The Apple Watch – A Threat or an Opportunity?Mr Hayek, CEO, Swatch Group Ltd. TeamDerek AndersonTanya KennyCatherine ObrienDeclan Walsh

Smurfit Consulting

Challenge

Battle of Timelessness and Craftsmanship Versus Technology

What is the best Strategy for the Swatch Group Ltd. in this Battle?

Recommendations

Increase Operating

Margin

Smart Swatch

Build Luxury Market

Recommendations

Increase Operating

Margin

Smart Swatch

Build Luxury Market

• Focus on core competency

• Seize opportunity industry has created

• Marketing and Brand awareness

Recommendations

Increase Operating

Margin

Smart Swatch

Build Luxury Market

• Export Costs• Currency • Protect Swiss

Heritage

Recommendations

Increase Operating

Margin

Smart Swatch

Build Luxury Market

• Enhance Smart Touch with Touch Zero features

• Compete at mass market lower end smartwatch

Agenda

• Qualitative and Quantitative Analysis• Strategic Options• Recommendations• Implementation Plan• Risks and Mitigations• Conclusion

Text Here

FINANCIAL ANALYSIS

• Sales decline 3% 2015• Operating Results

• 27% - 2013• 17% - 2015

• Net Income• CHF 2.0Bn - 2013• CHF 1.1bN - 2015

Sales Revenue and Profitability in decline

6764

77968456 8709 8451

16141978

23141752 14511276

16041928

1416 1119

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

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2011 2012 2013 2014 2015

The Swatch Group - Financial Results - 2011 0 2015 - CHF Million

Net Sales Operating Results Net Income

EXTERNAL ANALYSIS – WATCH INDUSTRY

Rivalry

Supplier Power

New Entrants

Customer Power

Substitutes

Industry disruption is taking place

• Platform force exerted Apple

• Margins are falling• Apple have cut prices of

new watch by $50

EXTERNAL ANALYSIS – LUXURY WATCH SEGMENT

Rivalry

Supplier Power

New Entrants

Customer Power

Substitutes

Luxury Segment is most favourable

• 95% of Swatch profits from this segment

• Customers less price sensitive

• Quality, authenticity

INTERNAL ANALYSIS – THE SWATCH GROUP LTD.

HISTORY / PROVENANCE / BRAND

ENGINEERING / DESIGN / MANUF

MARKETING COMPETENCE

VALUABLE YES YES YES

RARE YES YES YES

COSTLY TO IMITATE YES YES YES

ORGANISED TO CAPTURE ADVANTAGE

YES YES NOT YET

Competencies to lever: Provenance (Brand), Design & Manuf., Marketing

Strategic Options

Business as usual OR directly compete OR luxury plus innovate

Option 1Focus on Luxury Market

Option 2 Directly Compete with Apple and embrace Smart Tech

Option 3Focus on Luxury Market and Develop Mass Market ‘Smart Swatch’ Watch

Strategic Options

Focus on Luxury Watch Segment and Develop Smart Swatch

Internal Alignment

External Alignment

Feasibility Risk Consistency

Option 1 Luxury Watch

Option 2 Smart Watch

Option 3 Luxury Watch and Smart Swatch

Touch Zero and Smart Touch

Recommendations (1)

Build Luxury Segment• Continue to utilize core competencies• Protect existing market• Market luxury high end product – status symbol • Capture new wrist watch customers awoken by Apple

Focus on Luxury Segment Growth

Reduce CostBase

SmartSwatch

Build Luxury Market

Recommendations (2)

Reduce Currency Exposure and Reduce Cost Base• Currency hedging• Cost Base Efficiency

Drive out cost and hedge currency risk

Reduce CostBase

SmartSwatch

Build Luxury Market

Recommendations (3)

Develop Smart Swatch• Leverage Touch Zero and Smart Touch into combined Smart

Swatch• Utilise existing technology competencies• Compete in mass market segment mid advanced• Better Battery, No Pairing, Lower Price

Develop Smart Swatch utilising existing competencies

Reduce CostBase

SmartSwatch

Build Luxury Market

IMPEMENTATION

0 -6 months 6 – 12 months 12 – 24 months

Manage Loyalty of existing customers

• Launch Marketing Campaign• Target existing high end customers – brand loyalty• Emphasise the importance of traditional watch – timeliness & craftsmanship

• Engage Investment Bank to advise on currency hedging

IMPEMENTATION

0 -6 months 6 – 12 months 12 – 24 months

Increase margin & develop for the future

• Set up task team to reduce costs of existing high end watches • Launch new division to develop “Smart Swatch”

• Battery Life• Price • Pairing

IMPEMENTATION

0 -6 months 6 – 12 months 12 – 24 months

Acquire the next generation of customers

• Launch new “Smart Swatch” to acquire some customers from new segment • Source cheaper components for “Smart Swatch” offshore• Commence marketing to new customers

• Cross – sell the luxury traditional watch

FINANCIAL IMPACT

2015 yr 1 yr 2 yr 3

Net Sales 8,451 8,451 8,874 9,761

increase 0.00% 5.00% 10.00%

Net Income 1,119 1,183 1,509 2,147

% of net sales 13.20% 14.00% 17.00% 22.00%

Increase sales & increase margin

Impact

Probability

Mitigants

RISKS & MITIGATIONS

Death of Traditional Watch

Smart Swatch Fails

Marketing – Craftsmanship & fashion

Price & Battery Margin decline further

Currency Hedging, cost cutting & import “Smart Swatch” parts

Conclusion

Increase Operating

Margin

Smart Swatch

Build Luxury Market