Swatch Group vs Morgan Stanley: It’s Time for Transparency

Watches expert Robin Swithinbank weighs in twice a month with intelligence and insight on the age-old industry as it navigates the tension between tradition and reinvention.

The influence of Morgan Stanley’s annual “Swiss Watcher” report keeps growing. This year, it set the internet alight, sending watch enthusiasts, journalists, Substackers and even people with only a passing interest poring over figures to see who’s up and who’s down. It also riled more than a few brands, including those in the Swatch Group stable, among them Omega and Tissot.

On Friday, Swatch Group published an open letter lambasting the report, faulting its lack of transparency and accusing it of publishing “speculative” turnover figures, “completely wrong estimations” and “defamatory and potentially damaging statements.”

The report’s main author, watch business veteran Oliver Müller of the Swiss consultancy LuxeConsult, has said the numbers are estimates – and not perfect – but has repeated he stands by them and that brand insiders tell him he is not far off the mark. Müller and Morgan Stanley analysts draw on a combination of publicly available data (including Swatch Group financial reports) and an extensive network of brands, suppliers, retailers and industry insiders built up over the years.

The report’s estimates suggest Swatch is in a major slump, with its three largest brands Omega, Longines and Tissot all losing sales and market share. The group contends Morgan Stanley’s sales estimates deviate from reality by an average of 24 percent for each its 12 brands charted in the report.

“The data of the Morgan Stanley report is completely wrong,” Tissot chief executive Sylvain Dolla told me. Tissot shifted close to 3 million pieces last year, over 400,000 more than the listed in the report, he said. Average selling price (ASP) was 445 Swiss francs ($571), compared to Morgan Stanley’s estimate of 465 Swiss francs.

He declined to provide turnover, but here’s my back of the envelope calculation: If the ASP on a Swiss watch is twice its export value, and drawing on Dolla’s past comments that 80 percent of Tissot sales are through third-party retailers, sales come to around 801 million Swiss francs, 10 percent higher than Morgan Stanley estimates.

He did share growth figures for the 2020 to 2024 period: 9.7 percent, far above Morgan Stanley’s estimate of a 25 percent decline for the period. Last year, turnover was up 3 percent, he added, noting he felt the company’s annual revenues would by now be well above a billion Swiss francs if it hadn’t been for the franc’s rise. (It was up 12 percent on the dollar last year alone). US revenue, meanwhile, was $135 million, Dolla said.

This makes for a striking discrepancy between the Morgan Stanley figures and what we can infer from information relayed by Dolla. Who is right about these sets of numbers we rely on to understand the financial performance of Swiss watch brands? Herein lies the problem. Does anyone outside the Swatch Group enclave know? The group publishes consolidated results but does not break down individual brand performance. Dolla’s disclosures here are highly unusual. (They were sanctioned, he said, by the group’s chief executive Nick Hayek.)

“Any retailer will tell you that Tissot is enjoying a fantastic time,” Dolla said. So, I checked with Brian Duffy, chief executive of the Watches of Switzerland Group of retailers. Duffy said he could “fully corroborate” Dolla’s assertion that the brand is growing and that his company was “having great success with Tissot and Longines.”

But if Swatch Group is on good terms with its retailers, it has a thorny relationship with analysts and has had to defend itself from criticism of activist minority shareholder Stephen Wood of GreenWood Investors, who accused it of “worst-in-class governance.”

Müller and Dolla declined to comment on whether any legal proceedings are underway between Swatch Group and Morgan Stanley.

Of the 50 brands ranked in the report, only two disclose numbers: Hermès and Christopher Ward. Richemont and LVMH, the Swiss watch industry’s other major groups, report division performance, but like Swatch Group, do not detail brand revenues.

Meanwhile, the big-name players are privately held. Rolex, Audemars Piguet, Patek Philippe and Richard Mille, which together account for more than half the industry’s revenues, according to Morgan Stanley, are not obliged to report finances – and they don’t.

What’s left therefore is murky. Morgan Stanley, together with a rival publication by Swiss bank Vontobel – suggesting an even worse performance for some of Swatch Group’s brands – have become key guidance.

In the past, Swatch Group vs Morgan Stanley would have amounted to little more than an inside-baseball style ruckus. No longer. It’s not just industry wonks who are interested, it’s consumers, too, who are using industry data to make more informed choices about high-end purchases – there’s compelling evidence to suggest a brand’s performance in the primary market has a big impact on secondary values. The report has been dissected on the internet and social media, prompting Swatch’s line-by-line rebuttal as it seeks to regain the narrative around the health of its brands.

Time to Build Trust

The fallout from this year’s report begs the question: why don’t brands just tell us what’s going on? Tight-lipped Swiss executives argue there’s no merit in communicating figures. They have a point – part of a luxury watch’s appeal is in its mystery. Consumers have an uneasy relationship with brands that flex their wealth and few buyers take pleasure in making someone else rich. And then for listed groups there’s nervousness about shareholder expectations.

But shoppers are demanding more transparency. Luxury’s reputation has taken a hammering over the past half-decade, as stories of greenwashing, price gouging and questionable labour practices reach consumers. Buyer perceptions have cooled, leaving brands in a so-called “reputational recession.” Consumers are questioning the fundamentals of a product as never before. How was it made? Is it worth the price? Lack of trust erodes brand equity. Transparency isn’t the only challenge facing Swiss watchmakers today, but Swiss watchmaking needs its own glasnost moment.

What Happened to Omega?

Watchmaking’s middle ground is collapsing, the report shows. Brands like Panerai, Hublot and IWC Schaffhausen – long the engine room of luxury groups – are far below their post-pandemic peak.

Omega, down 180 million Swiss francs to 2.2 billion, according to Morgan Stanley or down 600 million Swiss francs to 1.7 billion in Vontobel’s estimation, becomes the unwitting poster child of this trend. A decade ago, the company was discussed in the same breath as Rolex with the two Swiss giants going toe-to-toe on sales, retail locations, sports sponsorships and reputation. I recall charts showing consumer interest in Omega rapidly catching up with Rolex, with the brand’s James Bond and Olympic Games associations driving up desirability.

Rolex has since pulled away, leaving Omega a dot in its rear view mirror. Morgan Stanley calculations suggest Omega has stagnated for the past decade, while others have grown around it. First, Cartier pulled ahead into second spot, and then this year, Omega dropped to fifth place, behind Audemars Piguet and Patek Philippe.

Sister brands Longines and Tissot have fared little better, dropping out of the so-called Billion Swiss Franc club, which now counts just six members – including Richard Mille, according to Morgan Stanley. Again, these are estimates, and Swatch Group says the findings are incorrect, albeit without providing figures.

It makes for bleak reading. How did these brands get here? Bar Cartier, which is owned by Richemont and remains the report’s great outlier thanks to the continuing popularity of its fashionably-shaped watches, Swiss watchmaking’s undisputed winners are private companies. Insiders say that after expanding capacity and investing heavily in boutique-focused strategies, the groups are overexposed at manufacturing and retail levels. Brands have also become formulaic with product and marketing strategies, held to ransom by shareholders. Price increases for shareholder profit? That’s a hard sell to a consumer base increasingly familiar with watchmaking’s economics.

We’re All Analysts Now

There is no question the watch bubble, watchland, or whatever we might call the global watch-gazing diaspora, is increasingly interested in the business behind watchmaking.

Two decades ago, when I first got into this game, talk was about product and brand. Today, the same media that once chased product launch exclusives are far more animated by scoops that reveal how the industry works. Consider this briefing as Exhibit A.

It’s hard to tell where the shift came from. Perhaps the endless slew of new product – a 24/7 social-media-centric cycle – has lost its power to thrill. There’s also been the rise of so-called prosumers, who seek professional-grade information to set themselves apart from the masses, as everyone has more access online. But it’s also likely because consumers – and the journalists that serve them – want to understand the value in what they’re buying, especially when prices soar.

Put another way, they – we – want truth.