The 125-year-old family-owned Austrian company is returning to its roots: it cooperates with luxury brands, produces bolder and more expressive pieces from gemstones – both precious and semi-precious stones - while terminating the distribution of crystal components for commercial use. The company, having suffered a marked decline earlier, will go through the transition gradually; the first pieces of the new concept will appear in Hungarian stores in the summer, regional manager of the brand Patrik Pridalkó told Növekedés.hu.
If you walk into a Swarovski store in Budapest and watch the company’s new campaign spot, there are not many similarities to discover. What is the reason behind the recent conceptual change?
The last few years have been characterized by global stagnation, which is unacceptable in the life of an international company. That is why the decision was made that a change is necessary. To put it short, this means creating a completely new image and value-added pieces. Surveys show that customers are looking for more timeless pieces and that the world is moving in the direction of sustainability – these are trends that the company wants to take advantage of.
The company, originally dealing with glass-grinding, has been involved in making jewellery since the 1950s, when it worked closely together with the luxury industry, in partnership with the Dior fashion house, for example. These are the roots we are returning to now.
Last year’s figures show that there was more to it than simple stagnation: global sales fell by almost a third and more than 6,000 workers were laid off.
We did suffer a considerable decline last year, which was in line with what the luxury industry experienced in general. However, the situation varies from region to region; sales declined in the more mature western markets and in America, while in the emerging market of Central and Eastern Europe, there was a modest rise in our revenues. Of course, within the total turnover the weight of this region is small, only a few percent, but the growth rate is outstanding.
Rebranding comes with consolidation: some stores will get a new look and expand, while others will disappear.
Does it matter if the stores belong to the parent company or to franchise partners?
It doesn’t make any difference. From the customer's point of view, the construction is irrelevant; it is the service, the style advice, and the atmosphere that matter. 4-5 stores have been unveiled so far with the new concept called Instant Wonder, and a further 20-30 will have opened by the end of the year worldwide. The main concept of these is to take customers from a jewellery store to a dream world, so that the presentation of the products, the lights, the colours, and the whole atmosphere altogether create a ‘wow’ feeling indeed. This is particularly important due to the strengthening of e-commerce. Instant Wonder is not our ultimate business concept; it rather shows the direction in which the brand is moving. We are not going to open such stores in our region.
Products are also changing: large, specially polished crystals, vibrant colours, much bolder and more expressive structures will appear; and the previously limited men’s collection will be replaced by a gender-neutral collection.
How will your customer base change after the transition?
There are some differences between the domestic/regional and the global markets.
Most of our customers are middle-aged; while in western countries the majority are younger. Our goal is that it should be the style, and how self-expressive a person is that should lead customers to our stores and not the age.
We would like to open up to style-oriented, expressive customers and to the young.
The transition won’t happen from one day to the next, it will take about two years for both the collection and the design of the stores to reflect the new identity. This will be the case not only in our region but all around the world - with the exception of a few Instant Wonder stores where the concept is completely new. The transition is not about the need for an immediate increase in sales, instead, it is much more important to draw the attention of customers to the changes that are to be expected. People need time to accept the new direction. It still happens today that customers look for products we were selling several years ago. Of course, I would be pleased if all our stores were already working with the new look, but for the time being there are limitations in terms of costs and logistics.
How much do the store conversions cost?
I don’t know the numbers, but the costs of new store fit-outs are obviously very high, however, it can be regarded as an investment.
‘Instant Wonder’ Swarovski store
The quality of Swarovski crystals has been questioned several times. Are the new products made from the same raw materials as before?
The number of quality problems is negligible. They may result from production or use. In addition to the currently used crystal and zirconium, we will also use other materials, metals and stones in the new collection.
Many people do not know that the company deals not only with artificial stones but also with semi-precious and precious gemstone grinding. The innovation was the grinding of the crystal, and this led to the jewellery production later.
In addition to the materials used, the value of the products is largely determined by the amount of time it takes to make them. A sculpture made of thousands of crystals can cost 4-5 million forints, because it takes several months for a piece to be completed.
On average, how much more expensive will the products be?
We did not calculate the scale of the weighted price increase that added value will bring, but for pieces containing precious or semi-precious gemstones there will definitely be a significant growth in prices.
There are several shareholders of the family-owned company, and also a few members of the family who do not support the change in strategy announced last year. They do not believe that the repositioning of the brand towards luxury products and the accompanying price increase will help growth. Especially, as the company's turnover decline was partly caused by the availability of cheaper Chinese products. Do you, and the management, recognize this disagreement?
Indeed, there is a smaller group of shareholders who do not fully agree with the new direction, but they are in the minority. Fortunately, this does not affect us; we are following the path set by the managing director and the board, and we are not concerned about the conflict of interest between family members or shareholders.
As for the Chinese competition: high quality crystal cutting and grinding is almost exclusively done by Swarovski in the whole world. This is why it is important to (re)position ourselves.
So far, our crystal components were widely available, to be used by manicurists on artificial nails, or by any other player in the jewellery market. Our brand is a luxury brand, but our components appeared in dimensions and products that do not particularly represent the luxury segment.
The new concept resolves this contradiction: our component distribution is becoming more selective and the brand is being positioned higher.
How much sales revenue are you expecting in our region this year?
We are expecting slightly better results than last year, although our turnover is highly dependent on the restart of tourism. In the Czech Republic, about half of our sales revenue was generated by tourists, mainly from the Far East and the United States. Nobody knows when they will return, but it is not going to happen this year, as it seems now.
The proportion of tourists in the Hungarian market was also significant. With only local buyers, I expect stagnation, and only the recovery of tourism can bring a noticeable improvement.
You are the first Hungarian to be appointed regional executive by the company. What do you consider to be the biggest task for the next period?
The change of attitude I mentioned before; the resolution of the contradiction that our crystal components were available at lower prices to players who did not increase their value and only tried to benefit from putting the Swarovski brand in the foreground. To successfully translate this change of concept into the language of our own market, I consider this to be the biggest task for this year. In addition, I will also focus on the sales revenue and the strengthening of multi-channel sales.