Swatch Earnings Surge, but Who Buys Watches?


Swatch, the largest watch and watch component company in the world, announced record second half profits for 2012. Its net income at $967 million was a 27% increase over the same period in 2011. The firm announced as it posted earnings: "The signals from the markets around the world clearly indicate continued healthy growth potential for the Swiss watch industry."

The watch business is supposed to be dying, and dying fast. The primary assassin is smartphones, almost all of which have displays of both time and date, along with stopwatches, timers, alarms and the ability to easily track multiple times zones. These features are all "free" as a part of the included software, even in phones which are not smart, but are only dumb handsets with low prices. As handsets sales jump into the hundreds of millions worldwide, the future of the watch is in peril.

The success of Swatch shows just how wrong conventional wisdom can be. Its exposure to competition from outside the industry is as great as that of most companies in the world. Swatch makes the low end Swatch-watch, but also makes luxury watches, including Breguet, Blanpain, Omega and Longines. Among less expensive watches, its brands include Tissot and Hamilton.

Swatch is the first to admit it that its watch business touches virtually every part of the industry:

The Swatch Group occupies a major position in the production and supply of watches, movements and components. With 156 production centers, it is the world's largest watch producer. Not only does it manufacture and assemble all the models sold by its 19 brands and its multi-brand retail company; it also supplies parts and components to the entire watchmaking industry.

The success of Swatch is one of those business mysteries that include the continued success of sales of physical books, maps and DVDs. Each has been supplanted by technology that would seem to be much more efficient, and usually less expensive. Yet, consumers persist in their affection and loyalty to these ancient products. Not everything can be replaced by something "better."

Filed under: 24/7 Wall St. Wire, Consumer Goods, Earnings Tagged: featured