The toy that paid for luxury: Swatch, the plastic watch that funded haute horlogerie

On 1 March 1983, in a Zurich presentation room, a dozen watches waited for the press. They were plastic, colourful, barely heavier than a fabric strap. They would sell for about fifty Swiss francs, the price of a record and two cinema tickets. The name came down to a contraction, Swatch. It was long explained as swiss watch. Nicolas Hayek himself liked to say the S stood rather for second watch, the one you buy on top, for pleasure, because it costs too little to be feared.

A few months earlier a trial run on the American market had come to nothing. Nothing at that stage suggested this was the industrial object that would, within the decade, fill a group’s coffers to the point of handing it the oldest houses in Swiss mechanical watchmaking. It is that story of financial plumbing that nostalgia for fluorescent dials has ended up covering over.

The man called in to bury it

Nicolas Hayek was not a watchmaker. He was not even Swiss by birth. Born in Beirut in February 1928, the son of a dentist, he grew up in Lebanon, left after the war to study mathematics, physics and chemistry in Lyon, then quit university before graduating, caught up in business. Switzerland adopted him and he adopted it back, to the point of taking its nationality and its industrial manners. In 1963 he founded a consultancy in Zurich, Hayek Engineering, whose trade was putting sick companies back on their feet. Twenty years later he counted more than three hundred of them as clients, across some thirty countries. He was a man of organisation and accounts, not of wheels and pinions.

That is why he was sent for. In the early 1980s Swiss watchmaking was dying under the blows of Japanese quartz. Its two great groupings, ASUAG and SSIH, were drained, and the banks propping them up wanted the matter settled. Hayek was commissioned to produce a study answering a question that had become simple in their eyes: can watches still be assembled in Switzerland at a price that holds up against Tokyo, or must the brands be sold off piece by piece and the trade allowed to drift to Asia? The brief, in plain terms, read like a death certificate.

The Hayek study said the opposite. It argued that Switzerland could stay in the race provided everything was reviewed, the products, the prices, the distribution, the management, and provided it bet on automation and standardisation to crush costs. It recommended marrying the two dying companies rather than burying them. The merger went through, and the whole took the name SMH. And Hayek, the consultant called in to preside over the funeral, believed in it enough to commit his own money: the banks sold him the majority of the new group, fifty-one per cent, for some 150 million francs. The man who wrote the diagnosis became the owner of the patient. Everything that followed, the Swatch, the volumes, then the buying of prestige, is the unfolding of a bet he had been alone in daring to take.

Fifty-one components

Turn over an early Swatch. No screwed caseback, no screws anywhere. The back is one with the middle case, moulded in a single piece, and the glass is welded to the case by ultrasound, two plastic surfaces vibrated until they fuse. The watch is water-resistant for a simple reason: it is closed for good. It does not open, it does not get repaired. When it stops, you buy another.

That surrender of repairability drives everything else. Whatever in a conventional watch exists so that it can one day be taken apart disappears, and with those components go assembly steps and costs. Where an ordinary watch lines up more than ninety components, the Swatch has only fifty-one, inserted in a single motion on an almost entirely automated assembly line. The item that had been sinking Swiss accounts against Asia, labour, becomes negligible. A watch assembled in Switzerland becomes capable once more of standing up to Tokyo and Hong Kong on price.

Two men from ETA, the group’s movement manufacture, signed that architecture. Elmar Mock, an engineer out of the plastics trade, and Jacques Müller, a watchmaker, worked on the project from the start of the 1980s. Their specification came down to one line: a watch entirely Swiss, at the lowest possible price. A patent protected the sealed case principle in 1982. Above them, Ernst Thomke, the head of ETA, fought the budgets through and held firm while people sniggered at the idea of a plastic watch. Nicolas Hayek drew neither the case nor the movement. He brought the money and the vision, and he understood before anyone else what this object could become at the scale of a group. Crediting him with the technical invention would erase those who actually conceived it.

Nobody in an industry that sold precious things took the plastic bet seriously. Hayek made it almost a method.

You have to feed your imagination, the six-year-old child who sleeps inside you. Keep believing in Father Christmas. Dare to express your ideas, even when they seem mad.

Nicolas Hayek, portrait published by the Swiss Confederation, Federal Department of Foreign Affairs, translated from the French

The second watch

It remained to convince a public that associated the word Swiss with the idea of precious to strap plastic to its wrist. The repositioning was open and cheerful. The Swatch stopped being an instrument and became a fashion object renewed like a pair of trainers. The brand launched hundreds of models a year, a good half of which vanished after a few seasons to keep desire alive. Dials went off in every direction, artists signed series, and what could no longer be found started to be collected.

Hayek owned that slide from timekeeper to accessory, and he said so plainly.

I am not making watches only to look at the time. I am making jewels! They are jewels!

Nicolas Hayek, quoted by the magazine of the World Intellectual Property Organization, 2010

The volume machine

The market followed, then ran away with itself. The million units targeted for 1983 were reached in the first year. By the start of the following decade, a hundred million Swatches had found buyers. Over the whole life of the product, up to the death of its strategic inventor in 2010, some three hundred million would be sold worldwide.

There is the real character in this story, a volume machine. Each watch earns little, but they are counted in tens of millions and their manufacture has been pared to the bone. To that income stream is added ETA’s, selling cheap movements to a large part of the industry. The segment the purists looked down on was producing a regular, predictable, abundant flow of cash. It was that flow that would fund the climb back to the summit.

Buying back prestige

With the till full, Hayek set about pouring it upwards. He thought of his group as a pyramid of brands, from entry-level plastic to high mechanics, each floor funding the ambition of the next.

On 8 July 1992 the group, still called SMH, bought Blancpain and its movement maker Frédéric Piguet. Blancpain, relaunched a few years earlier by Jean-Claude Biver, carried a message against the grain of the time, that of the purely mechanical watch while quartz reigned everywhere. Biver joined the group, where Hayek handed him both Blancpain and the task of restoring Omega’s standing.

Omega was the other great project of the decade. Once a prestigious brand, it had become ordinary through repeated moves down-market. The group pushed it back up, brought out its heritage, made it again a luxury house whose rivals were no longer the Japanese manufactures but the great Swiss names. It became the commercial locomotive of the whole.

The gesture culminated on 14 September 1999. Renamed Swatch Group the previous year, the group bought the Groupe Horloger Breguet from the Investcorp fund, movement maker Nouvelle Lémania included. Breguet is the name of Abraham-Louis Breguet, the man of the tourbillon, watchmaker to kings and emperors, the summit of legitimacy in the trade. In sixteen years, a maker of ultrasonically welded plastic watches had become the owner of the house that invented the tourbillon. The toy had paid for the treasure.

The lesson

The Swatch affair offers a clear textbook case of the bottom funding the top. Prestige is not decreed, it is bought, and the money for prestige often comes out of a place prestige despises. The millions that brought Blancpain and then Breguet back into Swiss hands were not born of a complicated timepiece. They came up, franc by franc, from an object sold at around fifty francs that could not even be opened.

The mechanism has not aged a day. The great groups of the sector still run on that hydraulics: volume brands that make the cash, component workshops that lock up the upstream, and at the very top a handful of houses with strong image that carry the dream and hold the prices. The least noble segment provides the invisible foundations of the building.

There is a second lesson, less flattering to the enthusiast. The Swatch was worth about fifty francs and told a story of colour and carelessness. A Breguet is worth a small fortune and tells two centuries of learned mechanics. In both cases the buyer is paying first for a story. Hayek had grasped it for his entry level as much as for his summit, and it is because he owned up to selling desire in plastic that he had the means to buy desire in gold.

A word of caution to close. The thread linking Swatch money to the cheque signed for Breguet is a reading by a business historian, solid and documented, rather than a line of publicly disclosed accounts. Nobody has ever traced to the franc which plastic profit paid for which manufacture. The direction of the current, from volume towards prestige, is in no doubt.

Key dates

Date	Event
19 February 1928	Birth of Nicolas Hayek in Beirut
1963	Hayek founds the consultancy Hayek Engineering in Zurich
Early 1980s	The creditor banks commission the Hayek study on ASUAG and SSIH ; he recommends merger rather than liquidation
Early 1980s	Elmar Mock and Jacques Müller design the project at ETA
1982	Patent for the sealed plastic case
1 March 1983	Launch of the Swatch in Zurich, twelve models, around fifty francs
1983	The million-unit mark reached in the first year
Early 1990s	The 100 million Swatches sold mark is passed
Mid-1980s	The banks sell Hayek 51 per cent of the group (around 150 million CHF): he takes control
8 July 1992	SMH buys Blancpain and its movement maker Frédéric Piguet
1990s	Omega repositioned towards the top end
1998	SMH becomes The Swatch Group
14 September 1999	Purchase of the Groupe Horloger Breguet from Investcorp, with Nouvelle Lémania
2010	Death of Nicolas Hayek ; close to 300 million Swatches sold

Sources: magazine of the World Intellectual Property Organization (WIPO Magazine, tribute to Nicolas G. Hayek, 2010, figures of the 51 components, the 300 million units and the “jewels” quotation)
official portal of the Swiss Confederation, Federal Department of Foreign Affairs (portrait of Nicolas Hayek: date and place of launch, origin of the name, quotation on imagination)
biographical elements on Nicolas Hayek, birth in Beirut, studies in Lyon, founding of Hayek Engineering, study commissioned by the creditor banks and takeover of the group (WIPO tribute 2010 and Confederation portrait)
corporate archives of the Swatch Group (acquisition statement for the Groupe Horloger Breguet, 14 September 1999
group history)
official history of Blancpain (purchase by SMH, 8 July 1992)
patent documentation for the Swatch case (1982).