SWGAY Swatch Group AG (PK)

By John Revill 

BIEL, Switzerland-- Swatch Group AG on Thursday said it would focus its smartwatch technology on its plastic Swatch brand in response to devices from Apple Inc. and others before considering installing it in its pricier brands.

The Biel-based company, which also owns Omega, Longines and Tissot, launched its own watch with remote payment functions in China in January that had been received "really well" by consumers there, Chief Executive Nick Hayek said.

The Swatch Bellamy, a version of its eponymous plastic Swatch watch that uses near-field communication technology, sells for between EUR80 ($88) and EUR100. Further introductions are scheduled for the U.S., Brazil and Switzerland later this year.

"It's not that we have nothing in the pipeline, we are a huge producer in every segment, in every category," Mr. Hayek said at a news conference in Biel.

Referring to its smartwatch technology, he said: "But let's keep it at Swatch. When it is really biting there, there will be others waiting in line at Swatch Group. For the moment, we focus on Swatch."

Making progress in the smartwatch market is crucial for Swatch, which is seen as the most vulnerable of the Swiss watchmakers to inroads by the Apple Watch and similar watches produced by Samsung Electronics Co. because many of the Swiss company's watches sell in the same sub-$1,000 price category.

Smartwatch shipments are expected to hit 34.3 million units in 2016, up from an estimated 21.3 million units shipped in 2015, according to International Data Corporation, a market researcher. By 2019, it forecasts shipments will reach 88.3 million units.

Jon Cox, an analyst at Kepler Cheuvreux SA, said it was very important for Swatch to be involved in smartwatches. "I assume around 20% of group operating profit comes from watches retailing at $1,000 and below and that is where the smartwatch threat is going to be--compared to much of the rest of the industry which is just focused on the premium end," he said.

Smartwatches are an opportunity to sell more watches, Mr. Hayek said, but he doesn't see Apple as a competitor to Swatch, as the technology company sells through consumer-electronics stores rather than jewelers or watch shops.

"We are not talking about competing with Apple," said the colorful Mr. Hayek, who was dressed in a plaid shirt and scarf, occasionally donned a pair of Swatch sunglasses and puffed on a big cigar during the news conference. "They are consumer-electronics people and we don't want to get into that sector.

"We are also competing with jewelry, it's two different worlds."

Many industry experts expect a subdued year for the Swiss watch industry in 2016 after the sector reported a fall in exports last year, the first drop for six years.

For 2015, Swatch reported a 3% fall in sales to 8.45 billion Swiss francs ($8.47 billion), while net profit plunged 21% to 1.12 billion Swiss francs.

Fellow watchmaker Cie. Financière Richemont has responded to the downturn by cutting up to 350 jobs in Switzerland because of tough market conditions and the strength of the Swiss franc, which makes production more expensive in the Alpine country than elsewhere.

Swatch wouldn't be cutting jobs, Mr. Hayek said. "We don't hire people short term and send them away when it is less good," he said. "We do everything we can to maintain the value in the company."

He reiterated guidance that Swatch Group would boost its sales by between 5% and 10% in local currencies during 2016 and said the company would open about 100 new stores this year, roughly the same as in 2015.

"What is worrying me is what happens with the Swiss franc," said Mr. Hayek. "Are we going to come under pressure?"

The company reckons its 2015 sales were reduced by 185 million Swiss francs due to currency movements.

Write to John Revill at john.revill@wsj.com

(END) Dow Jones Newswires

March 10, 2016 15:59 ET (20:59 GMT)

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