This season, the watch industry’s top trend seems to be a change of CEOs. Whether shrouded in secrecy or accompanied by emotive expressions of regret and frustration, a slew of CEO departures leaves the luxury watch industry facing its biggest shake-up in three decades.
Published in Plaza Watch No. 10, 2010
By Claire Adler
Following five years of remarkable growth, the watch industry is now going through a wind tunnel, with CEO s and top level executives seemingly dropping everywhere. What will this crisis in leadership bring, asks Claire Adler.
As industry heavyweights switch positions, sometimes moving between the most powerful brands, some have called it a game of musical chairs. From Zenith’s apparently indefatigable Thierry Nataf, now the head of communications and senior vice president at auction house Phillips de Pury and recently replaced by former Chopard executive Jean-Frédéric Dufour, to Lange & Sohne’s Fabian Krone being replaced by his former chief operations officer Jerzy Schaper as interim CEO, to chair of the Swatch Group Nicolas Hayek taking over the helm at Jaquet Droz – resigning and re-assigning is all the rage.
“I am above all a creative designer with little inclination for corporate politics, plotting and U-turns,” wrote a disillusioned and exasperated Rodolphe Cattin in a press release marking his split from the Franck Muller group in July. “I strongly deplore the attitude and behaviour of some of my closest associates who may well see in my departure a chance to grab the spotlight….I maintain my creative soul, my entrepreneurial spirit and am truly relieved to be regaining my freedom.”
No other departure was so publicly emotive, but the list goes on. Baume & Mercier lost Michel Nieto, Romain Jerome lost Yvan Arpa, Perrelet lost Marc Bernhardt and Jacquet Droz lost 37 year old Michel Emch, who was rumoured to have struggled with old school thinkers. Elsewhere, in the most upbeat development of them all, in a long anticipated move, Patek Philippe now sees third generation Thierry Stern in charge, having taken over from his father.
Yet in the process of these moves, some brands have sacked entire departments. Thierry Nataf left Zenith after seeing a 25% decrease in sales and making redundant 24 employees – 10 per cent of Zenith’s staff. Earlier this year, Franck Muller cut 92 of its 550 jobs.
- The CEO shake-up is down to three key factors, says Milton Pedraza, CEO of the New York based Luxury Institute, as focussed as ever while speaking on the phone from a beach in Florida.
- If you’re in charge, you get the blame when the economy is out of control. Secondly, if boards are dissatisfied or if people haven’t seen eye to eye, there is no better time than now to make a change or disconnect if things aren’t working out smoothly.
Thirdly, some executives themselves are looking for a change, while companies are taking the opportunity to hunt for top talent. where did the profits go? The economic crisis certainly seems to have proved billionaire investor Warren Buffett’s observation true. “It is only when the tide goes out that you learn who’s been swimming naked,” he said when news of the crash first broke last year.
According to a forecast released by consulting firm Bain & Co. in October, the luxury goods industry is unlikely to recover from the downturn until 2011 or 2012. Claudia D’Arpizio, a Bain consultant in Milan, told the Wall Street Journal she expects the industry’s heavyweights, LVMH, Richemont and Gucci Group, to hold up better than smaller players. Retailers have drastically cut their inventories of luxury products over the past year, contributing to a steep decline in LVMH’s watch sales of 22% in the third quarter of 2009. Sales of watches at Richemont dropped 18% in the five months leading up to August. In the first six months of 2009, Swatch Group’s gross watch and jewellery sales were down 16.4%.
In light of the fact that the luxury goods industry is in a slump, it’s hardly a surprise that people aren’t getting on as famously as they used to, marketing departments are slimming down, glamorous, gold-edged invitations are harder to come by and high profile, opulent new watch releases are fewer and further between.
But what is harder to understand is what happened to the industry’s mega-profits amassed during the last five years of the boom. From 2003 to 2008 the total value of annual Swiss watch exports jumped from 10.1 billion Swiss francs to 17 billion Swiss francs. But from January to August 2009, the figure for Swiss watch exports stood at just 8.1 billion Swiss francs.
Many companies who are now suffering expanded too fast and too heavily, according to Dr Scilla Huang Sun, portfolio manager for the Julius Baer Luxury Brands Fund, Swiss and Global Asset Management.
- Some luxury watch companies invested in non-profitable areas like megastores in bad locations, she says. Others didn’t have an innovative and authentic product offering but too many me too products. Some companies over-priced their products and some others took on too much credit and didn’t plan for a rainy day.
Jean-Daniel Pasche, president of the Federation Horlogère, the Federation of the Swiss Watch Industry, puts the multiple CEO moves down largely to the economic crisis and remains convinced the future of the watch industry is safe.
- The Swiss watch industry went through a deep crisis in the late 1970s with the advent of electronic watches, he says, pointing out that the change in technology at the time cost the industry 60 000 jobs.
- Companies should now try to control the distribution in order to avoid big inventories, he advises.
But some believe this game of musical chairs can be explained by problems that are more deeprooted. Currently consulting an increasing number of world-class luxury goods brands on customer relationship management strategy, Pedraza of the Luxury Institute believes the watch industry needs to get cracking on initiating some radical changes and serious brand building. He says a “triage” is at play and refers to the recent slew of CEOs leaving their jobs either through resignation or sacking, as part of a “Darwinistic game” in which only the best luxury goods companies will survive.
Pedraza is now seeing a change of focus at play amongst top leadership. He is noticing huge demand in the luxury industry for CEOs with a new skill set – particularly in corporate social responsibility, customer relationship management and knowledge of how to exploit online media and social networks.
“While a novel idea today, online marketing will become traditional luxury marketing in the next few years,” states the Luxury Institute’s 12 Rules for the 21st century luxury enterprise.
- The watch industry is too product focused and needs to become customer-centric, says Pedraza, pointing out that luxury is lagging far behind other industries.
- Luxury goods are behind hospitality and automobile brands when it comes to gathering, analyzing and using customer data, and combining sales force and online social networks in their marketing strategy. The fashion industry, with sophisticated brands like Chanel, Gucci and Louis Vuitton are also more customer-centric. But in comparison jewellery and watches are in the Stone Age. They are still watchmakers and jewellers, not brands whose primary goal is to create a relationship with the customer, maintains Pedraza, who runs in-depth annual surveys of the most coveted and respected luxury brands amongst the American market.
Pedraza believes that the criteria by which most jewellery and watch brands evaluate their success are stuck in the distant past. He says the mistake some top executives are making lies in their focus on metrics for products and channels, such as sales per square foot and inventory turnover. Some CEOs and top management are just starting to turn their attention to customer retention, crossselling and up-selling and this is the switch that is needed, he says.
In line with Pedraza’s predicted luxury success formula, some watch industry CEOs have clearly been upping the ante in the last year when it comes to investing in customer relationships and online presence.
Roger Dubuis is a brand which underwent a dramatic change in leadership in 2008, when owner and CEO Carlos Dias sold the company he had founded. Current CEO Matthias Schuler, who honed his skills at Procter & Gamble, is determined to make Roger Dubuis more customer-centric. At the impressive and beautifully designed factory outside Geneva earlier this year, Schuler explained to me his commitment to significantly improve repair times, developing an interactive website and a VIP after sales service – all missions he has since accomplished.
Max Busser, CEO of MB+F, who make 120 watches a year with a starting price of $66 000, created a Facebook page in May which currently has 2600 members. Some of Busser’s earliest online fans have since turned out to be his most important customers. Meanwhile, Busser’s blog A Parallel World, draws in readers with postings about art and design and science and technology as well as horology, including a recent post about a eye-wateringly beautiful Wally yacht with a Hermès designed interior. Having boosted revenue seven fold during his time in senior management at Jaeger leCoultre and nine fold as CEO of Harry Winston, Max Busser is now delighted that while his young, niche brand has a limited marketing budget, his internet activity is impacting sales remarkably well.
IWC recently came up trumps, rated number one by ultra-wealthy consumers in the Luxury Institute’s 2009 Luxury Brand Index survey, for, amongst other things, its online community of over 100 000 collectors from around the world and its impeccable service.
Meanwhile, at the Venice Film Festival this September, Jaeger-leCoultre CEO Jerome Lambert demonstrated his commitment to building close and lasting connections with top clients. He flew in a British collector and his wife to Venice to attend a dinner in the company of the Duchess of York and Catherine Deneuve, introducing them to the spectacular Hybris Mechanica, rumoured to have a price tag of 2 million euros. The couple could be seen chatting non-stop from breakfast till twilight with the London boutique manager, who had years ago introduced them to the brand’s watches and with whom they now enjoy a strong friendship.
For those companies now tasked with identifying new CEOs or those adapting to new leadership, the future could still be bright. In the 1980s and 1990s, the consumer goods industry underwent a shift in senior leadership parallel to the current experience, says Pedraza. Companies like Procter & Gamble went through a globalisation and standardization process when they moved from the factory age to the global age. Pedraza cites Colgate Palmolive as an example of a company which used to be structured for localised operations, with departments duplicated in many countries but which went through a process of three turnovers of staff before succeeding in operating brilliantly today.
Still, with fewer buyers around, the aspirational affluent having left the market, and the richest people reluctant to buy, brands now need to fight for every customer. The new CEOs will certainly have their work cut out.