Georges Kern, 37, has been chief executive officer of the International Watch Company (IWC) since January 2002. He has worked in the watch industry since 1992, when he was responsible for TAG Heuer’s global distribution network. Kern recently sat down with Executive for a one-on-one interview to offer up a CEO’s view of how IWC and the watch industry are weathering the current global recession.
E Are Swiss watch manufacturers and the IWC focusing more on the Middle East and the Levant region? What’s your strategy?
The Middle East is a strong buying region for all brands and luxury goods, specifically the Gulf region. Dubai has been booming for years, they have a slowdown now, but the fundamentals are there and the region will continue to grow. Concerning the Levant, let’s face it, it’s Lebanon. In Lebanon you have a much more developed luxury culture than any other country [in the region] and the education towards luxury goods is much more developed. What we try to do is to develop local markets. We don’t need your purchases in only Paris, London or Dubai. We want to have business at a local level because it creates a much more sustainable business model. This is why everybody is coming to Lebanon and is looking for opportunities to do a drive.
The second question is always: ‘Yes, but Lebanon is smaller than France or whatever.’ That is not the point. The point is that we are a global brand; we are not a local brand. The customer in Lebanon is the same as in Paris, New York or Tokyo. He has a certain level of income, a certain level of knowledge and he is part of a certain club. He wants to see the brand with the same quality worldwide, in Avenue Montange as well as in Solidere. That is why we have to offer the same service, the same boutiques and the same environment because otherwise it’s not a real successful global brand.
E How has the financial crisis affected IWC and the luxury watch industry as a whole?
I think we have to be realistic and pragmatic. We cannot hide. I don’t think any brand in the world can hide from this crisis. The question is: How badly are you affected? I like the quote by Warren Buffet who said ‘when the tide goes down you see who was swimming naked.’ This really depends on how resilient you are in terms of your prices and what you offer in terms of real value, because consumers today don’t want ‘show value.’ The days when bankers who made a good bonus walked into a store and bought a watch for $50,000 are over. That customer base is done. Today it’s really back to the roots and you need preparation. The easy money is gone. You need to really build on your values, your history, your roots and have the confidence of the consumer. Thank God we have [that confidence] because of everything we have done over the last 140 years.
E Have you turned your focus away from the luxury watch sector as a result of recession? Are there plans to market more mid-range products?
You might see this in the exports; that some segments and cross segments have been hit harder than others. I think that in any price segment you can be successful or you can have major problems. The point is how strong your brand is, not which price segment you are [in]. You can be successful in any segment. The question really is how good your products are, how good your image is, how solid your values are and then you are fine. I can give you examples of total flops in any price segment and I can give you examples of very good brands in any price segment. We stick to where we are. There might be some technical adaptation but nothing fundamental.
E So there is no paradigm shift in your strategy to focus less on high-end segments?
I mean this would be a drama because then it would mean that our strategy was really wrong. But we had our bathing suits on.
E Swiss watch exports dropped 26 percent this year from last year, according to the Swiss Watch Federation. Are you experiencing a similar decline in exports?
As I said, you cannot hide. You cannot seriously say that such a crisis is not affecting you. The two fundamental questions are, in such a situation, what is your business model, and number two: how strong is your brand. Your business model, in terms of your cost structure to ensure strong profitability and cash flow, how ‘verticalized’ you are in terms of production and how many boutiques you have. What is your cost basis? That is the first question. The second question is how strong is your brand? I think we have those aspects under control.
E Watches and luxury goods in the Americas have been hit hard. Is this why you are focusing on other regions like the Middle East?
Of course we are looking for opportunities. Fundamentally, I think the United States will get out of the crisis. I think it’s a very reactive region. Most probably Europe will suffer longer than the US. In such a situation you optimize everywhere and we know that we have a lot of potential in the Middle East, including Lebanon. You have the [Lebanese] elections that will see 100,000 people travelling to Lebanon to vote, all paid for by political parties. Well, thank you very much. Go to our stores and buy some watches before flying back.
E There have been signs that a global economic recovery could be approaching, especially in this region. Have these signs translated into increased activity?
I don’t have a crystal ball but indeed we should all hope and pray that the financial system will be consolidated by the end of the year. You have to consider the real economy. The real economy is coming [back] one year or two years later [than the financial economy]. We are just starting to see the real economy in the US and Europe be affected. Unemployment rates in the States in April were announced at 8.9 percent. It’s a historical high and the impact is being felt now. If everything falls back into place we can hope that the real economy will be affected [positively] by, say next year. I explained the financial crisis to my 12-year old son by saying ‘finance in a body is like a heart and the money is the blood. If the heart doesn’t beat there is no money flow and the body is dying.’ If you cut off a hand like General Motors, you will still survive but if the financial system does not work, it’s over.