Issue 155: Swatch Group Under Fire
The "constructivist investor" proposal is searingly critical, if you read it carefully. No surprise it was rejected. But is it fair, or even remotely achievable?
Hello and welcome back to The Fourth Wheel, the weekly watch newsletter that was feeling the need to go back to its roots of being a) reactive, b) critical and c) packed with bad jokes. And lo, the horological gods have provided, with a boardroom drama worthy of Succession playing out at Swatch Group. Here’s the background: American investor Steven Wood, founder of GreenWood Investors, put forward a proposal to join the Swatch Group board, ostensibly to better represent the 75 per cent of SG shareholders that aren’t the Hayek family or senior executives, but really/simultaneously, to exercise some influence over the group’s activities and - as he sees it - realise its untapped potential1. The motion was unsurprisingly rejected at the group’s Ordinary General Meeting on Wednesday (we’ll talk about the board’s reaction later, which is A-grade Swissness) but Wood has published online his manifesto for change at Swatch Group. It’s a fascinating read, full of thinly-disguised body-blows to the existing management. Aside from the criticism (which has spared me a job), I wanted to ask: how realistic is Wood’s grand plan?
A quick note: many of you had got in touch to tell me that you couldn’t open The Watch Enquiry, my new podcast venture, in Apple Podcasts. I’ve fixed that now, so wherever you are in the world, it should be available to you. This should also have fixed the problem with it not showing up in some other podcast apps like Overcast, too. If you haven’t listened yet, please do!
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Here’s a little taste of what you might have missed recently:
Struggling Swatch
If you weren’t aware, things have not been pretty at Swatch Group lately. At the start of this year the company reported a massive drop in sales (down 14.6 per cent at then-current currency rates) and an even bigger fall in operating profit (down 75 per cent from CHF 1.2bn to CHF 304m). The NZZ reported last year that the group was sitting on CHF 7.7bn in unsold stock and had let around 1,000 employees go (contrary to the company’s stated position of not engaging in redundancies). My sources, as reported in TFW over the last six months, have told me of SG employees being paid to turn up and do nothing, and industry news reports have highlighted the practice of ‘drawing down’ on employee’s so-called flexible working hours, reducing their contracted hours in the short term on the basis that they will have to make up the shortfall in the future - so as to avoid either the perception of wholesale layoffs or the inconvenience of re-hiring when business does, hopefully, pick up again.
Morgan Stanley - taken with the usual caveats that every brand disputes its figures without going on the record to correct them - estimated that Swatch Group’s market share had fallen from 26.1 per cent in 2019 to 18.3 per cent in 2024, and that sales in the same time period were down (coincidentally) 18.3 per cent on a cumulative basis, while Swiss watch exports in the same five years had risen 18.8 per cent. Anecdotally everyone knows that the ‘prestige brands’ (Breguet, Blancpain, Glashutte Original, Jaquet Droz and Harry Winston) are absolutely nowhere near where they need to be; it is also common knowledge that Omega, Longines and Tissot provide the group’s profit.
For all of the above, chairman Nick Hayek Jr has remained defiantly bullish, telling shareholders that if they don’t like how the company’s run they can go and invest elsewhere, repeatedly emphasising that he doesn’t care about the share price (his attitude towards the falling stock market performance is often taken as a sign that he intends for the family to take advantage of the lower valuation and take the company private, but he has denied this on the basis that it would entail going heavily into debt), and describes the MS/LuxeConsult figures as “catastrophically wrong”.
It was absolutely no surprise therefore that the SG board rejected Steven Wood’s proposal to join their number (chickens vote to keep fox out of henhouse!) and given that, you may wonder why I’m giving this so much attention. Isn’t the whole thing dead and buried? Well, no.
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