Zenith

Dear All:

thanks to my fellow moderator Andrew Daley I can now provide you with an article recently published in the renowned UK newspaper Financial Times. Therein Zenith's global marketing director Juliette North very openly explains the reasoning behind this decision. 

The text sheds some fascinating insights into the circumstances watch brands have to consider in their strategic plans, and also highlights the role collectors - here even called purists - have.

I am reproducing the text here with a view on initiating a lively and mature debate. Please feel free to share your thoughts: Is this an acceptable move for you? Does it hurt the brand'a appreciation? Do you think this could be beneficial since it promises additional revenues without daring excessively on development resources? Do you think other will follow? Etc. - the floor is yours!

Best,

Magnus

"Zenith sacrifices self-reliance to underpin growth

By Robin Swithinbank

In light of the watch industrys continued obsession with in-house production strategies, Zeniths announcement at Baselworld this year that it was forsaking its pure manufacture status by outsourcing movements came as a surprise.

Over the past decade, established watch companies have sunk vast sums into building a self-reliant future, making Zeniths announcement that it is doing the opposite appear incongruous. But the company says the decision is a pivotal part of an ambitious expansion plan that will take it into the mainstream and transform its fortunes, turning it from an insider brand into one of the industry's bigger names.

There are two reasons behind the decision, says Juliette North, Zenith's global marketing director, who spoke to the Financial Times because the companys chief executive, Jean-Frédérique Dufour, is leaving to become chief executive of Rolex. Its important to us to develop the El Primero calibre, which is the backbone of the company. And we want to recruit new customers.

Watches featuring the new three-hand movement called Zenith Calibre 3000 and produced and assembled by Swiss movement manufacturing company Sellita will cost significantly less than those powered by Zeniths in-house equivalent, the Elite calibre. This, the brand believes, will attract new customers and contribute to a spike in sales currently stifled by a lack of capacity.

In the five years since Mr Dufour took the helm at Zenith and following a SFr20m ($22m) investment in the companys manufacturing base, the brands annual output has increased from 8,000 to 50,000 movements a year. About 10,000 of those movements are passed to fellow LVMH Group brands Bulgari, TAG Heuer, Chaumet and Dior. To increase significantly the number of watches it can bring to market, Zenith says it now needs to look elsewhere.

In addition to appealing to a more price-conscious consumer, Zenith believes watches fuelled by Calibre 3000 will draw in consumers less concerned by traditional watchmaking. It means we can talk to customers who may be less aware of the manufacture aspect and care less about it, says Ms North.

(Zenith Pilot Extra Special with the Cal. 3000 neé Sellita SW300)

Zenith says it is making no attempt to hide the fact the new movement is a rebranded version of Sellitas SW300 calibre, although models carrying Calibre 3000 have solid rather than transparent case backs (another cost-saving measure), and there is no disclaimer on the brands website. Not that Zenith is obliged to declare the genesis of its movements the practice of renaming outsourced calibres is common in the watch industry.

Under the deal, Sellita will supply Zenith with fully assembled movements, which are encased and passed through quality control in Zeniths workshops. Zenith declined to comment on the quantity of movements it has committed to buy, or on how much it is investing in the strategy. Prices for watches with the Calibre 3000 will start from £2,200, some £1,600 less than entry-level Elite models. 

As Zenith looks to pour resources into developing the El Primero, one casualty of the move may be the Elite movement itself. Mr Dufour has been quoted announcing the demise of the calibre introduced in 1994, one of the first in the industry to be designed using CAD technology, but sources have been unable to confirm whether the strategy would be retained by Mr Dufours successor, Aldo Magada, former chief executive of Gucci Group Watches.

Zeniths volte-face may have an impact on its brand positioning and perceptions. Currently, Zenith markets itself as a traditional movement manufacturer that has made more than 600 calibres during its history and been awarded 2,333 prizes for chronometry. At the moment, Zenith is the industrys best-kept secret, says Ms North. Its time for it to grow into a big business.

Her point is not lost on industry observers. Timothy Barber, editor of specialist watch magazine QP, says: Insiders value Zenith as a historic manufacture brand famous for precision and particularly for its El Primero movement. But Zenith has struggled to get that message out more broadly, because it doesnt have the impact of say Omega or TAG Heuer. Its a respectable Swiss brand that is a classy alternative to the big boys, but relatively anonymous. 

So, while watch-educated people may mourn its true manufacture status, they arguably aren't its future core audience. To grow, Zenith needs to reach an audience for whom manufacture status is less of a concern. Much of that growth is expected to come in emerging markets, where accessibly priced, time-only luxury watches are considerably more popular than chronographs. Zeniths Swiss heritage has already won fans in economies where the watch market has experienced rapid recent growth, particularly China, around which the brand has based its pricing strategy.

Mr Dufour saw that Chinas buying power wouldnt last for ever, so he kept prices at a reasonable level, says Ms North. By contrast, some of our competitors are suffering because they put all their eggs in one basket. Going in-house and positioning your brand at double the price point doesn't necessarily succeed. Some have done it and its worked; for other brands, it hasn't, and they're having to bring their prices down.

Zeniths new direction suggests the influence of Jean-Claude Biver, LVMH Groups head of watches and former Hublot chairman, is already kicking in. LVMH hopes Mr Biver can propel Zenith to global recognition as he did Hublot while serving as its chief executive during the 2000s.

Ms North says: Mr Dufour has done a huge job with repositioning the collection, telling people that Zenith exists and taking it back to its true values. Mr Biver is going to add to this, allowing the company to expand. Zeniths status as a traditional or purist brand seems likely to change, but it is confident that in doing so it will become a more successful business. It also believes it wont be the last to adopt the strategy.

Unless brands can produce in-house movements at an affordable price that makes commercial sense to the end consumer, they will have to [follow us], says Ms North." 

More posts: CalibresDufourEl PrimeroElitePilot

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