Lack of marketing firepower hurts small Swiss watchmakers

London: With watch exports up almost 20 per cent this year, even against last year's tough comparisons, talk about trying times for Switzerland's watchmakers seems out of place.

But while the likes of Swatch Group, Richemont and Rolex may have their worries restricted to the soaring currency, which the Swiss authorities have tried to dampen, and staff shortages, the outlook for many smaller brands is, literally, existential.

A spate of takeovers has demonstrated how many smaller brands are suffering. They face the same ultra-strong currency and high costs as their much larger counterparts. But, unlike the giants, most independent watchmakers lack the financial firepower for heavy marketing, sidestepping distributors or twisting the arms of property agents to secure ideal retail sites.

Most ominous of all is the impending squeeze on movements and regulating mechanisms from ETA and Nivarox, the Swatch Group subsidiaries. Swatch says it will respect long-term supply contracts.

And numerous smaller brands, prompted by ambition as much as the fear of shortages, now make more parts themselves. But even those that have invested in making their own movements can seldom meet their entire needs, and restrict the use of in-house movements to their most expensive watches, buying the rest from outside.

"Smaller players could face greater pressure if they are not able to deploy enough capital to build the necessary industrial base, potentially leading to tactical industry consolidation," warns Thomas Chauvet, analyst at Citibank.

Reflecting a trend

So while the sale of four watch brands straight after the Swiss competition authority's ruling to allow Swatch to cut movement supplies was coincidental, it reflected a trend — and one that will accelerate. First on the block was Eterna, the small but established watchmaker owned since 1995 by Porsche family interests.

With estimated output of just 7,500 watches a year and revenues of $14 million (Dh51 million), the company, with 75 employees, was stretched. Enter Hon Kwok Lung, the Chinese entrepreneur behind China Haidan Holdings, parent company to two of China's leading watch brands.

His group had already made its debut in Switzerland with the Codex brand. July also brought the sale of Maurice Lacroix, another well-known brand.

Diethelm Keller Siber Hegner (DKSH), the buyer, is a big but virtually unknown Swiss trading house specialising Under DKSH, which has ambitions to sell prestige Swiss watches to Asia's rising upper middle classes, Maurice Lacroix will have significantly more potential.

Searching for a larger parent undoubtedly lay behind the almost simultaneous sale of La Fabrique du Temps to Louis Vuitton, main client since 2007 of the small 10 to 15 employee Geneva watch development and manufacturing boutique.

The move should further boost the diversification of Louis Vuitton and follows the creation of a factory in La Chaux de Fonds in 2002.

LVMH's deal came the same week as arch rival PPR bought majority control of Sowind Group — the company behind Girard-Perregaux and JeanRichard.

Girard Perregaux and its smaller sister brand are among Switzerland's best known independent watchmakers, with a long history and reputation for quality products, based on strong vertical integration.

— Financial Times