Swatch Sistem51: The empire strikes back

A few years ago, Ernst Thomke - one of the founding fathers of watchmaker Swatch Group - shocked the industry during an interview with Swiss daily Le Temps.

He declared that: "[the industry] wants to focus on very expensive watches, inaccessible to mortals. [Watches] that everyone wants but no one fundamentally needs". He even said the unspeakable "their precision is inversely proportional to the retail price".

It seems Nicolas Hayek Jr., heir to the Swatch empire and group CEO, listened well. After all, this philosophy was his father's when he founded the business 30 years earlier. So just as Swatch democratised Swiss watchmaking back then by introducing a 51-piece quartz movement, he is reiterating the same strategy with the launch of Sistem51.

The new watch takes on a major challenge: building a full automatic mechanism with just 51 parts and at a price point of around $150. The simplest version ever produced so far had double that number of parts, with more complex time pieces having up to 600 components.

Not only it is a feat of engineering, but the production process is a real game changer in the Swiss watchmaking business. This is the first full automatic movement done on a fully automated production line.

This huge gain in productivity results from calibrating precision with a laser: a quantum leap for the sector among 17 patents pending for Sistem51.

This innovative manufacturing method might explain the delay, seeing as the initial launch was announced for October 2013 in Basel last year. Now stocks are finally available in Dubai, unlike some shortages relayed by the European watch-loving blogosphere.

Swatch is marketing their latest product with the slogan "The front tells the time, the back tells the story". The real story behind Sistem51 is a war saga between watchmakers and is symptomatic of shifts in the global economy.

First of all, the new clockwork comes as a provocation to Swatch Group's major competitors, LVMH and Groupe Richemont. It coronates a decade-long battle lead by two generations of the Hayek dynasty inside the prestigious "Fédération de l'industrie horlogère Suisse", to relieve Swatch Group from the obligation to deliver movements to its competitors.

For years Swatch invested huge sums of money into more than 160 factories, while brands owned by competitors (Tag Heuer for example) just bought Swatch Group movements and fit them into their branded cases to make massive profits.

Hayek Jr. inherited a deep rage against "speculators" of all sorts from his father. He once said that "some competitors have never invested in the industrial tool and dare to sell their products 4 or 5 times the price it has cost them".

This is also why the group is debt-free and only deals with one bank and one media agency: both are its own. In the past few years, competitors have thus had to hurry up and build factories, talent and intellectual property.

LVMH-owned Tag just inaugurated its Chevenez  production facilities, and now makes two proprietary clockworks (except a few components) and still relies on vendors for the more complex automatic movement.

Sistem51 has the bitter aftertaste of an implied vengeful message: we can design and go to market with new clockworks anytime, at any price; good luck filling your overpriced watch cases.

The second part of the story also explains Swatch Group's domination and has to do with the troubled world economy. Beside its monstrous production capabilities, the group also boast an ample portfolio of brands ranging from ultra luxury (Blancpain, Breguet, Harry Winston) to the youthful and economic Swatch brand and everything in between (Omega, Longines, Tissot, and many more).

Through the last decade, we can see how playing with these 17+ brands keeps Swatch Group on top: booming numbers of high-net-worth individuals and ultra-luxury sales? The more premium brands perform. Financial shock and anti-corruption laws in China? Mid-range benefits largely from the swing effect.

This year, the collapse of emerging currencies will cost the industry considerable losses (around half a billion dollars for the Swatch Group only). The trusted Swiss Franc will stay at the upper limit of 1.2 euros.

Sistem51 will allow the watchmaking giant to monetise on a long-ignored segment of the market, and may even introduce new generations to Swiss clockwork before they grow up wearing Korean-made smart bands.

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