At Swatch, an Enviable Problem: An Excess of Eager Customers for Its Products

Swatch, the world’s largest watchmaker, is rushing to add factory capacity so that it can make enough watches to meet demand. It wants to add as many as 2,000 employees this year — about 1,500 of them at home in Switzerland. But it is struggling to find enough qualified people.

“Managing our stock is at the moment not an issue for us because demand is so big that we unfortunately don’t even have the time to build up any stock,” Mr. Hayek said last month at Baselworld, the watch industry’s biggest fair. “I hate that feeling of missing sales because of a shortage in products.”

Swatch’s production and hiring problems reflect the overall health of a sector that has rebounded from the world financial crisis. Demand for watches has soared in Asia — a region that accounted for more than half of Swiss watch exports last year — with makers of mechanical watches capturing an increasingly large slice of the market. Exports of mechanical timepieces rose 32 percent in unit terms last year, compared with an 18 percent increase for less expensive quartz watches.

Swatch had a 42 percent increase in net profit last year, to a record 1.08 billion Swiss francs ($1.22 billion), from 763 million francs in 2009, on a 19 percent rise in revenue, to 6.44 billion francs.

While the company does not break down earnings by brand, revenue in its main watch and jewelry division rose 28 percent last year at constant exchange rates, compared with an increase of 8 percent in revenue in its parts production business, which accounts for about a quarter of its revenue.

Still, Mr. Hayek is pushing to change the modus operandi in his sector, from tightening rules on what defines a watch as “made in Switzerland” to forcing rivals to make their own components. Swatch has been talking with competition regulators about how far it could cut back its supply business, without endangering manufacturers that rely on Swatch parts.

“People assume that it’s a good business to sell components, but the only really attractive business is to sell finished products of our brands,” he said. “We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it.”

Swatch’s withdrawal as a supplier would be a sea change for the sector. As a result, such a move “cannot happen overnight,” said Jean-Frédéric Dufour, chief executive of Zenith, which is owned by the French group LVMH Mo?t Hennessy Louis Vuitton and is one of the few Swiss brands that does not buy from Swatch.

Still, Mr. Dufour said, by forcing rivals to invest more in production, Mr. Hayek “could help bring back the watch sector to how it was operating 100 years ago, when each brand really differentiated itself from others by the quality of its movements.”

Swatch’s hegemony over watch production is part of the legacy of Mr. Hayek’s Lebanese-born father, Nicolas, who died last year.

As a management consultant, Nicolas Hayek had been hired by banks to close two manufacturers in the early 1980s, at a time when Swiss watchmakers were getting crushed by less expensive Japanese competitors. Instead, he merged and acquired a stake in the struggling companies and revived the industry with the introduction of the inexpensive plastic Swatch watch.

The fashion frenzy generated by the colorful Swatches in turn required the group to develop mass volume production, building its leadership by later acquiring more component manufacturers.

In terms of volume, Swatch controls 70 to 80 percent of the sector’s watch movement production, according to a research study published last month by the investment firm Sanford C. Bernstein & Company.

The Hayeks own about 35 percent of the group’s equity, ensuring that Swatch remains essentially a family business. Mr. Hayek is joined by his elder sister Nayla as chairwoman, while the next Hayek generation is led by her son, Marc, who had a stint in the restaurant business but now oversees part of the group’s luxury watch business, including the Breguet and Blancpain brands, which Swatch acquired in 1999 and 2000.

Nick Hayek, meanwhile, cut his teeth in movies before joining his father at Swatch in 1994, initially in a marketing role. Having studied filmmaking in Paris, he started a production company making documentaries, short movies and two feature films, including “Family Express,” which starred Peter Fonda.

Nowadays, his movie-making is limited to occasional involvement in advertising campaigns, but he plays down the suggestion that he was pushed into making a U-turn in his career ambitions.

 

At Swatch, an Enviable Problem: An Excess of Eager Customers for Its Products

Swatch, the world’s largest watchmaker, is rushing to add factory capacity so that it can make enough watches to meet demand. It wants to add as many as 2,000 employees this year — about 1,500 of them at home in Switzerland. But it is struggling to find enough qualified people.

“Managing our stock is at the moment not an issue for us because demand is so big that we unfortunately don’t even have the time to build up any stock,” Mr. Hayek said last month at Baselworld, the watch industry’s biggest fair. “I hate that feeling of missing sales because of a shortage in products.”

Swatch’s production and hiring problems reflect the overall health of a sector that has rebounded from the world financial crisis. Demand for watches has soared in Asia — a region that accounted for more than half of Swiss watch exports last year — with makers of mechanical watches capturing an increasingly large slice of the market. Exports of mechanical timepieces rose 32 percent in unit terms last year, compared with an 18 percent increase for less expensive quartz watches.

Swatch had a 42 percent increase in net profit last year, to a record 1.08 billion Swiss francs ($1.22 billion), from 763 million francs in 2009, on a 19 percent rise in revenue, to 6.44 billion francs.

While the company does not break down earnings by brand, revenue in its main watch and jewelry division rose 28 percent last year at constant exchange rates, compared with an increase of 8 percent in revenue in its parts production business, which accounts for about a quarter of its revenue.

Still, Mr. Hayek is pushing to change the modus operandi in his sector, from tightening rules on what defines a watch as “made in Switzerland” to forcing rivals to make their own components. Swatch has been talking with competition regulators about how far it could cut back its supply business, without endangering manufacturers that rely on Swatch parts.

“People assume that it’s a good business to sell components, but the only really attractive business is to sell finished products of our brands,” he said. “We are in a ridiculous situation that would be like having BMW supply all the engines for Audi and Mercedes. In no other industry do you have one company supply all the critical parts to the people who then compete directly with it.”

Swatch’s withdrawal as a supplier would be a sea change for the sector. As a result, such a move “cannot happen overnight,” said Jean-Frédéric Dufour, chief executive of Zenith, which is owned by the French group LVMH Mo?t Hennessy Louis Vuitton and is one of the few Swiss brands that does not buy from Swatch.

Still, Mr. Dufour said, by forcing rivals to invest more in production, Mr. Hayek “could help bring back the watch sector to how it was operating 100 years ago, when each brand really differentiated itself from others by the quality of its movements.”

Swatch’s hegemony over watch production is part of the legacy of Mr. Hayek’s Lebanese-born father, Nicolas, who died last year.

As a management consultant, Nicolas Hayek had been hired by banks to close two manufacturers in the early 1980s, at a time when Swiss watchmakers were getting crushed by less expensive Japanese competitors. Instead, he merged and acquired a stake in the struggling companies and revived the industry with the introduction of the inexpensive plastic Swatch watch.

The fashion frenzy generated by the colorful Swatches in turn required the group to develop mass volume production, building its leadership by later acquiring more component manufacturers.

In terms of volume, Swatch controls 70 to 80 percent of the sector’s watch movement production, according to a research study published last month by the investment firm Sanford C. Bernstein & Company.

The Hayeks own about 35 percent of the group’s equity, ensuring that Swatch remains essentially a family business. Mr. Hayek is joined by his elder sister Nayla as chairwoman, while the next Hayek generation is led by her son, Marc, who had a stint in the restaurant business but now oversees part of the group’s luxury watch business, including the Breguet and Blancpain brands, which Swatch acquired in 1999 and 2000.

Nick Hayek, meanwhile, cut his teeth in movies before joining his father at Swatch in 1994, initially in a marketing role. Having studied filmmaking in Paris, he started a production company making documentaries, short movies and two feature films, including “Family Express,” which starred Peter Fonda.

Nowadays, his movie-making is limited to occasional involvement in advertising campaigns, but he plays down the suggestion that he was pushed into making a U-turn in his career ambitions.

 

Advertising: A Younger Group for Feminine Products

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The site, Kotex.com/tween, urges mothers to pick a date soon to explain menstruation, and clicking on “get the right products” takes mothers to a page promoting the brand’s newest offering: U by Kotex Tween.

In what the brand says is an industry first, the pads are designed specifically for 8- to 12-year-olds and are 18 percent shorter and narrower than other Kotex pads. Sold in glittery boxes decorated with hearts, stars and swirls (which are also printed on the pads themselves), the products would look at home on the set of “Hannah Montana,” the Disney Channel show that starred the actress Miley Cyrus.

“These pads are designed to fit smaller girls’ body size, with bold and glittery packages” that also appeal to them, said Melissa Sexton, a marketing director in the adult feminine care division at Kimberly-Clark, which owns the brand.

On the site, Dr. Lissa Rankin, a gynecologist and author of “What’s Up Down There?: Questions You’d Only Ask Your Gynecologist if She Was Your Best Friend,” is featured in a video encouraging mothers.

“A lot of moms have a hard time even talking to their own peers about this issue and have to get over their own embarrassment so they can have a candid, fun and supportive conversation with their daughters,” Dr. Rankin said in a phone interview.

On another area of the site, intended for prospective users, UbyKotex.com/HelloPeriod, visitors share videos and written accounts of their first periods. One out of three females has no idea what is happening when her first period arrives, while four out of five mothers feel ill-prepared to educate their daughters about menstruation, according to surveys commissioned by Kotex.

The sites for both mothers and their daughters are by Organic, part of the Omnicom Group.

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Susan Kim, co-author of “Flow: The Cultural Story of Menstruation,” was initially startled by the introduction of U by Kotex Tween.

“What punched me in the gut is that the age of menarche had dropped so precipitously,” said Ms. Kim, using the term for first menstruation. “My first reaction was, ‘Oh my gosh, a period kit for an 8-year-old — eek!’?”

But she does not dispute the need for products that cater to girls that young, and lauded the brand’s approach.

“It was not that long ago that girls used to pass around the Judy Blume book, ‘Are You There God? It’s Me, Margaret,’?” because it addressed stigmatized topics including menstruation, Ms. Kim said. “It was such contraband material, so I liked that on the preteen site that it very much was a place for girls to share, with firsthand testimony.”

From 1920 to 1984, the average age of menarche dropped from 13.3 to 12.4, according to a 2007 article in the Journal of Adolescent Health. A study published in Pediatrics last year found that in the United States, 15 percent of American girls begin puberty by age 7.

The U by Kotex line was introduced in 2010 with a marketing campaign aimed at women 14 to 22 that skewers feminine care companies, including Kotex itself, for the typically euphemistic tone and dainty tropes of their ads.

“The ads on TV are really helpful because they use that blue liquid,” says a woman in her early 20s in the first U by Kotex commercial, as blue liquid is poured on a pad. “And I’m like, ‘Oh, that’s what’s supposed to happen.’?”

The commercial, by JWT, which is a part of WPP, has been viewed more than 1.2 million times on YouTube.

With the motto “Break the Cycle,” the brand uses humor to challenge the stigma around menstrual products in Web-only videos, also by Organic, including one in which a woman standing with her bike outside a drugstore asks men to go in and buy her tampons because she forgot her bike lock. While some offer to watch her bike, none will make the purchase.

Over the 52 weeks that ended March 20, the share of all Kotex products in the $634 million tampon category increased 4.1 points, for a 15.9 percent share, while in the $893 million sanitary napkins and liners segment, the brand increased 1.7 points, for a 19.4 percent share, according to Symphony/IRI Group, a market data firm whose totals do not include Wal-Mart.

U by Kotex spent $23.2 million on advertising in 2010, eclipsing the $4.1 million Kimberly-Clark spent on the older Kotex brand, according to the Kantar Media Unit of WPP. Tampax, by Procter & Gamble, which dominates the tampon segment with a 47.2 percent share, spent $49.9 million.

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U by Kotex recently began addressing the look of feminine care products, which have traditionally been plain white, by printing various designs on pads. With what the brand calls a “limited-edition designer series,” prints like “poptimistic” and “punk glam,” will be introduced for U by Kotex products in July.

Meanwhile, an online pad design contest, Ban the Bland, began April 4 and has drawn more than 1,600 submissions. Three contestants with the most online votes will be flown in September to New York, where they will collaborate with Patricia Field, the costume designer for “Sex and the City.”

“Why should we settle for feminine care being dull and white and boring?” said Ms. Sexton about the designs on both the U by Kotex and U by Kotex Tween pads. “Every day when we get dressed, we have a choice of what we wear, and when we have our periods we should still have that choice.”