Swatch just can’t make enough of its watches

5/17/2011

BASEL, Switzerland — Nick Hayek, chief executive of Swatch Group, is facing a problem many of his corporate counterparts might envy: He is doing too much business.

Swatch, the world’s largest watchmaker, is rushing to add factory capacity so it can make enough watches to meet demand. It wants to add as many as 2,000 employees this year — about 1,500 of them at home in Switzerland. But it is struggling to find enough qualified people.

“Managing our stock is at the moment not an issue for us because demand is so big that we unfortunately don’t even have the time to build up any stock,” Mr. Hayek said at this year’s Baselworld, the watch industry’s biggest fair. “I hate that feeling of missing sales because of a shortage in products.”

Swatch’s production and hiring problems reflect the overall health of a sector that has rebounded from the world financial crisis. Demand for watches has soared in Asia — a region that accounted for more than half of Swiss watch exports last year. Makers of mechanical watches are capturing an increasingly large slice of the market.

Exports of mechanical timepieces rose 32 percent in unit terms last year, compared with an 18 percent increase for less expensive quartz watches.

Swatch had a 42 percent increase in profit last year, to a record $1.22 billion on a 19 percent rise in revenue.

Although the company does not break down earnings by brands — which include the inexpensive plastic Swatch watch as well as luxury brands Omega, Tissot, Breguet, and Blancpain — revenue in its main watch and jewelry division rose 28 percent last year at constant exchange rates, compared with an increase of 8 percent in its parts production business, which accounts for about a quarter of its revenue.

Swatch controls 70 to 80 percent of the sector’s watch movement production, according to a research study published last month by the investment firm Sanford C. Bernstein & Co.

With a large pile of cash on hand, Swatch would seem to be in a good position to scoop up acquisitions.

It is a time of consolidation in the industry: In March, LVMH acquired Italian jeweler and watchmaker Bulgari in a deal worth $5.4 billion.

Mr. Hayek appears to have little time for financial markets, in particular for the scrutiny of analysts. A decade ago, Mr. Hayek abandoned his one and only investor road show after only two days; he had met with a California pension fund manager who, according to Mr. Hayek, did not know what brands Swatch owned.