Saturday, July 16, 2016

It depends upon what the meaning of the word 'is' is

Language is a funny thing.  And that is truly borne out in the latest press release from the SWATCH Group.  
Here's the announcement -

Biel/Bienne (Switzerland), July 15, 2016 – Swatch Group foresees the publication of the half-year results by Thursday July 21, 2016, followed by the traditional conference call for financial analysts.

Based on net sales of the group expected to be lower of some 12% in the first half-year 2016, resulting from the decreased sales mainly in important markets like Hong Kong and partially Europe, especially France and Switzerland (while mainland China develops positively), the operating profit and the net income are expected to be lower of some 50% to 60%, obviously due to the decrease in sales but also to the tradition and the industrial long term philosophy of the Swatch Group to consider its employees not just as a cost factor but to keep them (also in spite of important cancellations of orders from third parties), to maintain investments in new products and marketing and to pursue a defensive price increase policy. 

Now on the surface, owing to the (possibly intentional) poor grammatical structure of this announcement, it seems about as definitive a statement as an answer from a Magic 8 Ball -

Shamelessly borrowed from the WorldWide Infoweb

As we ask the question:
Is even the SWATCH Group hurting?  

And we shake to oracle for the answer -

Shamelessly borrowed from the WorldWide Infoweb

But when we really drill down into this message, and peel away the layers of double speak, the facts are pretty clear despite the way that they are somewhat defensively presented:

1.  It's not really our fault that net sales are down by 12%.  Now in and of itself that is really no better or worse than several other brands out there.  But when you lead off with that statement, it tends to distract from the more important numbers to follow.  

2.  It's not really our fault that we didn't see this coming, it's poor sales in Hong Kong, France and Switzerland.  Well, considering that you do a truckload of business in Hong Kong, you should have seen this coming.  Moreover, France might as well be your living room, and you live in Switzerland.  And while things might be doing nicely in China's mainland, that is also a temporary condition.  
The downturn in France can easily be attributed to the cause and effect of terrorism and its impact on tourism.  The downturn in Switzerland is probably largely attributable to the decrease of Chinese tourists traveling to Lucerne to buy watches at Embassy.  But again, several other brands saw this coming and made the necessary adjustments.

3.  It's not really our fault, other people (important cancellations of orders from third parties) stiffed us!  Which, if I am honest, is not going to engender a lot of sympathy from the smaller companies that SWATCH has had under their thumb for so long.  And to then go crying to the very people you persuaded to allow you to not sell movements to third parties to now try to persuade them to turn 180 degrees and allow you to change that ruling?  And for how long, exactly? 

4.  It's not really our fault, because people come first.  And to be clear, that is a commendable attitude to have.  Because if I have read this release correctly the SWATCH Group will not be letting people go, despite this very serious downturn.  But when we look at the latter numbers towards the end of the release - 
the operating profit and the net income are expected to be lower of some 50% to 60% that is where the really pertinent information is.  That represents a very, very serious loss of profit.  

5.  It's not really our fault, we're going to spend more money on R&D and marketing.  Well, on behalf of the people who keep chasing you for advertising money, let's hope so, but I'm not holding my breath ; )

6.  It's not really our fault, watches are clearly over-priced so we are going to cut prices.
Now this last point was left wonderfully, vague and unclear.  The actual statement is:

and to pursue a defensive price increase policy. 
Now does that mean they WILL increase prices or that they WON'T increase prices?  I don't think that when your sales are down by that percentage, and your profit is projecting to be less than half of your budgeted projections that you go and raise your prices.  So my (albeit uninformed) guess is that what they might be saying through Magic 8 Ball speak is that they will in fact be lowering prices, and that is what is meant by defensive price increase policy - i.e. to defend against price increases.  But that was, as you can see, left wonderfully vague and open to speculation.

So we shall wait, and we shall see.  

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