“Swatch Group did everything in its power to protect its employees worldwide to the greatest extent possible,” says Swatch Group chair Nayla Hayek in her introduction to the 2020 Annual Report in which she thanks all employees and management for their constant support throughout the pandemic.
“We do not blame this on management mistakes or a change in consumer behaviour, but on the futile policy of total lock down,” she asserts as much of Europe heads into a third or fourth attempt to control the virus through shutting down swathes of their economies.
Ms Hayek is at pains to point out that a fall in sales from CHF 8.2 billion in 2019 to CHF 5.6 billion in 2020 was as much the fault of policymakers around the world as it was down to her team.
“We have tried to keep open as many of our stores as possible, which unfortunately was not 100% achievable. Also, because of the restrictions that have been enforced, we have only been able to continue our production at a very reduced level,” she adds.
Net profit dropped by CHF 800 million to a loss of CHF 53 million in the 2020 financial year.
Swatch Group finished 2020 with 32,424, employees around the world, 10% lower than 2019 and down from a peak of over 37,000 people in 2018.
Ms Hayek says that the group takes a long term view, and did make progress last year including applying for more than 200 new patents. “We also carried out a generational change of presidents at some of our brands during this period,” she adds.
Compensation for the board of directors dropped from CHF 4.8 million in 2019 to CHF 3.8 million last year. Ms Hayek is the highest paid director, and took a million swiss franc cut in compensation from CHF 4 million to CHF 3 million.
On the product front, she singles out Breguet’s Double Tourbillon, Omega’s Speedmaster “Silver Snoopy Award” 50th Anniversary, the Longines Spirit collection and the Tissot T-Touch Connect Solar as important launches.
Swatch Group does not break down financial results by individual brands, but Morgan Stanley estimates the company’s biggest marque, Omega, saw a drop in sales from CHF 2.4 billion in 2019 to CHF 1.8 billion last year and the number of watches sold fell from 720,000 to 500,000.
Notably, Omega’s share of turnover through wholesale to third party retailers increased from 70% in 2019 to 75% in 2020, likely a result of its major city center monobrand stores in the likes of New York and London being closed for much of the year.
London has been harder hit over the past 12 months than the rest of Britain, according to retail analyst GfK.
Travel retail, another area where Swatch Group’s brands are overweight, has also been devastated by the pandemic.
Longines endured a similar drop in sales to Omega from CHF 1.65 billion to CHF 1.15 from a total of 2.1 million watches sold in 2019 and 1.5 million in 2020. Its share of turnover through wholesale increased from 78% in 2019 to 90% in 2020, Morgan Stanley estimates.
Greater China accounted for almost half of Swatch Group’s revenue in 2020 at CHF 2.5 billion from a total of CHF 5.6 billion and also held-up best with a drop of only 20% year on year.
It is not the first year that Chinese citizens have accounted for more than half of Swatch Group’s sales, but much of that turnover was previously generated in major shopping hot spot capital cities around the world.
Europe was the worst affected region with group sales falling from CHF 2.3 to 1.3 billion.
Sales to the Americas dropped from CHF 707,000 to CHF 490,000.
Despite the challenges of 2020, Swatch Group managed to increase its reserves with CHF 1.6 billion in cash and equivalents at the end of the year compared to CHF 1.2 billion in 2019.
Looking ahead to this year, Swatch Group is expecting a strong catch-up in consumption worldwide for watches and jewelry in 2021, as has already been observed in Mainland China after normalization of the health situation. “Demand will strengthen further as soon as travel restrictions can be relaxed or lifted,” the annual report states.
Investors appear to agree. Swatch Group’s share price has recovered from a low of CHF 168 last May to CHF 275 today.