Recent years have been tumultuous and sobering for some of the world’s largest watchmakers, leading to significant changes in their international operations to boost business and brand awareness and stay competitive in the 21st century.
No, we don’t mean the Swiss or other upscale European watchmakers, whose many brands have been coalescing in the past 18 months. We’re talking about the powerful watchmaking conglomerates of Japan. While trade attention has focused on consolidation of Europe’s watchmaking industry, Japan’s top watchmakers have taken bold steps at home and abroad to remain competitive globally, especially in the United States. The results affect every U.S. jeweler who sells their products.
The following special report examines what’s prompting these changes and the new strategies Japan’s watchmakers are devising in response. In coming issues, JCK will look at how their U.S. operations affect those strategies, and how Japanese watch brands are using the Internet as a marketing tool.
“Tough” problems. Seiko. Citizen. Casio. The names of Japan’s biggest watchmakers are ubiquitous in marketplaces from Tokyo to Tacoma. They are so much a part of today’s commerce-56% of the world’s watches and movements are Japanese-made-that a casual observer might think their global business is unassailable.
Yet top Japanese watch officials tell JCK that domestic and global competition has become “hostile,” “tough,” and “severe.” Watch sales and profits of all of Japan’s major watchmakers have declined in the past few years, according to their own reports-even as those of their non-watch divisions (i.e., electronics and communications) have risen sharply.
Meanwhile, output by Japanese watchmakers dropped to 699 million pieces, out of 1.24 billion total, in 1999 (the most recent figures available). This represents a 6% decline in production of Japanese units and a 22% decline in value, says the Japan Clock & Watch Association. Exports fell 2% in quantity to 658 million units, and 16% in value.
Why the drop-offs? One reason is a glut of watches and movements-the latter because of recent intense price competition-on the world market, which has remained at the 1.2 billion-units level since the late 1990s. In response, both Citizen and Seiko, the world’s biggest movement makers, say they’ve trimmed production.
Katsuaki Noji, president of Citizen Trading Co., sales agent for Citizen watches worldwide, says Japanese watchmakers face very tough competition in every market of the world, and it’s getting tougher. It comes from Swiss brands (especially in Western Europe and Asia), an increase in new midpriced fashion and licensed brands (a major category for Japanese brands), more low-end watches from Far East suppliers (enabled, ironically, by mass production and sale of cheap Japanese movements), and even a rise in counterfeit watches.
“Handy” bites. Other problems are found in Japan’s domestic market. A years-long recession continues to bedevil the country’s economy, while the strong yen has pushed the cost of watch production 250% higher than a decade ago.
Another reason becomes evident if you visit a major Japanese marketplace such as Tokyo’s popular Shinjuko shopping district. Here, consumer interest in watches is obvious. Department stores’ sidewalk signs advertise prestigious (often foreign) brands, cozy watch shops are busy with shoppers, and in the heart of the district stands a monument to watch sales: the busy, seven-story Sakuraya watch emporium, showcasing scores of brands, from cheap to ultra-luxurious, with each succeeding floor offering more expensive timepieces.
Yet a closer look at passersby reveals something else: Many people-teenagers, businessmen, housewives-don’t wear wristwatches, but in their hands are colorful little cell phones that they seem to use constantly. Tiny though these so-called “handys” are, watch officials say they take big bites out of watch sales because they also display time, day, and date-traditional watch functions. Given a choice between a cell phone or a watch, many Japanese consumers-especially young people, for whom a “handy” is a “must have”-take the phone. A few Japanese watchmakers worry that something similar could develop in Europe or the United States (which has 97 million cell phone users vs. Japan’s 50 million), though most still think the markets are too dissimilar for that to happen.
“Drastic” changes. These global and domestic challenges have led Japan’s watchmakers to make what Citizen Watch Co. president Hiroshi Haruta calls “drastic revisions” in marketing strategies and operations to stay competitive and profitable in this new decade and century.
Some are organizational. Citizen, for example, is converting its manufacturing-centered approach to a “customer-first” policy to “respond precisely” to the needs of its sales agents around the world and make its technical and production sections more efficient, says Haruta. Citizen also has revamped its staffing structure and policies to reduce costs.
Meanwhile, the formerly independent operations at Seiko Epson (SE) and Seiko Instruments Inc. (SII), the Seiko Group’s watchmaking arms, have changed so that each concentrates on its strengths (such as SE’s high-end perpetual calendar movements or SII’s quartz movements and casing/banding operations). “A clear division of labor between the two now avoids overlap of development costs and other expenses, and that contributes to the efficiency of Seiko’s watch business,” says Hiroshi Harigaya, executive vice president of sales and marketing for Seiko Corp.
Both Seiko and Citizen also are working on improving their production systems and shortening delivery times to their global markets.
China. To stay price-competitive while cutting production and procurement costs, all of Japan’s watchmakers are sending their labor-intensive operations (e.g., assembly and case, hands, and dial production) to less expensive Asian countries, primarily China. Many watchmakers, including some Swiss brands, already have plants or suppliers there. China’s watch industry has reached a level of quality and sophistication in manufacturing that’s comparable to Japan’s, say watch officials, while its labor costs are only 10% of Japan’s.
More than 80% of Casio watches are made in the Far East.
Citizen, which already produces cases and watchbands in China, is building a new factory in Shenzhen near Hong Kong and will move its midprice watch assembly there next year. Once the shift is made, Citizen expects the profits in its wristwatch segment to double.
More than 70% of Seiko’s watches are assembled in mainland China near Hong Kong. “Both SII and SE have factories there, as do our vendors and component suppliers,” notes Seiko’s Harigaya. The company also has shifted some technical design to Hong Kong. Its new Wired watch is the first Seiko watch to have its technical designs done completely in Hong Kong (by Japanese designers) for production in China.
For now, however, both Seiko and Citizen will continue making their movements in Japan. Seiko Epson’s plant in Shiojiri in northern Japan, for example, has sophisticated SE-created automatic equipment that needs only a few people to operate it but can produce a complex movement every 0.06 seconds. “That enables us to be cost-effective [in Japan] and competitive,” says Seiko Corp. president Chushichi Inoue. “So I don’t anticipate manufacturing watch movements in China in our foreseeable future.”
Alliances. To stay competitive, some Japanese watchmakers also are considering strategic alliances and joint ventures, in and outside the watch business, to tap the potential of the watch market’s many niches and create a stronger portfolio of products. Seiko Instruments, for example, recently set up an alliance in the United States with Fossil Watches (in a partnership called Seiko II Marketing International, or SMI) to market its popularly priced Lorus watches. It’s working “quite well,” says Seiko Corp.’s Harigaya. “Lorus’s presence in the mass market improves every day, due to Fossil’s marketing skills and SII’s manufacturing capabilities.”
As for other linkups in the United States or elsewhere, “We don’t have specific plans today, but I don’t deny the future possibility,” he says. Such arrangements could enable Seiko to enhance its portfolio, for example, by distributing popular licensed brands in some world markets while allowing other firms to distribute Seiko watches in markets where it doesn’t have a strong presence.
Seiko isn’t alone. Casio has a joint venture in Japan with Bandai, the Japanese toy company that produces Digimon, for a new game called “WonderSwan” (similar to a GameBoy), which can be linked with a Casio watch. It’s the first of what Casio hopes will be alliances with other companies “in the wide world, not only in watches but in the software world with GameBoys, cellular phones, and PDAs [personal digital assistants],” says Yuichi Masuda, general manager, planning department, Casio Timepiece Manufacturing Division.
Image. Meanwhile, Japan’s watchmakers are working hard to create distinctive images for their brands, both globally and domestically, to boost consumer awareness and sales.
In their home market, Seiko and Citizen have long sold many “sub-brands” (such as Citizen’s Aspec and Seiko’s Credor) and licensed watch names in all price categories for the many niches of Japanese consumer demand. The result was high corporate name recognition but, as one top official put it, an “unfocused” public image. Now, both are refocusing marketing in Japan on their brand-name core collections and reducing sub-brands.
Internationally, the situation is different. Seiko and Citizen always focused on their corporate brand names while letting their local sales organizations use marketing and merchandise suited to their regions. But this created “a lot of different images in markets around the world,” notes Akihiko Suzuki, general director of Citizen Trading Co.’s overseas division. “We have a different Citizen image in the United States, in Asia, in Europe, and in other countries. We need a consolidated image.”
So the new challenge for Japan’s watchmakers, says Katsuoki Noji, president of Citizen Trading Co., is for each to create “a real global brand” so that consumers anywhere in the world will identify a particular brand with the same type of watch and concepts. (Technology-driven Casio already has a global brand program.)
To do this, both Seiko and Citizen in the past year created “global watches” for sale in all their international markets (in addition to region-specific merchandise) and their first global marketing campaigns. For Citizen, it’s the sun-powered (Eco-Drive) Vitro watch, with solar cells so small they’re virtually invisible. Seiko’s are its new Wired watch, designed to appeal to young adults, and its Sportura Kinetic Auto-Relay series, led by its uniquely designed chronograph. “We will every year run global campaigns featuring a carefully selected product or category of products” [to] enhance the brand image of Seiko,” says Harigaya. (The global campaigns complement ongoing sponsorships of major international sporting events, such as Seiko and the Olympics or Citizen and the America’s Cup races.)
Value. For jewelers and other watch retailers, some of the most important changes by Japan’s watchmakers are new marketing strategies based on what they now consider their profit centers.
Both Seiko and Citizen are shifting their focus from profits based on volume to profits based on fewer but higher-quality timepieces, with stylish designs and attractive features. The key to the future, says Citizen’s Noji, “is a change in one word- ‘value’ instead of ‘volume.’ That is our policy now: emphasis on quality watches, not many watches.”
“Profit from value is more important now than from [volume] selling of units,” agrees Seiko Corp.’s Inoue. “In the past, we enjoyed very good business by selling more units; profits came automatically from that. But the situation has changed. Many people have joined the industry; today anyone can make and sell watches. So, we’ve come back to a more value- oriented marketing philosophy, sacrificing unit sales to generate more profit.”
Some of that value comes from Japanese watchmakers’ technological innovations, such as non-battery energy sources for quartz movements like Seiko’s wrist-powered Kinetic Auto-Relay technology and Citizen’s light-powered Eco-Drive movements. Citizen has long-range plans to convert all its watch collections to Eco-Drive. Casio continues to improve and add to its new “Wrist Technology” series, which already features watches that can link with personal computers or cell phones, tune to satellites to find the wearer’s exact location, and even be used as wrist-wearable digital cameras.
Other intriguing technological innovations are already on the market in Japan, such as Seiko’s youth-oriented Doggy Gum watches, whose cases change color at the touch of a finger, and Citizen’s scratchproof “Duratech” case treatment, four times tougher than steel. And both Seiko and Citizen have developed watches energized by body heat. If and when any of these show up in the United States, however, depends on potential interest in this market and lowering production costs of the new technology.
One innovation neither Seiko nor Citizen plan to introduce here are watches that automatically set themselves to the correct time using government-supplied radio signals. U.S. interest in radio-controlled watches-already sold for years in Japan and Europe-is too small to justify selling them here, say officials from both companies. Casio, however, is developing a tiny antenna that receives such radio signals up to 1,800 miles away. By 2003, it will be a feature in all midrange ($50 and up) watches Casio sells here, say company officials.
Style. Significantly, these giants of timepiece technology are no longer depending on innovation alone to set them apart. Officials of both Seiko and Citizen say that in the past they relied too much on technology to propel their worldwide business. Their new goal-in keeping with their emphasis on image and product value-is to produce attractively designed watches that can be worn as fashion accessories and become part of a consumer’s watch wardrobe. Young adults in general and women in particular are the target audiences, especially in America. In the past year, Citizen and Seiko have introduced in the United States stylish lines for men and women, such as Citizen’s Elecktra and Modena and Seiko’s Cassale and Jewelry collections. Even Casio, a male-driven brand, is modifying its techno look to “generate momentum among young females [through] the look, materials, and design” of Casio watches, says Casio planning manager Yuihi Masuda. One example, he says, is a “much smaller, lighter” version of Casio’s GPS (global positioning system) watch with “colors to fit the female market.”
“If we rely only on new functions while the watches look ugly,” says Katsuaki Noji of Seiko, “then the electronics and phone companies will have the advantage over us.”
“Our goal is to put technology into beautiful watches, to combine beauty [in design and appearance] with technology. If we develop attractive, high-quality fashionable watches, young people will buy them.”
Raising the bar. That’s already apparent in the U.S. market, the most important for Japan after its own, where new Seiko and Citizen designs are doing well. “As a brand, we’ve raised the bar on the quality, look, and feel of the product, and that contributed to our strong success in the last year,” says Laurence R. Grunstein, longtime president of Citizen Watch of America.
“While solar, kinetic, or thermic [temperature-based] technologies are the strength of our brand,” says Harigaya of Seiko, “given the fact that we now continue to compete against cell phones, PDAs, and other electronic personal devices, we must put more emphasis on the art design of our watches and improve them by adding outstanding features and materials, to make our collections very special.” That’s why Seiko not only has a design center in Tokyo but also design offices in Maidenhead, England, and Milan, Italy.
“You can’t differentiate a watch line only by technology,” adds Seiko Corp.’s Inoue. “We must be more ‘value added’ to upgrade the [brand’s] image and make it desirable to customers. We must be more sophisticated in [terms of] beautiful design and sales strategy as well as technology.” [Then there is] a good chance to develop business at higher price points without [relying on] technologically new movements.”
Pricing. While agreeing on the need to refine their brand images, Japan’s top watchmakers have decidedly different strategies for international marketing.
In Japan, both Seiko and Citizen sell watches in all major price levels. Internationally, though, Citizen’s “base and strength is the midprice [watch] category,” says Noji emphatically. “We won’t go up to very luxurious watches or go down to very low-priced fashion brands. We will stay in the midprice range, putting more value into our watches and movements for our buyers, which will add value to the Citizen brand.”
Seiko, on the other hand, already markets inexpensive lines (i.e., Lorus, Alba) and midpriced lines (i.e., Pulsar, Wired, Seiko) internationally. Now it’s adding “more prestigious models and technologies,” says Inoue, and higher-priced watches, too. In Europe and the United States, it’s expanding into the top of the midpriced market-$500 to $1,000-where “we have a chance to grow the business of the Seiko brand.”
However, while a few individual models retail for more than that (Seiko’s Sportura Kinetic Relay Chronograph is $2,500 in the United States), Seiko-like Citizen-is for now conceding the over-$1,000 territory in America and Europe to the Swiss, who “monopolize [it],” says Inoue. That market is “very competitive and takes much effort, investment, and time to establish oneself [there].”
But in Asia, says Harigaya, Seiko’s plan is to “attack Swiss brands directly” with its luxury-priced Credor line, already successful for years in Japan. “Asian consumers pay close attention to Japanese media and trends,” he notes. “So, they already know about Credor and are eager to buy it in their own countries, making it relatively easy for us to go into those markets.”
Credor has had increasing success for three years in Taiwan, where it competes directly with Swiss brands, and is beginning to show progress in Singapore and Hong Kong. Still, cautions Seiko’s Inoue, “We are starting small and moving slowly in this high-priced watch business.”
As for Casio, while it has different markets (less than 10% of its U.S. retailers are jewelers), it, too, has moved into higher-priced regions. Its “Wrist Technology” products sell for up to $500, far above its $30 Casio and $100 G-Shock watches.
Next month, JCK looks at how the U.S. market influences the strategies of Japan’s top watchmakers.