Swatch Group: Seizing the opportunities from the new smartwatch market

Swatch Group: Seizing the opportunities from the new smartwatch market Presenting to CEO Mr. Nick Hayek May 2016 Heinrich Heine University : Louisa Schuessler, Ursula Hilgers, Johannes Gerlach, Hannes Kurz

Mandate How to respond to new competitors producing smartwatches especially to the Apple Watch May 2016 Heinrich Heine University 2

Recommendation Enter the smartwatch market with a highly technological product in all price segments. May 2016 Heinrich Heine University 3

Agenda 1. The development of the smartwatch market 2. The Swatch Group 3. Entering the smartwatch market? 4. Implementation of the Smart Swatch R & D Product Distribution 5. Outlook 6. Wrap-up May 2016 Heinrich Heine University 4

The Swatch Group s revenues are mostly generated from the luxury segment 18 watch brands 36,000 employees 50 countries 5% 27% 73% 95% Luxury segment Others Prefer Apple watch Prefer traditional watches You need to offer an alternative for the luxury segment instead of the Apple WATCH May 2016 Heinrich Heine University 5

Development of Swatch Group s net sales and net income 10000 9000 8000 7000 6764 7796 8456 8709 8451 CAGR: 5.7% Equity ratio: 84.7% Balance sheet total: CHF 13,270mn Employees: 35,783 In mn CHF 6000 5000 4000 3000 2000 1000 1276 1608 1928 1416 1119 0 2011 2012 2013 2014 2015 Net Sales Net Income Well development of net sales and financial situation May 2016 Heinrich Heine University 6

Development of Swatch Group s net sales and net income 10000 9000 8000 7000 6764 7796 8456 8709 8451 CAGR: -3.0% Equity ratio: 84.7% Balance sheet total: CHF 13,270mn Employees: 35,783 In mn CHF 6000 5000 4000 3000 2000 1000 1276 1608 1928 1416 1119 CAGR: -11.1% 0 2011 2012 2013 2014 2015 Net Sales Net Income Tackle the decreasing net sales and net income in the currently changing market environment May 2016 Heinrich Heine University 7

The smartwatch market is increasing by an average of 49.14% where the Apple WATCH is the dominant player in the advanced smartness sector 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 66.71% 50.40% 30.32% Market growth for smartwatches 2015 2016 2017 Luxury Mass market TISSOT $1,100 Swatch Touch Zero One $130 Apple WATCH EDITION $10,000 - $17,000 Apple WATCH HERMES $1,100 - $1,500 Apple WATCH $549 - $1,099 Apple WATCH SPORT $299 - $349 Low Advanced Smartness You need to improve your technological smartness in order to compete with Apple May 2016 Heinrich Heine University 8

The target group of watches can be divided into Traditionals and Technology Lovers Price segment Traditionals Technology Lovers High Low Customer needs for smartwatches: Touch navigation Mail, calendar, messages Multimedia Waterproof Low Advanced Smartness You need to assess which target groups will be addressed by your product May 2016 Heinrich Heine University 9

Key issues Assess the importance of technological development for the Swatch Group Ltd. Tackle the decreasing financial performance Determine future market positioning May 2016 Heinrich Heine University 10

Should Swatch Group Ltd. enter the market of smartwatches? Criteria Alternative Enter the market of smartwatches Staying in the traditional Swiss watch market Growth opportunity Customer needs Existing competition Brand heritage May 2016 Heinrich Heine University 11

Should Swatch Group Ltd. enter the market of smartwatches? Criteria Alternative Enter the market of smartwatches Staying in the traditional Swiss watch market Growth opportunity Customer needs Existing competition Brand heritage May 2016 Heinrich Heine University 12

Which customer group should be targeted? Criteria Alternative Technology lovers Traditionals Growth opportunity Customer needs Existing competition Brand heritage May 2016 Heinrich Heine University 13

Which customer group should be targeted? Criteria Alternative Technology lovers Traditionals Growth opportunity Customer needs Existing competition Brand heritage May 2016 Heinrich Heine University 14

The Smart Swatch

The implementation of the Smart Swatch R & D Product Distribution May 2016 Heinrich Heine University 16

The implementation of the Smart Swatch R & D Product Distribution May 2016 Heinrich Heine University 17

The development of Smart Swatch for Technology lovers with a partner Criteria for partner Experience Reputation Lead time Contract Production R&D Long term Banning own smartwatch Department 50 people Coordination Swatch heritage Competencies Create the Smart Swatch with an advanced technology and build up the necessary competencies in house in the long term May 2016 Heinrich Heine University 18

Further development of the Smart Swatch to eliminate the need for a second device and increase the battery life Universities Start-ups R&D Marketing agency Stanford Oxford ETH Zurich Competitions Innovation Center Increased expenditures Conjoint analysis Cluster analysis Meet the increasing customer needs and survive the upcoming competition May 2016 Heinrich Heine University 19

The implementation of the Smart Swatch R & D Product Distribution May 2016 Heinrich Heine University 20

The price ranges and design of your Smart Swatch Round face of watch Swiss craftsmanship frame $250 Sportive band Smart Swatch I Smart Swatch II $500 Black / brown leather band Smart Swatch III $3000 Yellow gold wrist band Customization Size of screen Removable wristband Name and picture engraving Serve all price segments with different wristband May 2016 Heinrich Heine University 21

The multiple advanced functions of the Smart Swatch Organizer Mails, messaging Calls Calendar Health Activity tracking Nutrition Medical information Technology High battery power Waterproof (IPX7) Inductive charging Meet the increasing customer needs for a digital solution for life May 2016 Heinrich Heine University 22

The implementation of the Smart Swatch R & D Product Distribution May 2016 Heinrich Heine University 23

Distribution via three channels Training of Swatch sales team Online Smart Swatch configurator Online shop Own Swatch stores Retailer Video tutorials Live chat Schedule appointment in the nearby store Special sales areas in each stores for customers to test connectivity of Smart Swatch with their own devices Online tutorials for end customer sales staff (product information and connectivity) Support by Swatch sales team Standard models in each store In store configurator (same as online) Catalogue for offline configuration May 2016 Heinrich Heine University 24

Implementation plan and associated costs 2016 2017 2018 2018 2019 2020 Costs Analysis of potential partners 800000 Negotiation with partners 200000 Build up the Smart Swatch Department with 50 employees 10000000 Market Research and developmen of app (marketing agency) 6000000 Development of configurator 500000 Education of sales persons 3000000 Shop arrangements 2000000 Building up in-house knowledge 15000000 Launch of Smart Swatch X Total costs of implementation: CHF 37.5mn May 2016 Heinrich Heine University 25

Financing concept and financial outlook Take out a loan of CHF 40mn Duration: 10 years, interest rate 2.5% Yearly interest payments: CHF 1.0mn 2018 2019 2020 2021 2022 2023 Net income 5 5.5 8 15 25 40 Accumulated 5 10.5 18.5 33.5 58.5 98.5 Break Even X Investments will be profitable in 2022 May 2016 Heinrich Heine University 26

The Smart Swatch will compete directly with the Apple WATCH Luxury TISSOT $1,100 Apple WATCH EDITION $10,000 - $17,000 Smart Swatch $3000 Apple WATCH HERMES $1,100 - $1,500 Mass market Swatch Touch Zero One $130 Smart Swatch $250 Apple WATCH $549 - $1,099 Smart Swatch $500 Apple WATCH SPORT $299 - $349 Low Advanced Smartness With the slightly lower price you will be able to gain market share May 2016 Heinrich Heine University 27

Our expectation for your company in 2020 Luxury Mass market TISSOT $1,100 Swatch Touch Zero One $130 Smart Swatch $250 Smart Swatch $3000 Smart Swatch $500 Low Advanced Smartness Products Smart Watch Traditional watches Markets Global presence as you already sell watches worldwide Customers Technology lovers Traditionals Continuous market research would identify changing customer expectations May 2016 Heinrich Heine University 28

Risk and contingency Impact 2 3 1 Probability 1. Appreciation of Swiss Franc as during the financial and European sovereign debt crisis Hedge currency risks on financial markets 2. Failing to meet customer expectations and smartness of Smart Swatch Increase marketing as well as R&D efforts 3. Dependence on cooperation partner contractual penalty and build up in-house knowledge management in the long term May 2016 Heinrich Heine University 29

Wrap-up Enter the smartwatch market with a highly technological product in all price segments. Assess the importance of technological development for the Swatch Group Ltd. Tackle the decreasing financial performance Determine future market positioning May 2016 Heinrich Heine University 30

Wrap-up Enter the smartwatch market with a highly technological product in all price segments. Assess the importance of technological development for the Swatch Group Ltd. Tackle the decreasing financial performance Determine future market positioning May 2016 Heinrich Heine University 31

Wrap-up Enter the smartwatch market with a highly technological product in all price segments. Assess the importance of technological development for the Swatch Group Ltd. Tackle the decreasing financial performance Determine future market positioning May 2016 Heinrich Heine University 32

Wrap-up Enter the smartwatch market with a highly technological product in all price segments. Assess the importance of technological development for the Swatch Group Ltd. Tackle the decreasing financial performance Determine future market positioning May 2016 Heinrich Heine University 33

Thank you.