00:01Bright colors, wild patterns, artists on the dial, even a watch designed by a pig.
00:07That's Swatch.
00:09But these days, the brand's actually a lot broader.
00:13The Swatch Group is one of the biggest forces in watchmaking in Europe and in the world.
00:19It's valued at over $9 billion, with more than a dozen brands under its umbrella.
00:25150 production sites out of Switzerland, the quintessential Swiss watchmaking company.
00:33The Swatch watch was basically the brainchild of Nicolas Hayek and his team.
00:38And when he launched it, he was credited with changing the perception of Swiss watchmaking and saving the industry.
00:45But right now...
00:46The Swatch Group has been under pressure because its performance hasn't been great.
00:51It's now one of the most shorted stocks in Europe.
00:54That means investors are betting against it.
00:57And it's already trading at a 16-year low.
01:00August brought an even greater blow.
01:02Swiss watchmaking was suddenly central to an international trade crisis.
01:07The Swiss president is expected to leave Washington without a deal.
01:11They're stuck with that 39% tariff.
01:13It's the highest rate Trump has left on any industrial nation.
01:16With all that in mind and amid criticism of leadership, can Swatch turn its fortunes around?
01:24Switzerland means many things to people, but it might be best known for its watches.
01:36Speak of timepieces and you speak of Switzerland.
01:39See?
01:40Watches are so Swiss.
01:41It's right up there with chocolate and cheese in terms of how people like really view the national identity.
01:46And no more so than 42-year-old Swatch.
01:49The Swatch Group is the biggest watches manufacturer by volume globally.
01:55And number three, if we think about it by retail value, behind Rolex and just, just behind Richemont Group.
02:04It's brands get everywhere.
02:07From 007's wrist.
02:09Your watch.
02:10How strong is it?
02:12To the peloton.
02:15Even up here.
02:17And it's got lots of brands.
02:20At the very bottom level, there's Swatch, which is very inexpensive.
02:23It's sister brand, Flick Flack, which is watches for kids.
02:26And then just above that, there's brands like Tissot and Longines, which are middle range watches.
02:33And then as you go up, there's fancier, more rarefied brands.
02:37There's Harry Winston, which is watches with lots of diamonds.
02:41There are two brands at the very high end, Breguet and Blancpain.
02:46And then we run through their biggest brand would be Omega.
02:50The biggest part of the Swatch business is its mid range.
02:55We'll return to this in a tick.
02:57The Seiko Quartz gives you accuracy you can see as well as here, as the second hand moves in precise one second intervals.
03:05In the 1980s, in the watchmaking industry, traditional mechanical watchmakers were really falling victim to a craze for very inexpensive quartz watches, which were mostly made out of Japan.
03:17And Seiko was the biggest commercial threat.
03:20And no matter how beautiful and handmade mechanical watches were, it just couldn't be as accurate as these quartz watches.
03:27And they were also much more expensive.
03:29Swiss watchmakers weren't equipped to mass produce or compete on price.
03:34And the impact was devastating.
03:36We saw 1,600 specialist watchmakers down to 600 over a 10 year period.
03:44Then the Swiss had an idea.
03:46A low priced watch that could be fun and interchangeable and add an expression to your fashion sense.
03:54Just take the quartz mechanism and Japanese innovation, then mass produce it on your own terms.
04:00So the name Swatch, it doesn't stand for Swiss watch, it stands for second watch.
04:04And there were thousands of them, including that one from old McDonald's finest.
04:09Sure, they told the time. But really, they told the world who you were.
04:14This was huge. Swatch was incredibly well received by consumers globally.
04:19Launched in 1983, Swatch sold over a million of them in the first year.
04:27Swatch, the new way to Swiss watch.
04:29By the early 90s, sales soared to about 20 times that annually.
04:33The company used that momentum to revive some of its struggling high-end brands and acquire new ones.
04:38It provided a financial base to support other companies and traditional mechanical watchmaking.
04:46Because suddenly, tons of people were running out to buy these colorful, fun watches to add to their collection.
04:50And it really turned around the prospects for not just the Swatch Group, but the whole Swiss watchmaking industry.
04:58Decades later, the market's changed.
05:01Phones and smart watches have chipped away at the lower-end range, leaving luxury as the main engine for growth.
05:06You can see that trend here. The volume of low-end watches sold, represented in orange, has been on the decline.
05:15The impact is even more striking when analyzed by value.
05:19Luxury watches, shown in blue, account for an increasingly bigger share of revenue compared to low- and mid-range watches.
05:25That evolution hasn't favored Swatch, given its plethora of mid-range brands.
05:32And its recent troubles run deeper. Profit was down almost 90% in the first half of 2025.
05:39A few things explained this. First, China.
05:42The market in China has really, really softened.
05:47The spending slump hit luxury brands across the board, but mid-markets Swatch more than most.
05:53In 2024, Asia made up 53% of its sales, with China alone accounting for 27%.
06:00Brands in the mid-range have struggled more than those at the very high-end or the lower-end.
06:08We've seen a lowered consumer sentiment globally.
06:11So it's been a double whammy for the Swatch Group versus its high-end luxury peer group.
06:16There is a hope that the company can do better on the back of China, really starting to see a little bit more improvement.
06:25But it's very slow and gradual improvement.
06:28The luxury sector is facing almost a perfect storm at the moment.
06:33And it's not clear whether US consumers will ride to the rescue because they're facing pressures.
06:38Which brings us to the second big challenge.
06:40In August, the US imposed a 39% tariff on imports from Switzerland, steeper than the 31% it had previously threatened.
06:50These are one of the highest rates the US has imposed on the entire world.
06:54This came as a complete surprise to the Swiss.
06:56Tariffs are a big headache for the luxury sector, particularly Swiss watches.
07:01Any kind of increase in the price is unhelpful.
07:04Over the last five years, luxury companies have all put up their prices.
07:11That gives them less wiggle room for further increases.
07:15These are two serious external headwinds, but they aren't the only reasons for Swatch looking scuffed.
07:21Remember Nicholas Hayek? Now his son runs the business and his daughter chairs the board.
07:27The family and related parties control 44% of the voting rights and they've had, at times, a tempestuous relationship with shareholders.
07:37It doesn't particularly engage with investors in the same way as other groups.
07:43It's really run as a private company.
07:46So why not do that? They floated the idea, but...
07:49The problem is how. To do that, any buyer, whether it's private equity, would have to take on a lot of debt.
07:58Some investors have tried to force changes.
08:01The company is super, super conservatively structured, so a bit of external help can go a long way in improving the execution here.
08:08Stephen Wood, an activist investor, attempted to win a seat on the board.
08:14He was defeated, but he's challenging the outcome.
08:18Activist campaigns in luxury are quite unusual, and this just underlines the frustration among investors with the Swatch group.
08:29Swatch has responded to criticism from analysts and investors by saying the industry shouldn't be focused exclusively on the wealthy.
08:36Swatch has managed to create more mainstream buzz as recently as 2022.
08:44The Moon Swatch was a version of Omega's flagship model, the Moon Watch, which is a Speedmaster that was worn on six Moon missions.
08:55And it became very, very popular. And they sold more than a million of the original versions and they expected to sell something like 500,000.
09:02So it was a huge difference for the bottom line for the company.
09:06Of course, we knew this is a bomb, but that it was such an overwhelming success. Yes, that was a surprise.
09:13The trouble was, this was an exception.
09:16Swatch has a little bit fallen out of the conversation in terms of making exciting new product that appeals to young people, being really relevant when it comes to the right spokespeople, using the right influencers.
09:29They just aren't really making a lot of products that are like really getting people jazzed up.
09:35Some of that comes down to its isolation from other brands.
09:40Swatch owns most of its own stores and so it doesn't need to show stuff to retailers the way that other brands do.
09:46That kind of split them off from the storytelling of the rest of the industry.
09:50The Swatch Group still commands a powerful name and rich heritage, but heritage alone doesn't sell watches.
09:59So much of watchmaking is based on perception and you really have to have people think that not only is your watch well made, not only is it beautiful, but also it's cool and it's coveted and it has a story behind it.
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