Financials

Swatch Cuts Jobs, Closes Stores as Sales Slump

FinancialsJul 15, 2020

Swatch Cuts Jobs, Closes Stores as Sales Slump

The Swiss watchmaker is eliminating 2,400 jobs and closing 260 locations in an effort to downsize its retail footprint.

The Omega 38 mm Seamaster 1948 Small Seconds. Swatch Group, which owns Omega along with Rado, Longines and more, is cutting jobs and closing stores after COVID-19 lockdowns hurt sales.
Biel/Bienne, Switzerland—Swatch Group will eliminate 2,400 jobs, about 6 percent of its workforce, and close 260 stores as part of a downsizing amid the COVID-19 pandemic.

In the first half of the year, Swatch’s net sales plummeted 43 percent year-over-year at constant exchange rates to 2.19 billion Swiss francs ($2.34 billion).

A strong Swiss franc worked against Swatch, reducing sales by 113 million Swiss francs ($120.4 million), noted Chief Financial Officer Thierry Kenel in a video shared by Swatch about its results.

The Swiss watchmaker said it was off to a strong start in January, but saw its momentum halted after COVID-19 forced the closure of up to 80 percent of its distribution channels.

It swung to a loss in the six-month period ending June, posting a total net loss of 308 million francs ($328.1 million) compared with a net profit of 415 million francs ($442.2 million) in the previous year.

The company reported an operating loss of 327 million francs ($348.4 million), which was twice as much as analysts had expected.

While sales in China fell as much 80 percent year-over-year in certain months, sales in the United States did not reach the same lows.

“The reason being was the online business, which we have built up over the past year,” Chief Controlling Officer Peter Steiger said in the video.

Online sales in the U.S. “reached one record after the other” during lockdown.

The in-store rebound started in May, but was halted one week later by protests in the wake of the death of George Floyd, said Steiger.

The second half of June is when in-store business “really took off again,” he said, with continued improvement seen in the first two weeks of July.

Omega was the “star performer” of its brands while Swatch also performed well.

Swatch Group had begun lowering its store count even before COVID-19 took hold, with a particular focus on Hong Kong.

“There are nearly no sales in Hong Kong at the moment,” CEO Nick Hayek said in the video, citing ongoing political unrest in the region alongside the impact of the coronavirus.

Swatch’s licensing agreement with Calvin Klein, in place since 1997, ended in October 2019 and many of the 260 store closures were a result of that decision, said Hayek.

Swatch contacted Calvin Klein parent company PVH Corp. to determine which company would take over these stores, said Hayek, but there was no response so the stores were closed.

The 2,400 job cuts were made mostly at its retail stores rather than at its production facilities.

Meanwhile, in Switzerland only about half of Swatch’s employees are back to work full-time, said Steiger, with around 2,500 taking unused vacation or reducing overtime.

Another 6,000 were on short-time work, a social safety net program where companies can apply for the government to subsidize workers’ salaries.

Swatch said 170 million francs in insurance went toward keeping its employees onboard with 150 million of that going to its Swiss manufacturing segment.

The partial unemployment measures are expected to end in the third quarter as manufacturing returns to full capacity, said Steiger.

Looking ahead, Swatch is expecting a strong second half of the year as restrictions are lifted and more stores begin to reopen.

The watchmaker will introduce new products to bolster its second-half sales, including new “James Bond”-edition Omega watches, a Tissot Connect smartwatch, and the Longines “Spirit” collection.

The company said it has seen “very high” customer demand across price segments in the markets that have reopened, including double-digit year-over-year growth in mainland China in May and June.

Swatch is expecting a lower cost base as the public events it sponsors, including horse races and the Olympic games, are on hold for the foreseeable future, though the company still does expect to take part in future Olympics and the America’s Cup.

Fewer stores and less marketing investment will also bring down costs.

“For the full year, we are very confident that we will show a very good profit, [but] of course not comparable with the year before,” said Hayek.
Lenore Fedowis the associate editor, news at National Jeweler, covering the retail beat and the business side of jewelry.

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