Swiss watches hope to stand test of time

Georges Kern, chief of IWC Schaffhausen, maker of expensive timepieces, would like to think the high-end market will soon be ticking along nicely again.

Georges Kern, the chief executive of IWC Schaffhausen, grew up in the watchmaking industry.

Georges Kern was destined to work in the luxury jewellery industry. The chief executive of IWC Schaffhausen, a Swiss watchmaker, grew up in the industry. His father, Rene Kern, was a jeweller. "I have been confronted with nice things all my life," he said last week during a visit to Abu Dhabi for the star-studded Laureus sports awards ceremony, often referred to as the "Oscars for athletes". IWC has been a long-time sponsor of the event.

"I had many watches, also from the group, for many years. Piaget, IWC. I was raised with this stuff." Still, when he took on the role at IWC in 2001, at 36 the youngest chief executive ever among the luxury conglomerate Richemont, he was not taken seriously. He had started his business career managing fast-moving consumer retail goods rather than high-end timepieces, and was now managing executives several years his senior.

But Mr Kern stood the test of time, and now, nearly 10 years later, he has shaped the company into one of the most prestigious brands in the luxury sphere. Things got tougher as the economic crisis bit, however, and US$100,000 (Dh367,270) watches became rarer at the top of the shopping lists of the wealthy. Worldwide exports of Swiss watches last year dropped from 17bn Swiss francs (Dh58.9bn) to 13.2bn francs, according to the Federation of the Swiss Watch Industry. Mr Kerns said there was "minimal variance" in IWC sales last year compared with 2008, industry speak for "not much", but he would not be more specific.

This year he is optimistic, and plans to add 10 more stand-alone boutiques to the company's portfolio of 30 worldwide. But he does not expect an easy ride; he is gearing up for a fight. Here, Mr Kern reflects on the UAE market ? and why the luxury industry is bouncing back: q How were things for IWC last year? a Our fiscal year ends this month, so obviously the first six months of last year were difficult. Let's say from January to June 2009 with all the turmoil, with all the crises, things obviously went down and you can see that with the exports of the watch industry. But it picked up in September, October, in particular in Asia. China, Hong Kong and Macau are strongly growing regions. The downturn in the US stopped, and also UAE recovered at the end of the year. So we had the last six months to make up for the first six months.

What are your plans in the UAE? @Body-Answer2 :The UAE represents 5 per cent of our turnover, it's a high value ticket market so you sell expensive pieces. It's not only local business for us, it's very much a tourist market, and also here now you have the influence of the Chinese. The Chinese part of the sales here in the Middle East is growing dramatically, and has been growing dramatically over the last 12 months. Up to 30 per cent, which is huge. We are looking for other boutiques in Dubai. We are looking for other boutiques in [Abu Dhabi].

We want quality growth, and continue to invest on a sustainable level. It's not a one-time shot. You have ups and downs in life and in business, and we want to establish this market on the long term. I would like to open one flagship here in the region, in Abu Dhabi or Dubai. We would like to go to Mall of the Emirates with a boutique. Which markets in the region stand out? @Body-Answer2 :The UAE and Kuwait. The UAE because it has been always been more open, and also for tourism. Even though there was a slowdown in terms of visitors, it picked up very quickly. You have the hotels, you have all that for people that want to travel. Look at all the investments here. In Abu Dhabi, you have Formula One, the tennis tournament in Dubai, now Laureus.

There are very many large investments, which gives visibility for Abu Dhabi in the world. Laureus, the ceremony will be seen [on television] by 1.5 billion people. This is huge. In Kuwait, you have good economic development, also in Qatar. Many companies are changing their strategy to stay more competitive in the tough economic environment, from incorporating smaller-ticket pieces to changing the design.

What is IWC doing differently this year? @Body-Answer2 :Building a luxury company takes years. Destroying a brand, you can do it very quickly. We are going in search of excellence, better, bigger, more efficient. It's a steady growth and improvement of everything. [But] we have to be truthful to our style. My problem was not the crisis, my problem was the huge growth in the previous years. During this growth, I was so close to making a mistake, and taking low-hanging fruit and doing stuff that was not in the DNA of the brand. And we didn't do this.

It was so easy to make quick money, with women's watches and diamond watches and stuff. Today, it would have harmed us much more. We had to resist during the crisis not to take this low-hanging fruit. Today, everything we're doing remains the soul of the brand. A luxury [product] is a totally emotional product. Nobody needs a watch at that price point. So it's a statement for yourself, who you are.

The luxury industry has been among the hardest hit during this economic crisis. Consumers have become much more budget-conscious, and some analysts say this behaviour is here to stay. Similar to after the Great Depression, when those who lived through it continued to be cautious for many years to come. Will the luxury industry continue to grow, or will it slow down? @Body-Answer2 :Look at the world. Today, there are about 12 million high-net worth individuals, meaning people with $1 million cash plus real estate. China is growing strongly, as is the US. Wealth will grow in the world.

Don't forget that the luxury industry is a quite new industry. The brands that we all know today, how old are they? I'm not talking about Coco Chanel in the 1930s. Real luxury started in the 1980s with Armani, Louis Vuitton etcetera. We're talking about 30 years, in the way we know it today. Just 30 years, nothing. And wealth is growing, and culture of beautiful products and shoes, this will grow in all the regions.

I think that there is money on this planet. I agree that for a certain period of time, consumers might say 'OK I'm going to postpone that'. But for how long, 12 months? When you have the money, sooner or later you buy the product. I truly believe in the human willingness of enjoying life. And we see this. You have, let's say, a couple of months of consumption reduction. But suddenly it's picking up. What is it? New consumers? No, it's because consumers are catching up on their consumption. This will happen, and it is happening. I'm confident for the future. Wealth will grow no matter what happens.

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