Progress Watch is out to bust the Swatch Group monopoly, and it’s a grudge fight.
In the primeval jungle of the watch industry, where ego challenges ego for the biggest harem of the most beautiful brands, Mr. Johann Rupert (Richemont Group) might have emerged as top stag, but it’s Mr. Nicolas Hayek (Swatch Group) who’s got him firmly by generative organs.
Nobody, apart from Mr. Bill Gates, wields as much power over a single industry sector as Mr. Hayek. Controlling the Nivarox-Far company, the monopoly supplier of balance-springs, Mr. Hayek can bring the entire 2.5 billion dollar mechanical-watch business to a halt. (The only surviving brand would be Rolex, which maintains a balance-spring manufacturing capacity, although it buys most of its springs from Nivarox.) In addition to his thumb on the watch-industry’s jugular, Mr. Hayek has four fingers around its neck: ETA, Valjoux, Frédéric Piguet and La Nouvelle Lémania — all Swatch Group companies — provide the movements for all but a handful of the hundreds of brands on the market.
The Nivarox squeeze
Power has its downside — if you use it, you lose it. It’s a lesson that Mr. Gates is learning in the courts, and it’s a lesson that Mr. Hayek is being taught by the Progress Watch Company, a start-up movement manufacturer out to challenge the Swatch Group monopoly. In the run-up to the disposal of the LMH companies, Mr. Hayek decided to remind the industry where the real power lay. In the crucial weeks before the Basel Show, supplies of balance-springs from Nivarox dried up, provoking outrage among the brands. Hardest hit were the small watchmakers who cannot carry huge stocks of parts.
The Nivarox squeeze shook the Swiss watch industry’s confidence in the monopoly. And it gave Progress Watch the opportunity it was looking for. With the enthusiastic support of the industry, the fledgling company is announcing an alternative source of balance-springs. It will be a major partner in a new production facility with a capacity of up to 1.5 million springs a year.
David vs Goliath
Progress Watch was founded in Biel last year (1999) as a wholly owned subsidiary of the Progress Watch Corporation of Las Vegas, USA. Its launch product, unveiled at this year’s Basel Show, was a desecration of mechanical horology’s holiest symbol — the tourbillon. The Progress Watch cut-price “Préciplus” flying tourbillon deflated the price-sustaining myth that has surrounded Abraham-Louis Breguet invention for the past 200 years, undermining the value of the Swatch Group’s newly acquired Lémania tourbillon specialists and its sister brand, Breguet.
The company is now starting production of two new automatic movements positioned to compete directly with the Swatch group’s popular ETA 2892 automatic and with its high-grade Lémania chronographs.
The founders of Progress Watch, Mr. Elmar Mock (Technical director) and Mr. Peter Gschwind (CEO), have personal reasons for trying to pull Mr. Hayek off his perch. Mr. Mock is an expert in micro-engineering and materials technology. Mr. Gschwind is a watchmaker who became specialized in marketing watch brands. Together they made the fame and fortune of Mr. Hayek, as the technical and marketing brains behind the Swatch phenomenon. Mr. Mock is cited as co-inventor of the three key Swatch patents with Mr. Jacques Müller and Mr. Alphonse Bron. Mr. Gschwind created one of the icons of the century of the wristwatch, the giant Swatch draped down the sides of buildings. When Mr. Hayek took over as head of the Swatch Group in 1983, assuming the mantle of “the father of the Swatch”, they quit.
It may take a while for Progress Watch to reach the Swatch Group’s annual sales of USD900 million worth of movements, but the new start-up is determined to present itself to the industry as a credible one-stop-shop alternative. In August last year, it acquired a 2000m2 manufacturing site in Tramelan. The delivery of plant and machinery scheduled for November this year will allow the Tramelan plant to begin series production from February 2001 and reach an initial output of around 130,000 movements a year.
Revolution in watchmaking
Progress Watch is not only offering an alternative, but also a revolution in mechanical watchmaking. “Most of the mechanical watchmaking technologies are at least 40 years old,” says Mr. Gschwind. “Some of the oils used in movements date back one and a half centuries.” He promises a fresh look at mechanical horology with new materials, escapements, bridge layouts, decorations and finishes. Even the venerable club-toothed Swiss lever escapement is up for replacement. The company will also offer a range of balance-springs made of advanced alloys with new, high-performance curves.
“The movements are modularly constructed and are developed with the client,” says Mr. Gschwind. Anything is possible — even square or triangular balance-wheels. The visible bars and bridges can be made in any style and configuration, with new patterns of engine-turning, laser finishes and molecular bombardment, or the conventional Geneva stripes, hand-engraving and circular graining.
Progress watch is aiming at the high-value end of the mechanical-watch market which accounts for less than 5% of Swiss watch exports by volume and almost 50% by value. “There are 240 different watch brands in the top two categories of mechanical watches. Around 220 of them are our potential clients,” estimates Mr. Gschwind. The most frequently mentioned clients include Ikepod, Alain Silberstein, Chronoswiss, Waltham, Corum and Franck Muller.
The Préciplus — everyman’s knock-about, high-performance flying tourbillon, manual or automatic, with a fast-beat balance, 72 to 96 hours of power reserve off twin barrels, is around a fifth of the price of the classic Lémania tourbillon.
“The Breguet-style tourbillon costs too much, it’s too fragile and there’s too much inertia,” explains Mr. Gschwind. “A conventional tourbillon watch retails from USD50,000 to more than 300,000. Our tourbillons can be retailed in the USD15,000 to 30,000 price range — the same as chronographs, perpetual calendars and jewelry watches. There are around 500,000 watches sold each year in that price category.”
Progress Watch is able to provide brands with Préciplus tourbillon movements from around USD3500, by reducing the number of parts to 38 from the 70 to 130 components of a conventional tourbillon.
Options on the 31mm (13 1/2 lignes) caliber include manual wind (5.4mm high, 23 jewels) or automatic (6.4mm, 26 jewels), as well as an analogue date ring at 12 o’clock, corrected by a push-piece.
Double shock-absorbers of a new design and a robust, simplified construction make the Préciplus shock-resistant enough for sports watches. But it’s a construction that demands the highest manufacturing precision. The tourbillon’s fixed wheel, for example, is machined to tolerances of one micron. The high-frequency balance (28,800 v/h) is unique in a tourbillon and arguably gives it an edge in precision over the conventional 21,600 v/h devices. The movements are homologated by Chronofiable, and protected by a battery of patents.
The Calibers 152 and 154
Production is about to start of the caliber 152, 23-jewel automatic which has the same casing-up dimensions as ETA’s popular 2892 (25.6mm diameter for a height of 3.6mm). It comes in eight basic configurations: a choice of center-seconds or small seconds at 9 o’clock or 6 o’clock, with or without date. The 28,800 v/h movement has a power-reserve of 56 hours, stop-second (hack feature) and rapid date correction. Progress watch plans to manufacture 60,000 Cal. 152 movements in its first year of production.
Competing directly with Lémania’s high-end chronographs is the company’s newly announced caliber 154 automatic column-wheel movement with 30-minute and 12-hour counters, small-seconds at 9 o’clock and date at 4 o’clock. With the same frequency and power-reserve as the caliber 152, the chronograph has a casing-up diameter of 25.6mm for a height of 5.5mm. Initial annual production should be between 30,000 and 40,000 pieces.
Next year will see the launch of Mr. Mock’s “autoflat” low-energy movement, followed in 2002 and 2003 by innovations in escapements and alloys.
The Progress Watch manufacturing plant at Tramelan is sited in the high-tech heartland of the watch industry and not far from the Jura’s important source of skilled labor across the border with France. In November, the heavy presses and fast Précitram transfer machines will be delivered to start autonomous volume production. “We face a great deal of competition from the telecom industry for these precision machine tools,” says Mr. Gschwind. The company is currently loaning back its ordered machines to the suppliers, where the operators are being trained. Small scale production of Préciplus movements is ensured by Almac programmable milling machines.
The computer-controlled production of an entire movement from A to Z enables Progress Watch to integrate continuous quality control into the manufacturing process. Components pass each stage within an extremely narrow bell-curve of tolerance — from one to three microns.
Progress shares enjoyed a volatile start on the Nasdaq in the speculative over-the-counter end of the market. The share subsequently settled down to trade at between USD6 and 10. By the end of this year, the PROW stock expects to graduate from OTC to small caps. The company’s future expansion is being financed entirely on the equity markets, says Moritz Zuellig, chief financial officer. “In 2001, we expect to double our turnover to USD20 million with profits of 8 million.” He doesn’t exclude growth through acquisitions of further technologically strategic companies.
With its high-tech production facility in Tramelan, four development centers, after-sales subsidiaries in New York and Hong Kong, and its stake in a new industrial capacity of between 500,000 and 1.5 million balance-springs a year, Progress Watch signals self sufficiency and independence. None of the company’s financial backers is connected with the watch industry, and the share structure is adequately defended against hostile take-over.
Since the price of high-grade mechanical watches soared 300% the late eighties, the Swiss watch industry has settled down into a cozy price-fixing and myth-making cartel. The situation has been aggravated more recently as companies have consolidated into groups with the power to control distribution channels and to fling increasing amounts of pixie-dust into the brand-dazzled eyes of consumers.
The result is that high-grade mechanical horology has gone backwards to maintain outdated products and working methods. Lack of imagination is hailed as tradition, while conservatism is paraded under the colors of creativity.
Who can blame the watch industry for growing fat, lazy and arrogant? Consumers have so far been willing to subsidize decadence, paying more and more for less and less intrinsic value.
Progress Watch indicates a turning point in the watch industry. It knows that consumers have come to expect regular advances in styling and technology at decreasing prices in every product they buy — even the ones they don’t need. Mechanical watches are virtually alone in offering regression for increasing prices.
The industry is beginning to realize that margins sustained by emotional brand values could be reaching their peak, and it will take more than price-fixing and myth-making to keep the brands going. That is why watch brands are concentrating increasingly on controlling their own development and manufacturing facilities, and it explains the 50% premium paid by Mr. Rupert for the LMH companies.
And finally, Mr. Hayek should be more grateful than most for Progress Watch. By relieving him of the burden of his monopoly, it could save him from himself.
© Alan Downing, August 2000