Swarovski Crystal In Cut Glass, Cut-Price Competition

In an interview with Handelsblatt, Swarovski CEO Markus Langes-Swarovski said he faces the difficult task of persuading family shareholders to accept management changes — while fending off a host of aggressive, cheap competitors.
The Austrian luxury goods company is the biggest employer in the state of Tyrol.

Luxury firm Swarovski was hit hard by the 2008 financial crisis and a sudden surge in low-cost Asian competition but is revamping itself by speeding up the design of fresh collections.

The Austrian maker of cut-glass jewelry and accessories is also branching out into new markets like high-end fashion and decorations, and tackling the delicate task of reforming its management structure.

In an interview at the company’s headquarters in Wattens near Innsbruck, Chief Executive Markus Langes-Swarovski, 42, said the firm would fall just short of its growth target for 2016 but planned major investments in its Austrian production sites.

In a family company, the socialist system of a family meets the capitalist system of ownership and the corporate system which has to be a meritocracy — that makes things exciting, but complex too. Markus Langes-Swarovski,, CEO Swarovski

He admitted he faced an uphill task persuading other members of the family-owned company to go along with the management changes. Under the current system, the management and supervisory boards of Europe’s largest jewelry maker consist entirely of Swarovski family members and Mr. Langes-Swarovski himself has seats on both boards.

Speaking to Handelsblatt in his elegant glass office with a majestic view of the Alps, he said that he could imagine bringing outsiders into the management in the future and that the dual management roles like his own would cease.

Asked when that would happen, he said: “We must reach a consensus within the family. We’re addressing this constantly and intensively. In the end, an agreement must be reached in the shareholder group.”

That will be a tall order, given that the group belongs to more than 70 shareholders from five branches of the family.

“In a family company, the socialist system of a family meets the capitalist system of ownership and the corporate system which has to be a meritocracy — that makes things exciting, but complex too,” said Mr. Langes-Swarovski. “A good family company manages to balance out these different interests.”

 

267 Swarowski Group-01

 

He added: “A lot of work will need to be done to convince people. You have to take account of the emotional reverberations in multi-generational families. Besides, the company worked well in this structure over many decades. So why change things, many will ask. Alongside the factual arguments in favor of a future separation, I like to refer to Giuseppe Tomasi di Lampedusa’s famous quote from The Leopard: ‘“If we want things to stay as they are, things will have to change.’”

Mr. Langes-Swarovski belongs to the fifth generation of the family that has run the firm since it was set up in 1895 by Daniel Swarovski, an immigrant from Bohemia.

The company sells its products in more than 170 countries via more than 2,680 boutiques, and runs just over half of them itself.

The income from its retail activities helped offset the downward pressure on costs in its production, said Mr. Langes-Swarovski.

During the 2008/2009 global financial crisis, the group had to cut many jobs.

“We were a quasi monopolist in the crystal business until 2008," Mr. Langes-Swarovski said. "And then suddenly there was an explosion of competition, driven by extremely cheap suppliers from the Far East.”

The company responded by transforming its production from high-volume product lines to smaller, more rapidly changing collections, which meant it lost its economies of scale.

 

Mr. Markus Langes-Swarovski says new processes will require a new way of thinking.

 

“We needed new processes, new machines and a new way of thinking, ” Mr. Langes-Swarovski said, adding that the transformation was working but it wasn’t finished yet and that the company had yet to return to sustained growth."

“The first half of 2016 showed that," he said. "The overall company has increased earnings and sales, but not as strongly as we had planned.”

Revenues in Swarovski’s crystal division amounted to €2.6 billion, or $2.9 billion. “We planned around 6 percent growth this year," Mr. Langes-Swarovski said. "We’ll likely fail to reach that by a narrow margin.”

But he added that the company had never needed outside capital and would continue to be able to finance its growth itself. “That would also apply to acquisitions," said. "Our financial autonomy — that’s our modus operandi, a sort of constitution of the family — carried us through the really difficult years 2008 and 2009.”

The group currently employs more than 6,600 people, including 4,800 in its home town of Wattens, making it the biggest private employer in the Tyrol region.

The downward pressure on costs will likely continue, which means Swarovski must expand its brand to new applications.

“From the designer dress to the stage decoration for the Oscars ceremony — we already do all that and we’ll do more of it in future. In particular we want to work even more closely with top customers like Dolce & Gabbana in special orders and to strengthen our profile as a manufactory, meaning to some extent a return to our roots.”

He said the group plans to invest some €500 million in Swarovski’s sites in Tyrol, with the bulk going to the crystal operations in Wattens.

In addition, Swarovski and the local authority of Wattens at the end of 2015 opened up a startup center in production locations vacated by the company.

“Young entrepreneuers have already located there and we want to promote the region’s startup scene,” said Mr. Langes-Swarovski.

The motive isn’t entirely altruistic, he added. “We can profit from the results of new research in production processes and technologies. If you network and cooperate, you yield multiples.”

 

Peter Brors is Handelsblatt's deputy editor in chief. To contact the author: [email protected]