No. of Recommendations: 6
@ EVBigMacMeal: Swatch is not a Swedish company (as you wrote); it is a Swiss company headquartered in Biel/Bienne, Switzerland. I should know, I live close to the headquarters and have been a shareholder for decades until 2011. 😊This distinction is significant because Switzerland has a long-standing reputation as a global leader in watchmaking, home to brands like Rolex and Patek Philippe, while Sweden plays only a minor role in the watch industry.
The Swatch Group was formed in 1983 from the merger of two struggling Swiss watch companies, ASUAG and SSIH, during a period when the Swiss watch industry was severely threatened by the rise of inexpensive Japanese quartz watches. Unemployment in traditional watch regions (Biel, Grenchen) was high, which sent shock waves through Switzerland. Nicolas G. Hayek, father of the current CEO Nick Hayek Jr., is widely credited with rescuing the Swiss watch sector. His strategy involved creating a low-cost, high-tech, and emotionally appealing Swiss-made plastic watch: the Swatch. The Swatch brand quickly became a cultural phenomenon, with some models trading for thousands or even tens of thousands of francs, and generated long queues reminiscent of later iPhone launches. The stock price soared.
Swatch’s identity remains closely tied to its colorful, affordable plastic watches, which have defined the brand’s image for decades. While the company still operates many Swatch stores worldwide, demand for these entry-level plastic watches has declined in recent years. You can check yourself: The Swatch shops also in big US cities (e.g. LA or NY) are mostly empty.
Despite Swatch’s success in the entry-level segment, the company has struggled to develop its premium brands. For instance, Breguet, once considered an iconic Swiss watch brand, has not received the strategic attention needed to compete with top luxury names like Rolex and Patek Philippe. Critics, including shareholders and proxy advisors, have pointed to a “closed culture,” lack of transparency, and weak execution in the premium segment as reasons for the company’s underperformance. Proxy advisors Institutional Shareholder Services and Glass Lewis have recommended voting against the re-election of the board, citing concerns over independence and governance risks. Shareholders have also criticized the board for lacking fresh perspectives and for not being sufficiently open to new management ideas. I can also tell you that Hayek Jr. is not well liked by many Swiss after several most controversial appearances (bashing of media, which seems quite popular these times).
Swatch has attempted to diversify beyond watches, for example through its majority stake in Belenos Clean Power, a battery technology company. However, these ventures have not met expectations. In 2024, George Clooney (the actor) resigned from the board of Belenos after 16 years, signaling disappointment with the project’s progress. Such high-profile departures and unfulfilled announcements have contributed to skepticism among investors.
Swatch Group’s current low valuation reflects a combination of factors: a stagnant brand image rooted in plastic watches, missed opportunities in the luxury segment, most controversial leadership, and unsuccessful diversification attempts. Many former investors (like me) avoid the stock like the plague but are ready to jump in should a leadership change take place – since valuation looks indeed good (as you wrote).
