Profile: Patrick Frischknecht, Les Ambassadeurs
In the relatively short 12-year period during which he has been running the Les Ambassadeurs Group as General Manager, Patrick Frischknecht has achieved the unprecedented feat of making the group, with its four boutiques in Zurich, Geneva, Lugano and St Moritz, the preferred partner of the greatest brands in watchmaking and jewellery, establishing with each of them a relationship based on respect and mutual trust.
Eager to discover more about how he first came to head this prestigious group at a relatively young age – he was 36 at that time – and how he has taken it to its top-level position in today’s highly competitive and volatile market, particularly given the current global financial crisis, we met with him in his offices in Zurich.
Swiss Style: Having joined Les Ambassadeurs when you were in your early twenties, you have obviously weathered the ups and downs over the years and seen how the luxury market fares during the good years and the bad. I’m sure this experience has proven valuable to you in today’s situation. How did you get into the business?
Patrick Frischknecht: Let me start with just a short overview of my career, which is related to what I will tell you about the way I see the current situa-tion. I had been studying economics when I stopped that and started at the very bottom of the ladder as an apprentice at Les Ambassadeurs in 1978. I finished the apprenticeship and stayed another two and a half years at Les Ambassadeurs, before deciding with a friend to open a very small company, which was a fashion agency. We were distributors of luxury and fashion products in Switzerland. We were both very young; I was just 23. For certain reasons, my colleague had a much larger vision and wanted to do things in a much shorter time than could possibly be done. I realized this might not be a stable future for me. So at the age of 24 I returned to the retail trade and started at the Cartier shop.
Eight months later, Cartier bought back this store because at that time it was a franchising shop. I was, however, offered a great opportunity; Cartier trusted me and gave me a big chance by appointing me as director of the Zurich boutique at the age of 25. I was very young and not sufficiently experienced for such a responsibility. But we steadily grew the business and the Zurich shop became a very impor-tant international point of sales for Cartier, reaching the top five of Cartier stores worldwide. After 12 years, the same person who brought me in to Les Ambassadeurs in 1978, who was the CEO at that time, called to ask if I was prepared to take up the challenge of heading Les Ambassadeurs. Nothing in my studies had prepared me for this, yet I always had a feeling I would know how to handle it and that it should work because Les Ambassadeurs was like my home, and you always have a keen eye on the development of the company where you started your career.
We positioned the company at the top end in the luxury market, focusing on the upper segment of the watch industry and jewellery brands. When I took up this new responsibility, Asprey’s was the owner but they were having serious problems. The brother of the Sultan of Brunei came in and bought up all Asprey’s ventures, including Les Ambassadeurs. But less than two years later, they had to sell everything. I remember he lost 10 billion pounds sterling for the Sultan.
I started my work in 1997 and one year later I was called to a meeting with Peter Dalton, which turned out to be a very short meeting. They told us all brands would be sold. At that time, Asprey’s had already merged with Garrard’s, another famous British name. It was a very hard time, but we managed. However, as you may remember, 1998 was the big hype of the new economy. The banks especially did not believe in the future of classic retailing; they thought everything would be sold on the Internet. So we had a really difficult time finding funding. At the end of the day, there was only one proposition and it was too risky for us. Finally, two shareholders stepped in: Mr Abdullah Al-Rayes, who was based in Riyadh and who came in together with Mr Swarovski of the Swarovski family.
This was a joint 50/50 investment. They came in 1998 and basically gave us the opportunity to develop our strategy of positioning the stores at the top end of multibrand retailing. My 12 years at Cartier taught me to understand what high-level positioning really was. You can do it with a monobrand but you can also do it with a multibrand. And that’s what we did.
SS: You make it sound relatively simple but I’m sure it wasn’t quite that easy. The market has been through some major ups and downs and today’s situation is one that many are saying is the worse ever. How do you view it?
PF: Yes, since then, there have been several crises and I think one of the big advantages for people like me (although I’m only 49) is that we’ve already witnessed and lived through a crisis like this, although not such a tough one. For me, the degree of severity is the only difference. It is probably the fiercest crisis I’ve seen and has had a big impact on the luxury industry. However, the mechanism is the same as before. So what we’re seeing in retailing is exactly the same as the 2001 crisis, which was not in fact due to 9/11 but to a pre-existing financial problem. This time, we have seen exactly the same development.
Last year in January, we changed our buying strategy because there were so many parallels in it that we were convinced we had to do something. We didn’t want to make a mistake in our predictions. I didn’t believe that the Russians would be so greatly affected by it. To be honest, I was a bit naïve, because I thought these Russians had a little more of their capital in their own hands within their large com-panies. This was the only thing that really came as a surprise to us and the rest was much more expected.
Things happened the way they always do when you’re positioned in the top end. Let’s say we’re starting at the top end. We have brands such as Panerai and Cartier in which you have price ranges beginning from around 4,000 francs and this price level was affected in the first period of the crisis, which is normal.
When everything goes well, you have large sums of money and a big spread of bonuses to be paid to the bankers. The bonus money comes easily and is spent easily. This means that three years ago we had a wave of clients who bought watches at a price range of 5,000 to 20,000 francs.
Then came 2007, a critical period. In 2008, there were no longer any more bonuses, so we felt the first impact at these price levels. As usual when a crisis comes, the top end of the product line is much less affected. It may be painful for a few months, because if you lose 500 million that hurts a lot. It takes a certain time to realize that you still have 500 million left. After several months, you tell yourself that you still have something left. And then it starts at the top end. What I’m now telling you is nothing new. Hopefully, we will eventually reach the end of the financial crisis, but for the real economy, this crisis is still ahead of us. So if the financial industry begins to grow again, there will again be profits on the investors’ side, a trend that will in turn start to create a more positive atmosphere within the luxury business.
SS: We’ve seen it all before. And the funny thing is that the media do not dare signal when things seem to be getting better. For example, over the past two months, the Dow goes from 6400 to 8600 and people are still talking about the possibility of going back to 4000.
PF: Exactly, that’s my point. And in my opinion – although I’m really not an expert in the financial industry – the mechanism is quite simple. As you said, we’ve lived through this several times already. And I don’t see why it should be different this time. Because I think (and hope) that disaster is avoidable. That’s my belief. As for the next crisis in, say, another four to five years, that’s another story.
SS: And yet many luxury houses seem disoriented. They don’t know what’s going on and they’re suddenly realizing that the problem may be that the pipelines are so crammed with products and that the cost of inventory is becoming much more expensive than five or six years ago. For financial reasons, they seem stuck. Have you noticed this among any of your partners; do they work differently or the same way?
PF: No, that’s another old rule that
applies on this point. I mentioned Mr Swarovski and Mr Al-Rayes earlier; the latter is now the 100% owner, since he bought the other 50% from Mr Swarovski in 2003. This is an important factor in ensuring continuity.
But getting back to the point, when we are in a real hyper-market – and this applies well beyond just watches and jewellery – everything is so easy. Everyone can bring out products, set the highest possible price positioning and still make it work. You can indeed sell products at incredibly high prices quite easily in a boom period. I wouldn’t say it’s possible for everyone, but it’s much easier. However, when it comes to a crisis, then the real traditional brands will come out of it much better than the young, hype-based products.
SS: The boom period you refer to was kind of when everyone and their grandmothers ventured into making watches and tourbillons.
PF: Yes, exactly. And if you try the same thing today, you’re going to fail. There is a clear return to certain brands that I am prepared to name even if we do not have them in our range. The really traditional brands do not suffer as much as the younger brands that simply have not sufficiently proven their worth to be able to weather the crisis. I will not say that all of the young brands will disappear. I’m sure they won’t. It’s the same old story: those that developed in a reasonable and not merely leverage-based manner will survive. Those that try to be too big too fast, and use a lot of leverage, might have a big problem. I think it’s all about efficiency.
We always try not to aim for the so-called current high-flyers, but instead to take brands within our range that have something really funda-mental to say, even young brands. I will mention one that is a very small and rare Swiss-German brand based in Geneva and it has a really special way of displaying the time, but with a really high level of watchmaking. It will survive because there is something behind it: there is knowledge; there is a special idea among the millions of ideas we have seen. So even young brands that have something to say will survive. I will not mention the brands that I do not think will survive. These are brands that already have problems, but we’ll let them decide. But for me, it’s the same story as last time. Same story.
SS: How will this reflect on retailers such as yourselves?
PF: We will now have a harder time. We anticipate a drop of 15–20% in the next 12 months. It’s not a disaster, however, when you remember that we had a 30–40% annual increase in the last two years.
For the retailers in the industry, many more segments are affected now because we doubled our stocks over the past three years. So we had a turnover increase and a stock increase, which doubled the results for our brand. Now we’re trying to reduce our stocks to match turnover. And this now has a double effect on the brand, as you can see in the official reports of the Swiss watch industry. They are more something like minus 30%, with some down 50%. So that’s exactly how the yo-yo effect works.
In the end, the third pillar is composed of the brands’ suppliers, those who produce watch components. Because the brands were doing so well, they increased their stock of watchcases, designs and everything, in order to follow the trends. Now they’ve stopped. At the moment, these suppliers are those most affected, followed by the brands themselves, and then the retailer with his stock. The stocks are generally very clean; they’re not old stocks. But the retail network is overloaded with stocks, which will have a major impact over the next 12 months.
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