes Swatch Stores can coexist with department stores much as the Gap and Banana Republic stores do.

The Swatch Store boutiques are clearly successful. Sales at New York’s Swatch Time Ship boutique are up 32% over last year, with unit sales approaching 100,000 watches, according to Hayek.

Risky business. Swatch’s lukewarm relationship with some retailers may also be a byproduct of a revolving-door management and sales team. The brand has had four presidents in three years. According to one source, Swatch’s sales force has been cut from about 40 to 20. “If you can keep a consistent group of managers, you can keep a consistent image out there,” says an East Coast-based chain retailer. “If your people change, your thoughts change. When people left Swatch, all the ideas left, too.”

Hayek concedes that the company has had trouble finding qualified managers. Gamard likewise admits to Swatch’s mismanagement in recent years. As a result, Swatch today isn’t given top priority in stores as in the past. The high-traffic aisles are no longer Swatch’s exclusive domain.

“Swatch never seemed organized to deal with large chains,” says a department store watch buyer who formerly carried Swatch. “It was absolutely neglectful in selling us. Other watch companies ask us how they can mesh their operation into ours. Not Swatch. Now it’s reaping the harvest of doom it created.”

Perhaps Swatch’s problems began during the 1996 Summer Olympics, in which the brand invested more than $40 million. As official timer, Swatch was building exposure and generating sales of 2,000 to 3,000 watches a day at the Olympic Village in Atlanta. All the while, however, the brand’s infrastructure was crumbling amid management shake-ups.

Some say Swatch was not prepared for the huge task of marketing its role in the Olympics. There was speculation that the brand used up its ad budget before the Olympics even began. Were marketing dollars diverted from other Swatch Group brands to cover Swatch’s enormous investment in the Olympics, as rumored? Hayek denies it. “Each brand has its own marketing budget,” he says. “There is absolutely no switching between brands. In Atlanta we made a very heavy profit.”

Swatch attracted more controversy when newspapers reported that Hayek had called for a boycott of American products in retaliation for sanctions proposed against Swiss banks. Hayek denies making the remark.

Swatch innovations. Swatch has been counting on new technological ventures to burnish its reputation. In October, Swatch’s Telecom division introduced “Swatch the Beep Box,” a new generation of pagers with a trackball and Internet linkup capability. But another project – a tiny, 59-mpg “Smart Car” – was abandoned just weeks after its hyped European launch. The Swatch Group sold its 19% share of Micro Compact Car, the vehicle’s producer, to manufacturing partner Daimler-Benz AG, effective Oct. 31. Plans for making the car were scrapped because of several factors: insurmountable space problems, the difficulty of making the hybrid gas-and-electric-powered version, and Daimler-Benz’s merger with Chrysler.

Swatch’s most impressive innovation will be “Swatch Talk,” a Dick Tracy-type watch with an integrated telephone and touch-sensitive number keys. Set for European launch in 1999, the $350 Swatch Talk won’t be available in the United States until the new millennium owing to improper frequency protocols here. Unlike Europe and Asia, the United States doesn’t have one universal frequency for cellular phones, making Swatch Talk impractical to launch now.

Meanwhile, the Access Swatch is going mainstream. This versatile watch stores information like a computer, acting as an access device that can be used as a ski lift ticket, ATM card, address book, or Medic-Alert-type bracelet storing a person’s medical history. “Whenever something innovative comes out that has the Swatch name on it, no one is surprised,” Gamard says.

Today, Swatch offers 19 diverse product lines. With successes like the ultra-thin Skin watch (14% of its sales), Irony metal watches, and 200-meter Scuba watches, the brand is segmenting its market to appeal to consumers of all demographics. “I initially ordered a crazy amount of Skin watches, and I sold out of them all,” says Mati Weiderpass, co-owner of Watch World in New York.

New horizons. While Swatch has hit speed bumps in the United States, it’s still a dominant force worldwide. The brand’s international sales are up 12% to 14% this year compared to 1997, Hayek says. It’s the main reason the Swatch Group’s overall sales surpassed 3 billion Swiss francs this year.

Today, the brand that many credit as having saved the Swiss watch industry is poised to reinvent itself. Hayek remains optimistic about Swatch’s U.S. business. “The United States is the country [where you can achieve the] impossible,” he says. Wary retailers will believe it when they see it.