Swiss Style’s new leadership section
Swiss Style magazine was first published in 1993 and over the years our publication has mutated. Our distribution has grown from regional to national and then, through our collaboration with the World Economic Forum, worldwide. Issues of Swiss Style are seen in Rio de Janeiro and Zurich, Dalian and Geneva, Lausanne and Amman.
This publication’s readership is now composed of influential, early adopting top-tier luxury consumers from some 50 nationalities who happen, by their professional functions or personal preference, to reside in this country. And as a majority of them are decision makers, we endeavour to regularly offer them food for thought, by featuring the points of view and strategies adopted by leaders in many fields, as a source of additional inspiration.
A milestone is always a good time for introspection and while reviewing the past 20 years, our team came to the realization that there was one industry to which we had not given enough space: The luxury business.
Switzerland’s luxury industry is one of the most important in the world and has a time honoured tradition in the field. It heavily contributes to this country’s GNP and not only provides beautiful products and valuable services for consumers – it also provides jobs and supports economic development. With high average per-capital incomes, the Swiss themselves constitute an attractive customer base for luxury companies as do the high net worth individuals who visit us for pleasure or on business. Consequently, Switzerland harbours the retail operations of most of the world’s most sought after brands, often found concentrated on Zurich’s Bahnhofstrasse and Geneva’s ‘luxury mile’, the rue du Rhône.
Our editorial team reflected on luxury and decided that our main deficiency was the view-point of someone with a better understanding of the luxury industry as a whole: Enter Danièle Megardon, a seasoned professional who, for over 30 years as a French-based entrepreneur, successfully worked with and represented numerous brands, from Escada and Louis Feraud to Cerruti and Yves Saint Laurent.
Danièle accepted the challenge with refreshing enthusiasm and, within days, set out to investigate the intricacies and particularities of this county’s luxury market.
‘The main thrust of my plan’ says Ms. Megardon, ‘consists of not only investigating what makes the local market tick, but to also understand the specific strategic and operational considerations of luxury companies here. The best way to access this type of information, seems, quite naturally, to pick the brains of a selected group of the main actors in the field… the leaders of these organizations.’
True to her word, Danièle started an ongoing conversation with these individuals and, as of this issue, will share their insights with our readers, thus inaugurating Swiss Style’s ‘Business of Luxury’ section. ‘This is an exciting experience’, she explains. ‘I much enjoy listening to an array of views on what’s going on in the industry. I also enjoy meeting new minds, and reuniting with old friends… it fires up my creative neurons and allows me to think about things in different ways. I am curious to discuss matters of leadership as well as design, marketing, distribution and communication strategies at a CEO level using retail as a backdrop. I am interested in understanding their thoughts on the evolving demands of influential customers and on how they connect with them, be they residents or visitors.’
While reading the first of our ‘Business of Luxury’ segments, we hope that as a consumer of luxury you will deem Danièle Megardon’s findings of interest, regardless of your background or line of work.
Pegging luxury to the board
It makes for catchy headlines: ‘The Swatch Group has reported a 13 per cent drop in net profit. Strong Swiss Franc blamed…’ And yet, this is not an ominous announcement from last week’s newspapers. It is a release that dates back to March 2002. This just goes to show that currency fluctuations, unlike history, do repeat themselves and that the repercussions of such swings are not necessarily of the same nature. Proof of this is Swatch Group’s communiqué published early February of this year, which announced a rise of sales of 14%, to a record CHF. 8.1 billion, despite unsatisfactory currency developments.
The Swiss franc attracted much attention while skyrocketing against other major currencies over the past couple of years. Part of its strength was due to continued demand from worried investors looking for a safe haven in a particularly unstable economical environment. As the currency approached parity, in September 2011 the Swiss National Bank fixed a minimum exchange rate of CHF. 1.20 in order to check the franc’s strong gains against the euro zone currency, in an effort to prevent Switzerland sliding into a cycle of deflation and recession.
This brought great relief for companies and allowed them to plan reliably, but at a rate of 1.20, the Swiss franc is still overvalued and it poses challenges for the majority of sectors.
The luxury industry is no exception.
During my conversations with a number of leaders in the Swiss luxury market, I found that although a strong franc most definitely influenced their bottom lines, it did so in different ways and for different reasons. The strategies that they and their companies adopted differed depending on whether they were export oriented Swiss companies or if they acted as distributors of world renowned luxury brands. Likewise, the significance of the problem and the proposed solutions depended on the specificities of their segment of the market.
For example, retailers who sell goods other than basic consumables are particularly subject to quite large short-term fluctuations which are closely linked to consumer sentiment. 73% of the Swiss population can reach a foreign consumer market by car within 60 minutes. Exchange rate movements therefore impact retailing turnover indirectly – through shopping tourism – and regions close to the borders are hit particularly hard. One of the effects of the strong franc on the Swiss economy is that Swiss residents living near eurozone borders are taking advantage of shopping sprees across the border.
Estee Lauder has a portfolio of over 25 brands that are sold in more than 150 countries and range from entry-level prestige to ultra-premium luxury. Goetz Winter, who runs the group’s operations in Switzerland, recently told me that ‘Switzerland is both an important market and one marked by intense competition. What makes this market special is the paradoxical mix of love of luxury, the need for large volume and consumers with a keen eye for a bargain. Admittedly, some of our brands do suffer from high earning Swiss crossing the border, but this impacts our higher end products much less’.
This opinion is echoed by Elisabeth Metzger, who has headed the Swiss operations of French cosmetics company Clarins for over 20 years. ‘This currency upheaval has taken some of the fun out of my job. Much as I would like to realign our price structure to respond to the 15 to 20% differential across the border, I would not be able to convince headquarters to do so without cutting my operating costs dramatically. Consequently, I spend much time concentrating on rationalization and restructuring activities, and adding even more effort in assuring customer loyalty within our local retail setup. I miss the rush of competing and bettering the results of my organization, but at least, it’s a level playing field and our colleagues at other brands are feeling the same challenges.’
The above comments reflect premium products that tend to be widely available through important distribution channels in surrounding countries, thus making them accessible to shopping tourists. But what of more exclusive luxury brands?
‘When it comes to luxury, it is peerless quality that supersedes price considerations.’ This encapsulates the opinion of Hermès Switzerland’s CEO, Thierry Outin. Having managed Hermès in the United Kingdom for a number of years, he reflects on the subject of a strong currency from a different angle. ‘We have been present in Geneva for over 65 years and when it opened its doors, it was the company’s first boutique outside our home market. Over time, we have managed to create a very special and close relationship with our customer base and have followed the same policy in the rest of the country. Switzerland has always relied on quality as its trademark and the Swiss are more attuned to beautifully crafted objects than to what they perceive as useless and ostentatious ‘luxury’. Consequently, although we did initially feel a slight drop in tourist sales, our local and customer base more than compensated. Of course, the fact that we inaugurated our new flagship store in Geneva and opened our new boutique on the Bahnhofstrasse in Zurich during the euro debacle also contributed in keeping customers happy. I believe that the rich assortment of fine Hermès products available in this country may also have dissuaded many from any siren calls from neighbouring countries.’
More exclusive Swiss luxury companies with international stores do not necessarily perceive the increase in value of the Swiss Franc as a major factor in their growth strategy. The Steiger shoe brand, which originated in Geneva gained international acclaim after opening the first ready-to-wear Steiger boutique in Paris. The second generation leader of the company, Walter Steiger Jr. set the stage for further expansion by opening boutiques in New York, London, and Milano. After joining the management of the company in 2009, Giulio Steiger continues, with his brother Paul, to broaden the reach of the company.
The energetic Guilio, during a conversation at the company’s Paris offices told me that the value of the franc was not a major concern. ‘Currently, we run a boutique in Geneva and benefit from an eclectic customer base of both local Swiss and foreign residents as well as customers from abroad, who apparently are not much interested in price tourism. Perhaps, not surprisingly, I feel that the composition of our London clientele strongly resembles that of Geneva. I am much more concerned with the economic situation in the eurozone, where we have seen an important drop in sales since the beginning of the European crisis, especially in particularly hard hit countries such as Greece, Italy and Spain. With the exception of Germany, it is the euro and its environment that is causing us much more of a headache than the Swiss Franc!’
Export-oriented Swiss luxury companies also face upheaval on an international level due to currency fluctuations but, within the local market, do have a card up their sleeve. The ‘swissness’ of their product and heritage alleviates some of the pressure. Erhard Schwendimann, EMEA Managing retail director of Bally, the renowned premium shoe, accessory and ready-to-wear producer has a more holistic approach to changing consumer attitudes in Switzerland: ‘Of course, our bottom line was influenced by a strong franc, especially when it came to tourists visiting our shops. What added to the currency problem was the somewhat conservative attitude of authorities in some parts of the country, who needed more than a nudge to accommodate us by allowing more flexible opening hours in areas with heavy tourist traffic.
We did observe the negative influence of cross-border shopping by residents, but that has stabilized since the introduction of a base euro / CHF rate. Having said that, I believe that the time has come for locals to realize that the short-term economies they make may be endangering their own living standards by undermining Swiss retailers!’
Strategies and attitudes apparently depend greatly on regional and group level decision-making processes. Smaller-sized companies that have direct control over their margins have found other ways to face a changing environment. Moyard, one of Switzerland’s better known premium distributors and creators of furniture acted nimbly by immediately negotiating with their European suppliers so as to share the burden of a strong franc. Jean Winkler who heads the company and who belongs to the sixth-generation of the founding family explains his strategy: ‘We decided to act before customers and their interior decorators could start comparing prices in countries such as Italy. Within a few weeks, we aligned our prices on the euro and, despite an important, but manageable drop in our gross margins, we have sustained client satisfaction and even increased our total turnover…’
Rationalization processes, cost-cutting and strategic realignments are just a few of the measures that some luxury companies have implemented since the Swiss franc began to gain strength. And yet 2012 could well be remembered – with hindsight – in a more positive light than current sentiment might suggest. It is unlikely that 20 years will pass before the benefits of the measures that were implemented can be reaped. The strong Swiss franc may still have a noticeable impact on most sectors in 2013 and the SNB is likely to continue successfully defending its exchange rate floor which – coupled with higher inflation abroad – should result in a slow but surreal depreciation of the Swiss franc.
Perhaps then Swiss tourists will go back to concentrating on sightseeing and not shopping.
Article by Raymond Langley, by Danièle Megardon and Swiss Style staff