SEIKO WATCH CORPORATION:

MOVING UPMARKET
We have very strong brand awareness, with around 70
per cent recognition of Seiko as a watchmaker. But
there was some confusion about the brand Customer
perception of the brand should be the same in Tokyo,
London, Paris, New York or Sydney. That meant building
a brand image that conveys core values, no matter what
the market.
- Kenji Hagiwara, managing director of Seiko
UK1
Founded in 1881, Tokyo-based Seiko rose to international
prominence in 1969 by commercialising the worlds first watch
based on quartz technology. 2 As a vertically integrated
watchmaker, Seiko held an advantage over its rivals in the Swiss
watch industry, which comprised thousands of firms specialising in
various aspects of mechanical watch production. Seiko invested
heavily in research and development and by the 1980s had
unveiled several timepieces featuring technological innovations: the
first quartz watch with day and date; the first LCD watch with an
hour, minute and second display; the first quartz chronograph; the
first calculator watch; the first TV watch; and the worlds first
automatic quartz watch.
Through internal development, mergers and acquisitions, Seiko
diversified into new businesses over the years. But the watch
businessfor which the name Seiko was best knownwas being
challenged by forces that were transforming the worlds watch
industry. The advantage derived from Seikos automated production
capabilities during the quartz revolution had been eroded by
inexpensive Chinese watch producers and a resurgent Swiss watch
industry, dominating the low and higher ends of the market
respectively. Meanwhile, competition from Citizen, Casio and a
profusion of new fashion brands meant that Seikos position in all
market segments was being challenged by an ever-growing
number of competitors. In the face of these changes, Seikos watch
sales declined throughout the 1990s, prompting the decision to
establish Seiko Watch Corporation in 2001 as a completely
autonomous subsidiary of Seiko Corporation. The move was intended
to streamline internal decision-making and allow for a more focused
brand vision.
In 2005, the high-end segment of the watch market was emerging as
the most lucrative, while narrowing margins plagued the lower-priced
segments. Shinji Hattori, president and CEO of Seiko Watch
Corporation, felt adamantly that Seiko should raise its perceived
image outside Japan, move upmarket and even challenge the
Swiss in the domain of mechanical watchmaking. During the
year, Seiko launched an innovative new watch movement, the

Spring Drive, which was based on mechanical watch technology but

featured an entirely new system for regulating time that
incorporated a control circuit and quartz crystal oscillator. This
fihybrid watch technology was the result of 28 years of research and
development and would showcase Seikos unique standing as the
worlds only mechatronic manufacture3a vertically integrated
watchmaker that excelled in both mechanical watchmaking and
micro-electronics.

While Seiko had historically produced luxury watches for the

domestic market, its high-end lines
were
little
known
internationally, with 95% of production sold in Japan and the
remaining 5% in other Asian countries.4 In Europe and the US, the
brand Seiko was often perceived as reliable, but unremarkable.
Industry analysts commented that Seiko had too many budgetprice models, and it failed to attract afluent watch enthusiasts and
collectors. On Seikos brand status, James Dowling, editor-in-chief of
TimeZone.com, remarked:
Seiko doesnt really get the respect it deserves, at least
in Europe. The build quality is phenomenal. But theres a
misperception of their brand Cheap, in the public
mind, means poor qualityeven if its not the case.
The best Seiko designs never get the chance to build a
following, whereas the best Rolex or Omega watches
stay in production for 20 or 30 years. For collectors, its a
problem.5
In 2007, it was apparent that Seikos push into the upper ranks of
international watchmaking status would require an overhaul of
consumer perceptions, particularly in Europe and the US. Could
Seiko transform its image in the international marketplace with
the Spring Drive technology? Could it successfully appeal to
discerning watch enthusiasts and collectors by repositioning itself
from a mass brand to a premium brand? Would the new
technology generate suficient turnover from the watch business or
alternative sources to recover the cost of development?

The Origins of Seiko6

Seikos roots could be traced to a home-based clock repair service
started in 1877 by Kintaro Hattori, an 18-year-old who had
apprenticed under several clockmakers. In 1881, he established
K. Hattori in the Ginza area of Tokyo to sell and repair second-hand
clocks, and soon expanded to become a retailer and wholesaler of
imported clocks. By 1892, Hattori established Seikosha (in
Japanese, fiSeiko means exquisite, while fisha means house), a
manufacturer of wall clocks based in a disused glass factory. In
the factorys first year of operation, 70 wall clocks were made a
day; daily production had reached 300 units by 1895, and by 1897,
Seikosha had become the largest wall clock manufacturer in the
country. In the mid-1890s, Seikosha began assembling pocket
watches using imported Swiss parts. While Seikoshas factory
developed and expanded, Hattori actively developed a retail
business in parallel with the manufacturing operations and
established a shop in the Ginza area of Tokyo. As business boomed,
the store outgrew its premises and relocated to the Ginza 4chome 7 corner, soon becoming the most prestigious watch and clock
shop in Tokyo.

Hattori had been a board member of the Osaka Watch Company,

which gave him early exposure to the use of machine technology in

watch production. In 1899, Hattori travelled to the US and Europe to

visit various production facilities and returned to Japan the following
year convinced that Seikosha had to adopt the American
system of centralised mass production. Hattori succeeded in
purchasing foreign-made automatic machine tools, while Seikoshas
factory manager also developed machines in-house. In the first
years of pocket watch production, income from the sale of pocket
watches did not cover expenses. Seikoshas approach to developing
this business was emblematic of Hattoris long-term approach of
funding innovations in one area with profits from another in this
case, from the production of wall clocks.
The end of the Meiji period in 1912 marked the arrival of many new
domestic companies that produced clocks and pocket watches. At
this time, Hattori aimed to produce Japans first wristwatch an
endeavour that involved greater technical difficulty due to the
precision engineering required to make the smaller wristwatch
parts. In 1913, Seikoshas first wristwatch, the Laurel, was
launched. In 1923, Seikosha launched the first watch to carry the
name Seiko. Kintaro Hattori died in 1934 and was succeeded by his
two sons. By 1937, the company accounted for about half of the
total Japanese timepiece production, with annual sales of about 2
million units.
Seikosha spun of the companys watch production activities
with the creation of a manufacturing company called Daini
Seikosha (meaning fithe second Seikosha). Daini Seikoshas
Nagano operation then merged with a parts manufacturer, and
was spun off as Suwa Seikosha Co. The resulting two
divisionsDaini Seikosha and Suwa Seikosha maintained
separate research, design and production facilities and developed
a rivalry to design and supply watches for K. Hattori.8 In the
subsequent years, Japanese watchmaking was dominated by three
major firms: K. Hattori (the watch-related activities of group
companies have so far been attributed to fiSeiko), Citizen and
Orient, respectively accounting for approximately 50%, 30% and
20% of total production in 1950.9 The Japanese watch
manufacturers
produced
timepieces
chiey
for
domestic
consumption and were able to dominate their domestic market,
aided by government tarifs and sales taxes on imported watches.

In the mid-1950s, Seiko was under pressure to upgrade its watch

movements to bring the companys technology up to the standards
of the Swiss. Seiko set about the task of improving accuracy and
adding features such as waterproofing, automatic winding
mechanisms and calendars. With domestic machine toolmakers
expressing little interest in developing products for the niche market,
Seiko and other Japanese watchmakers were forced to develop
internal engineering departments to develop the necessary
equipment to manufacture precise components. By 1965, Seiko
was said to have the most automated production units of all
watchmakers. By the early 1960s, Seiko-produced timepieces were
comparable with Swiss products in terms of accuracy.
Seiko focused on the expansion of overseas sales and by 1970 had

become the leading watch brand in most Asian markets.10 The US

was the largest market in the world, but Japanese watchmakers
had struggled to win consumer acceptance there due to
perceptions of inferior quality. To address this, Seiko established a
major sales operation in the US, arriving at a series of nonexclusive agreements with some 50 distributors.11 Seiko invested

in television advertising to build brand recognition and established

repair centres in New York and Los Angeles that earned a
reputation for rapid processing. During the 1960s, a number of
exclusive national distribution agreements were also made with
wholesalers in various European countries.

Technology Development
Mechanical Watchmaking
Every watch contained certain common elements: a movement to
measure the passage of time, an energy source, a display, a casing
and a bracelet or strap. The mechanical watch movement was driven
by the release of energy from an unwinding mainspring and
transmitted through a series of gears to a balance wheel that
controlled the hands on an analogue display as it rotated back and
forth at regular intervals. Mechanical watch movements typically
contained over 100 parts and varied in quality according to the
precision of the individual components and the care taken in
assembly. In the production of the highest quality mechanical
timepieces, very skilled workers were needed to finish the surfaces
on the components and to adjust watch movements at diferent
positions.
Having mastered all aspects of watchmaking and earning renown
for the mass production of mechanical timepieces, Seiko launched
the Grand Seiko line in 1960 to cater to the high end of the
domestic watch market. After dominating the domestic watchquality competition in the late 1950s, in 1964, Seiko participated for
the first time in the wristwatch category at the Swiss chronometer
competition held each year in Neuchtel. The results in Seikos first
year of participation were disappointing. The highest placing
produced by the Suwa Seikosha plant was 144th. In 1967, the
movements of an entry produced at Daini Seikosha took the second
place award at Neuchtel, while an entry from Suwa Seikosha
placed third. When the following years competition was
cancelled, Seiko opted to participate in the Geneva Observatory
competitions, where its entries were awarded every place from
4th to 10th, making Seiko the overall winner.
During the 1960s, the Grand Seiko line of mechanical watches was
produced for the Japanese market by a development team aiming
to exceed Swiss chronometer standards. Watches bearing the
fiContrle Officiel Suisse des Chronomtres (fiCOSC) designation
were tested and certified by the official Swiss chronometer testing
institute to a level of accuracy of 4/+6 seconds per day. Grand
Seiko watches were not submitted for COSC certification, but were

instead produced to watch in six positions (to account for

variations in the performance of watch movements when
positioned at different angles), as opposed to COSCs usual practice
of testing in five positions. The Grand Seiko line was marketed in
Japan from 1960 to 1975, where it was met with great demand until
quartz watches arrived on the scene.

Quartz Technology
By the late 1950s, the horological industry had entered a period of
technological revolution with the application of electronics to watch
technology. The Hamilton Watch Company of Pennsylvania
launched the worlds first electric watch, the Ventura, in 1957,
employing a battery in place of the mainspring that stored energy
within mechanical movements. In 1962, New York-based Bulova had
miniaturised the technology for a line of high quality watches
introduced under the fiAccutron brand. Within five years, the
Accutron (which was claimed to be five to six times more accurate
than the best mechanical watches at the time) had become the
best-selling watch over US$100 in the US.12 Quartz timekeeping
technology had been available in the public domain and was
based on the properties of a quartz crystal oscillating at precise
frequencies. By the 1940s, quartz clocksmore accurate than the
most accurate mechanical clockswere being used for timekeeping
in scientific laboratories. Yet the production of quartz wristwatches
had yet to materialise due to the difficulty of miniaturising
components and the lack of dependable batteries small enough to
fit within the casing of a watch.

In 1958, Seikos first quartz clock, produced for use by a radio

station, had been equivalent in size to a filing cabinet. In 1960, a
contract to become the official timer of the 1964 Tokyo Olympic
Games set of a period of intense research and development within
Seiko to develop equipment specifically for the Games. The task
of preparing for the Games led to the development of the
companys first portable quartz chronometer clock for timing
the marathon event, as well as a host of new items such as giant
clocks, displays, photo-finish imaging systems, backup systems and
small electronic printers to produce official records.
By the late 1960s, Japanese and Swiss watchmakers were in a
close race to bring the first quartz wristwatch to market. Seiko
became the first company to launch a quartz wristwatch the
Astronon 25 December 1969. Development work for Seikos first
quartz wristwatch had begun at Suwa Seikosha 10 years earlier.
Seikos development team refined the key technological
components in quartz analogue wristwatch movements (a
quartz crystal oscillator, an integrated circuit and a stepping motor)
to be reliable and durable enough for a commercial product.
Following the Astron, Seiko launched several new quartz
wristwatch models in quick succession. Sixteen Swiss companies
released quartz wristwatches of their own the following year. But
the approaches of Seiko and the Swiss difered in several
respects. While the Swiss timepieces featured a single integrated
circuit to manage the functions of the watch, Seikos quartz

watches used hybrid integrated circuits that combined various

circuits on a single base material. Seiko also used its own proprietary
quartz crystal in the shape of a tuning fork, which it believed to be
superior to the bar type used by its Swiss competitors. The Swiss
quartz technology was financed by a consortium of Swiss watch
companies,
with
manufacturing
distributed
across
three
factories, each responsible for producing diferent components
of the movement. By contrast, Seiko produced all components
in-house, freeing itself of external production restrictions and
quality control problems.
Following the companys quartz success, Seiko continued with
development work that led to further innovations. Joint research
between Daini Seikosha and Tohoku University resulted in liquid
crystal display (LCD) technology adopted in Seikos line of digital
quartz watches from 1973. By 1979, 72% of Seiko watches used
quartz technology, up from 20% in 1975.13 In the late 1970s, Seiko

acquired Jean Lassale, a Swiss watch brand then known for

producing the worlds thinnest mechanical movements. In an effort
to market watches at higher price points in international markets,
Seiko launched a collection of luxury quartz dress watches under the
sub-brand fiSeiko Lassale. This collection, however, was not well
received in the US and Europe and was eventually discontinued.
Seikos next major milestone in electronic watch technology arrived
in the 1980s with the development of battery-free quartz watches
that could be powered by the movement of a wearers wrist. Seiko
Kinetic watches were launched in the late 1980s, with early models
able to maintain average monthly accuracy of 15 seconds.
Following the launch of its Kinetic line of quartz watches in the
late 1980s, the company continued to introduce innovative
watch products, such as the Scubamaster, which incorporated
a dive table into a computerised divers watch and the Seiko
fiPerpetual Calendar watch, which featured an automated calendar
until the year 2100. Also introduced in the 1990s were the Kinetic
Auto Relay series of timepieces, capable of figoing to sleep when
unworn and fiwaking up to the correct time within a period of
four years, and a Thermic watch, which generated electricity by
harnessing the diference in temperature between the watch and
the wearers skin.
The Seiko name remained in the international spotlight through
the companys continued involvement as official timekeeper in
major sporting events: the 1990 FIFA World Cup, the 1992 Olympic
Games in Barcelona, and the 1994 (Lillehammer), 1998 (Nagano)
and 2002 (Salt Lake City) Winter Olympics.

From Watchmaker to Industrial

Conglomerate
Seikos early decision to develop in-house machinery and
component manufacturing capabilities led to the organisations
diversification into new lines of business. To highlight the Seiko
brand, K. Hattori and Co. changed its name to Hattori Seiko Co. in

1983. The company was renamed once more as Seiko Corporation

in 1990 and underwent a period of restructuring to streamline its
businesses. Seiko Corporation served as a holding company for a
family of companies that reected Seikos progression beyond its
tradition in horology. In addition to the watch and clock business,
subsidiaries of Seiko Corporation were involved in making and
selling products as diverse as camera shutters, optical products,
golf clubs and jewellery.
In 1968, Seiko launched the companys first commercial mini-printer
(the EP-101). The name fiEpson was coined for the companys
later printer products. Meanwhile, the in-house manufacturing of
CMOS integrated circuits for Seikos quartz movements resulted in
its development as one of the worlds largest manufacturers of
CMOS chips. In 1985, Suwa Seikosha and Shinshu Seiki (then
renamed Epson Corporation) merged to form the Seiko Epson
Corporation, a major manufacturer of information products,
electronic devices, semiconductors and other product lines.
In a similar vein, Seikos major manufacturing arm, Daini Seikosha,
developed into new lines of business. In 1983, Daini Seikosha
changed its name to fiSeiko Instruments and Electronics Ltd, before
being renamed fiSeiko Instruments Inc. in
watches (both for Seiko and licensed brands), Seiko Instruments
manufactured electronic components, precision parts, scientific
instruments and other items. Seiko Epson and Seiko Instruments
remained the watch manufacturing arms of the Seiko Groupa
corporate group consisting of three independent companies (ie,
Seiko Corporation, Seiko Epson and Seiko Instruments) linked by a
common origin and an alliance in timepiece technology [see
Exhibits 1 to 4].

The Global Watch Industry and Competitive Landscape

Switzerland
Watchmaking was perhaps Switzerlands most identifiable
industry. With Asian and US producers manufacturing hundreds of
millions of quartz watches a year in the 1970s, the Swiss industry
was still steeped in the mechanical watchmaking tradition and slow
to adapt to quartz watch production on a mass scale. Many firms
consolidated or closed during the decade.14 From the mid-1970s
to 1983, the Swiss watch industrys share of the world market
dropped from 30% to 10% in units sold.15 Exports of mechanical
watches plummeted from 40 million in 1973 to 3 million in the span
of ten years.16

In 1979, the ASUAG group (Socit Gnrale de lHorlogerie Suisse

SAwhich included brands like Longines and Rado and was
Switzerlands largest producer of watch movements and
components) embarked on a plan to produce a line of inexpensive
quartz watches in an efort to reverse the decline in its business.
Following a merger with SSIH (Socit Suisse de lIndustrie
Horlogre., another ailing industry group with brands such as
Omega and Tissot, ASUAG-SSIH launched the Swatch brand in

1983. ASUAG-SSIH was later renamed fiSocit Suisse de

Microlectronique et dHorlogerie, and in 1998, renamed the
Swatch Group. The merged entity was committed to building and
assembling the watch entirely in Switzerland under a vertically
integrated model, employing fully automated manufacturing
processes that would bring production costs down to Asian levels. In
a break from the Swiss practice of using high quality metals and
jewels in watchmaking, Swatch watches were encased in micromoulded plastic parts, and featured only 51 parts (compared with
more than 125 parts in a conventional mechanical watch).
Available at retail prices typically under US$50, the Swatch range
included a profusion of styles and models, and was developed with
the collaboration of prominent designers. Approximately 30% of the
Swatchs retail price was spent on advertising. Overriding objections
that the Swatch would cheapen the Swiss image of high-quality
watchmaking, Swatch watches became fashion statements in the
1980s. Within ten years, cumulative sales exceeded 100 million
units, making Swatch the best-selling watch in history.17

The Swatch phenomenon had a profound effect on the Swiss watch

industry. In addition to recapturing lost market share in the lowto mid-price segment, heavy investment in automated production
resulted in technology that allowed Swiss watch companies to
market quartz watches across a variety of price ranges. Through
worldwide promotional campaigns, the Swatch Group trimmed
product lines and repositioned the brands in its portfolio (which
included Breguet, Omega, Longines, Rado, Tissot and Hamilton).
Individual brands had autonomy in product design, marketing
and communications, but would negotiate manufacturing and
assembly through the Swatch Groups manufacturing and
assembly arms.18 The Groups manufacturing subsidiary, ETA, was
the largest third-party supplier of watch parts in Switzerland and
also supplied watch companies beyond the Group, including
fiprestige firms like IWC and Rolex.

As quartz movements gained acceptance among Swiss watchmakers,

a number of firms such as Omega, Rolex and Patek Philippe
remained committed to high-grade mechanical watch production
and emphasised timepieces with finely crafted movements and
precious metal casings that established their brands in the luxury
segment of the market [see Exhibit 5].

Through successful promotional campaigns, Swiss firms were able to

corner this market and with the exception of several German,
Italian and British brands, the fiSwiss Made label became a virtual
prerequisite for participation in the luxury segment. The decision
to stay with tradition appeared prudent in later years, when
mechanical watches regained popularity amid growing global
demand for luxury goods. With the ubiquity of computers, mobile
phones and electronic devices, the functional need for watches
diminished and the need for an accurate timepiece was to some
extent supplanted by consumers desire to make a lifestyle
statement with their choice of watch.
In 2005, the Swiss watch industry achieved the best results in its
history, with watch exports reaching a total value of US$ 9.83
billion, an increase of 10.9% from a year earlier.19 Asian markets
accounted for 42.9% of the value of Swiss exports, while the US
was the largest national market, accounting for 22%. More than half
the value of the watches sold worldwide was generated by the Swiss
industry [see Exhibits 6 and 7]. Mechanical watches constituted
only 14% of Switzerlands 24.3 million finished watch exports, but
accounted for 62% of the total value. By 2003, luxury watches
costing more than US$2,563 accounted for 71% of Swiss watch
exports by value, compared with 57% a decade earlier.20 According

to the Swiss banking group Pictet & Cie, eight playersthe Swatch
Group, Rolex, Richemont, LVMH, Patek Philippe, Bulgari, Chopard
and Guccihad cornered over 90% of the luxury watch market
(defined as being those with a factory gate price of over
US$444corresponding roughly to a retail price in excess of
US$1,268.21
United States of America
American watchmakers had been a force in the international
watch market since the 19th century. In 1950 the US Time
Company introduced Timex wristwatches, a collection of
inexpensive watches with imitation-jewellery casings that were
produced with hard alloy bearings instead of jewels. The US Time
Company (later renamed Timex Group) distributed the watches in
unconventional outlets such as drug stores at extremely low prices.
In the early 1970s, Timex and Bulova introduced quartz analogue
watches using components from outside suppliers. Timexs first
analogue quartz watch retailed at US$125the lowest price of any
quartz watch then on the market. In 1972, the Hamilton Watch
Company introduced the first digital watches in production with the
Pulsar line of watches; they featured a ashing red light emitting a
diode (LED) time display.
A number of American semiconductor firms applied their
experience in microelectronics research and integrated circuit
production to the mass production of digital quartz watches. In 1976,
Texas Instruments shocked the industry by introducing a US$20
watch line featuring plastic-cased LED watches. Subsequent pricebased competition forced many watchmakers out of business and
only a few established companies were able to survive. By the late
1970s, consumer demand for low-cost digital watches was declining,
while price competition meant pressure on margins. By the early

1980s, most American semiconductor firms had completely exited

the watch business. The Hamilton Watch Company sold its watch
division to the Swiss in 1974; its separate Pulsar division was later
acquired by a jewellery firm, which then sold the rights to the name
fiPulsar to Seiko. After three successive years of losses, the Bulova
Company was purchased by Loews Corporation22 in 1979.

Hong Kong and China

Before the advent of quartz watches, Hong Kongs nascent watch
industry was involved in the production of accessories (such as
cases and dials) and the assembly of inexpensive mechanical
watches. To take advantage of lower labour costs and low tax
rates, American, Japanese and Swiss watchmakers had established
plants in the territory. In the 1970s, many firms in Hong Kong were
involved in the assembly of LEDand later, LCD display
watches.23 A number of Hong Kong semiconductor manufacturers
also began to produce low-cost digital quartz watches, which
were sold inexpensively on an original equipment manufacturer
(fiOEM) basis, or under obscure brand names.
By the late 1970s, Hong Kong had emerged as the fastest growing
watch production centre in the world.24 But with intense price
competition and declining demand for low-cost digital quartz
watches, many firms were losing money. 25 The industry
promptly shifted to the production of analogue quartz watches in
the 1980s; Hong Kongs watchmakers output accounted for
approximately 7% of domestic exports in the mid-1980s.

The appreciation of the Yen in the late 1980s, coupled with the
devaluation of Asian and Latin American currencies strengthened
Hong Kongs position in the low-price watch segment. In the
1990s, Hong Kong revised its trade law to allow for watch origins
to be determined according to the source of its parts rather than
the country of assembly. This meant that Hong Kong watch
producers were able to use the label fiMade in Switzerland or
fiMade in Japan on watches using imported parts. Consequently, a
trend emerged whereby watches assembled in Mainland China
were
re-exported
from
Hong
Kong.
Manufacturers were
increasingly developing original designs and becoming more
sophisticated with branding. In 2005, the export of some 627.3
million units of watches and clocks from Hong Kong amounted to a
total value of US$ 5.9 billion.26
With low labour costs and an eficient supply chain, China had
emerged as the worlds largest exporter of watches by volume,
accounting for much of the global output of low-end watches by the
early 2000s [see Exhibit 8A]. Intense competition was
prompting Chinas watchmakers to make attempts at branding
their own products and to shift to mid-range production. However,
most Chinese producers lacked the large sums of investment
needed to develop and market their own brands internationally, and
production of watches with higher-end functionality required a level
of technology that most manufacturers did not have. In 2005,
Chinese producers exported 884.6 million watches (an amount
15% lower than a year earlier).27 Watches exported by China
were sold at an average price of US$1 (at factory gate prices) as
compared with US$6 for watches leaving Hong Kong, and US$377
for Swiss watches.28

Japan
For many years, Japans big-three watchmakers consisted of Seiko,
Citizen Watch Co. and the Orient Watch Co. (Seiko later acquired
a 54.8% controlling interest in Orient). 29 Intensifying competition

and rising domestic wages led the Japanese firms to pursue

relocation strategies and investments outside of Japan, starting in the
1950s. By the late 1970s, Seiko, Citizen and a new entrant, Casio,
were buying cases, bracelets and glass from Hong Kong. The major
Japanese watchmakers had established assembly facilities in Hong
Kong, Taiwan and other locations and would later concentrate
assembly and case, hands, and dial production in less expensive
Asian countries, primarily China.
Founded in 1930, Citizen initially produced and marketed private
label watches before promoting its own brand of accurate and
affordable watches in the 1960s and competing directly with Seiko
in subsequent years. In the 1980s, the company diversified into new
areas of business such as information/electronic equipment and
industrial machinery, reducing the share of watch and clock sales in
total turnover to 34% (US$1.09 billion) by 2005. Citizen was a
vertically integrated watch producer with fully automated production
lines and was the second largest selling brand in most Asian
countries, behind Seiko. 30 Citizen was known particularly for its
Eco-Drive watches that were powered by light. In keeping with
other recent initiatives by Japans major watch producers, Citizen
released a range of radio-controlled watches that were capable
of receiving time signals to synchronise with governmentmaintained atomic clocks. Citizens subsidiary, Miyota Co., was
the worlds largest supplier of watch parts to a variety of fashion
brands and private labels.

The Casio Computer Company was a major new entrant to the watch
market in the mid-1970s, with a product line that featured a range
of multifunctional digital watches. Casio watches were sold through
new channels such as consumer electronics and sporting goods
shops. By the early 1980s, the company was second to Timex in
the low-priced segment but faced increasing competition from lowercost digital watches from Hong Kong.31 In response, Casio developed
increasingly advanced digital watches for specialised uses and
added a range of functionality to its watches, such as calculators,
world time display, thermometers and altimeters. The companys
signature line of shock-resistant (G-Shock) digital watches was
introduced in 1983 and carved out a strong position in the market.
More recently, Casios strategy was to develop a market for its solarpowered, radio-controlled watches. In the fiscal year ended 31 March
2006, the companys net sales for timepieces totalled US$611 million.

Japans watch business, while accounting for more than half of the
worlds watches and parts, endured a period of stagnation during the
1990s. Competition from Swiss brands, an increase in mid-priced
fashion brands and a glut of low-end watches from Chinese suppliers
(many of which featured inexpensive Japanese parts) prompted
Japans watchmakers to reduce production.32 Meanwhile, the
domestic economy was mired in recession and a strong Yen had
driven up production costs. To stay price competitive, Japans
watch producers established plants in China, where labour costs
were 10% of those in Japan.
In terms of value, Japan accounted for half of the worlds total
export of watches and parts (US$15 billion) in 2004, followed by
Switzerland (US$9 billion), Hong Kong (US$3.5 billion) and China
(US$1 billion) [see Exhibit 8B].33 Many of the Japanese watches

were made by overseas plants of Japanese watch companies, and

locally made Japanese watches accounted for only about 5% of the
worlds watch exports by units. The US was the largest market for
Japanese watches, accounting for 29% in terms of value, followed
by Asia (24%), Europe (23%) and the Middle East (12%).34
Overcoming Roadblocks to Growth
In the early 1990s, Seikos business was severely afected by
fierce competition, domestic recession and economic dificulties in
its export markets. Its sales declined from US$3.1 billion in 1990
to US$2.9 billion in 1996; it posted five consecutive full-year net
losses, culminating in a US$96 million loss in 1996.35 It was
becoming apparent that Seiko could not rely on technology alone to
diferentiate its watch lines and defend its market share.
Restructuring and Relocation
During the 1990s, Seiko Corporation undertook a number of
restructuring initiatives to streamline its various business lines.
Seikosha Co. Ltd, the clock-making affiliate, was split into two
companiesSeiko Clock Inc., a vertically integrated clock
producer, and Seiko Precision Inc., a company that manufactured
and marketed camera shutters, printers and other equipment
previously made by Seikosha. In 2000, Seiko S-Yard Co. Ltd was
established to assume responsibility for the sports and consumer
electronics business.
In 2001, Reijiro Hattori, chairman of Seiko Corporation took the
decision to spin of the watch division as Seiko Watch Corporation
(fiSWC), an autonomous subsidiary of the holding company. The
formation of SWC was seen as a profound transformation of Seiko, to
mark a new management philosophy and to allow for quicker
decision making in the interests of the watch business.
SWCs mandate was to design and market watches, sourcing from
Seiko Epson and Seiko Instruments. The two manufacturers had
long since developed into enormous companies in their own right,
generating greater profits from products other than watches (Seiko

Epsons annual production of 6 million watches, for example,

accounted for less than 1% of the companys turnover). 36 As a
result, the company often made manufacturing-oriented

507-1101
management decisions rather than making them from the
standpoint of managing a branded watch business. A clearer
division of labour between the two manufacturing arms of Seiko
Group was established to avoid overlapping development costs. In a
break from the historical policy of encouraging internal rivalry
between the two arms, each would now concentrate on their
manufacturing strengths in a close working relationship with
SWC: Seiko Epson focusing primarily on quartz watch production
and Seiko Instruments on the production of mechanical watches at
various price points.
To remain price competitive, much of Seikos labour-intensive
watch manufacturing operations (eg, assembly and case, hands,
and dial production) were relocated to less expensive Asian
countries, primarily China.37
Branding and Market Repositioning
Because of our intention to offer watches to
everyone, we ended up not having a specific target
clientele Seiko, in the desire of pleasing everyone, has
been too fexible Up to now, it was our product offer
that made our identity. Now, it is our brand identity that
must determine our product offer. This is a major
reversal.
- Tsutomu Mitome, first president of Seiko Watch
Corporation38
In the 1980s and 1990s, Seiko approached the watch business with
a market-share oriented culture, exploiting opportunities to achieve
mass sales by introducing watches at various price points, even at
the risk of altering its image. In addition to its core brand, Seiko
managed a portfolio of sub-brands: Pulsara line of mid-priced
quartz wristwatches sold in the US and Europe (the Pulsar brand was
acquired from the Hamilton Watch Company in 1979), Alba an
afordable collection of youth-oriented watches sold in Asia and the
Middle East, Lorus a line of afordable watches introduced in
1982, and Credora collection of luxury dress watches sold at
select outlets in Japan. Beginning in the 1990s, Seiko produced a
range of fashion watches, such as Agnes B and Mandarina Duck
under license from the brand owners.
In the international market, the value of Seiko watches was typically
perceived as lying in the US$150500 range, with the brand
characteristically associated with reliability and value for money
[see Exhibit 9]. However, in the domestic market, Seiko was
known as a fully integrated watch company and sold more
expensive watches for the top-end of the market in addition to midrange watches. The Credor collection, for example, included gold
and platinum watches set with gemstones, that could carry prices of
more than US$10,000.

Seiko launched the Grand Seiko line in 1960 to cater to the high
end of the domestic watch market. Reecting the companys
desire to counter Swiss competition in the high-end segment, the
Grand Seiko collection was re-launched in 1988, initially featuring
quartz movements. In 1998, the focus of the Grand Seiko
collection began to shift to high-grade mechanical movements.
Although early models in the re-launched collection were made with
refinements to the companys existing movements, Seiko
management soon approved the development of an entirely new
high-grade movement for the second generation of Grand Seiko
watches. Mechanical Grand Seiko and Credor watches were
manufactured by Seiko Instruments at its Morioka Seiko factory, the
site of possibly the largest watch production line in the world.
Tsutomu Mitome, the first president of SWC, had worked in the US
market and believed that Seiko was in need of a more focused
brand image. While in some markets, the Seiko brand was
associated with inexpensive watches, in Japan and other parts of
Asia it was known for high quality timepieces. And while some
customers associated Seiko with leading technology, others
connected the brand with specific watch designs. Mitome
described Seikos pricing position as such:
It is a double-edge sword. If it is a definite advantage
that consumers see Seiko as having an excellent price
to quality ratio, it is also a disadvantage that they
expect, at the same time, to pay less for a Seiko
than another watch.39
SWCs management undertook the task of identifying a new
direction for Seikos watch business. A focus for the brand was
expressed through the following vision, identity and core values
statements:
Vision:
Seiko, in its longstanding tradition of trustworthiness,
will bring to people who are in the mainstream of
society, products and services representing innovation
and perfection. These products and services will
encourage, impress, and instil expectations of innovation
and advancement.
Identity:
Seikos identity shall be that of fiinnovationf and firefinementf.
Core Values:
Seikos core values are fireliability based on qualityf
and fiworldwide brand recognitionf. Seikos additional
strength is as a manufacturer, with its power to combine,
seamlessly and at a high level,
a. technological development capabilities that
continue to achieve world firsts and
b. design development capabilities that can create original designs.

The concept of innovation and refinement was to extend to the full

gamut of SWCs activities: product development, sales and
advertising promotions, as well as distribution and pricing [see
Exhibit 10]. Traditionally, Seiko had focused on developing
products where sales opportunities existed at particular price points,
allowing its global network of ten subsidiaries and some 30
distributors to employ marketing and merchandising strategies
suited to their regions. This approach compounded the problem of
varying customer perceptions in Seikos different markets around the
world.
Seiko continued to offer frequently updated product lines and subbrands in diferent markets (the greatest variety existed in the
domestic market for the many niches of Japanese consumer
demand), but placed new emphasis on value over volume, shifting
lower-priced watches to sub-brands such as Alba. Seiko had also
gradually increased the average sales price of its collections. As a
result of the change in pricing strategy, contribution attributable to
low-end or firegular collections had decreased from 41% to 26% of
sales from 2003 to 2005.
The company also implemented yearly global marketing campaigns
for core collections that were sold in all markets. 40 To overhaul

branding, Seiko revamped its public profile, from billboard and TV

advertising to in-store presentation and packaging, moving from
product-based messaging to advertising that emphasised the
brand image of fiinnovation and refinement.41 By 2002, SWC
had begun opening a number of Seiko shops around the world and
was restricting the supply of watches through parallel distribution
channels, making it more difficult for discount retailers to obtain
Seiko watches.

Signs of a turnaround emerged in the fiscal-year ended 31 March

2003SWC posted net sales of US$894 million, 42 breaking seven
successive years of decline in sales in Seiko Corporations watch
business segment. SWCs operating income of US$60 million
represented an increase of 24% from a year earlier.
The Seiko Spring Drive
The Spring Drive Movement is only the beginning. We
are sending a strong signal to the international watch
market Seiko is moving upmarket! The Spring Drive
demonstrates our innovative potential and will gradually
open markets for us in the mechanical haut de gamme
sector. This is a long-term strategy.
- Shinji Hattori, president and CEO, Seiko Watch
Corporation43
Among watch enthusiasts and collectors, watches made by
manufactures were usually held in the highest esteem. The French
term carried varying definitions, but typically referred to a watch

producer that made and assembled all of the components and

parts of a watch movement in-house. Although the term usually
conjured up a handful of prestigious mechanical watchmakers
such as Patek Philippe, Audemars Piguet, Jaeger-LeCoultre and
Rolex, Seiko qualified as a manufacture in its own right.
Moreover, SWC management asserted that Seiko was the only
watch company in the world that could lay claim to being totally
integrated in both mechanical and electronic watchmaking at the
highest levels. Thus, the term mechatronic-manufacture was coined
to highlight Seikos unique capabilities.
In 2003, Shinji Hattori, the great grandson of Seikos founder Kintaro
Hattori, was appointed president and CEO of Seiko Watch
Corporation. Upon taking over the reins at SWC, Hattori was
determined that Seiko break through the customary price range
of US$150500 its watches commanded outside of Japan. A new
hybrid watch movement (that had been the product of more than
25 years of research and development) seemed to provide an
unprecedented opportunity for Seiko to market a premium-priced
watch outside of Japan and dramatically enhance the brands
perceived value.
The Spring Drive movement was first conceived by an engineer at
Seiko Epson44 in 1977, as a means of combining the most appealing
aspects of mechanical and quartz technologies, while dispensing with
the weakest aspects of each. Although quartz movements ofered
superior accuracy, they contained consumable parts (ie, a battery
or other storage mechanism) and lacked the mechanical intricacy
valued by luxury watch buyers. Mechanical watches were
appreciated for their craftsmanship and elegance, but were less
accurate and relatively prone to fault.

The development of a working Spring Drive prototype in 1982

convinced management to commit additional resources for
research and development. Over the next 15 years, Seiko
developed an array of new materials and technologies (amassing
over 200 patents in the process) and presented a theoretical
paper
describing
its
project
to
the
Swiss
Society
of
45
Chronometry.
In 1999, the Spring Drive movement first appeared

commercially as a limited edition model in the luxury Credor range

sold in Japan. The movement featured a mainspring, a mechanical
gear train and a time regulation system termed the fitri-synchro
regulator. In the process of developing the movement, engineers
at
Seiko
Epson
and
Seiko
Instruments eliminated
the
fiescapementthe
weakest
component
of
a
traditional
mechanical movementdeveloped an integrated circuit that could
run at half the power required by a conventional chip, and created
a new alloy for the mainspringSpron 510, which ofered superior
elasticity, strength and corrosion resistance.
The Swatch Group had presented a theoretical paper outlining a
similar movement in 1997, but SWCs Swiss rival had not filed any
related patents since then. SWCs management felt confident that
Seiko would remain dominant in the hybridisation of mechanics and
electronics, with few if any competitors possessing the necessary
expertise to develop a similar movement.

The Spring Drive exemplified Seikos capabilities as a

mechatronic watch producer and ofered certain qualities that
SWC management believed would appeal to high-end watch
buyers:
The Spring Drives accuracy of +/- one second per day far
exceeded that of a chronometer-grade mechanical watch
(which operated within a range of +6/-4 seconds per day) and
approached the accuracy of a quartz movement.
The elimination of the escapement removed the weakest link in
a traditional mechanical watch and allowed for the hands of a
Spring Drive watch to move in continuous circular motion, rather
than in a series of small steps. Thus, Seiko claimed that the
Spring Drive was the only watch to reect the finatural and
continuous motion of time.
Each Spring Drive watch was assembled by a small team of
watchmakers at Seiko Epsons Shiojiri factory. Only the
companys most qualified watchmakers were enlisted to
assemble the parts, with several among them having won
awards at national and international watchmaking skill
competitions.
About 80% of the Spring Drives 280 parts were identical to those
used in Seikos production of Grand Seiko watches and the parts
were assembled entirely by hand.46 The Spring Drive technology
was expensive to manufacture and had only been sold in Japan in
the first few years, where experience demonstrated that high
prices were more accepted than in the international market.
Nevertheless, Hattori and SWCs management team believed that
the watch could play a central role in the global repositioning of the
Seiko brand.
The company took the decision to market the Spring Drive
technology internationally under the Seiko brand, rather than the
Credor or Grand Seiko brands that were known in the domestic
market. Two models of the Seiko Spring Drive were exhibited at
the 2005 Basel
Watch Fair before the line was officially launched in September
2005 at a lavish function staged at the Muse dOrsay in Paris. The
Seiko Spring Drive was a very low-production line, with only 1,000
pieces available in the first year of sales, at retail prices of
US$3,295 and US$3,495. Only one high-end retailer was selected by
SWC to carry the line in each market. To be selected, this retailer
had to have good knowledge of the Spring Drive technology, share
Seikos long-term strategy of moving upmarket and have the ability
to deliver quality customer service.47 The Spring Drive movement
provided a platform for Seiko to venture in the direction of fine
watchmaking and had already won the admiration of watch
enthusiasts, earning the award of 2005 Watch of the Year from
the
largest
English-language
watch
information
website,
TimeZone.com.

Challenges Ahead
By 2006, Seikos watch business reported an increase in both sales
and profits for the fiscal year ended March 31, 2006, with net sales
of US$915.3 million, a 5.2% increase from the previous year, and
an operating income of US$68 million, a 2.7% increase from the
previous year [see Exhibit 11].48
The US was Seikos largest
market by value, followed by Japan, South East Asia and Europe.

While the market for mass-produced watches had grown

increasingly challenging, luxury watches had emerged in recent
years as one of the fastest growing and most profitable
sectors.49 In the US watch market, for instance, growth in dollar

sales was concentrated on the upper end of the price spectrum. 50

The highest growth was seen in the price range that exceeded
US$5,000. However, dollar sales of middle to low-end timepieces
saw sluggish growth [see Exhibits 12 to 15]. Many consumers
were less inclined to buy low-end watches for telling time since such
a function could be replaced by a mobile phone, a BlackBerry or
other devices. There was a growing tendency for customers to
buy middle to high-end watches because they served as a status
symbol or a fashion accessory. It was anticipated that watch sales in
2007 would continue to tilt towards the upscale internationally.
SWCs management believed that Seiko must not try to compete at
the low end of the market. After undertaking market research in the
US and Europe, SWCs management felt confident that the Seiko
brand could be durable for prices up to US$5,000. The new target
audience would be watch enthusiasts and collectors who looked
for
originality,
exclusivity
and
innovative
mechanisms.
Nevertheless, Seiko still had far to go before it could occupy a
market position that rivalled Swiss brands in the luxury market. In
2004, SWC commissioned the Gallup Organization to conduct a
survey on consumer perceptions of watch brands. The respondents
placed the notional value of Seiko watches somewhat higher than
mid-range brands like Bulova and Citizen but lower than all the
Swiss brands on the survey.51 For high-end consumers and other
luxury watch aficionados, the perceived value of a watch hinged
upon its quality, uniqueness, exclusivity and the ability to enhance
social status or prestige. While precision and technology were
valuable, they might not necessarily command significant price
premiums in the luxury watch market. With a history associated
with the easily accessible mass market, it was doubtful whether
Seiko could rely on technology alone to enhance its brand power.

In 2006, the management at Seiko Instruments factory in Morioka were

projecting a level of 100,000 high-end mechanical time pieces by 2013. The
goal was fairly ambitious for Seiko, which produced only 15,000 high-end
mechanical time pieces in 2005. Could Seiko rely on the Spring Drive
technology to reach its sales target by 2013? Would it be a right decision to
market the Spring Drive technology under the Seiko brand, which had
traditionally been recognised as an inexpensive, mass market brand
outside Japan? Given that Swiss-crafted timepieces had already established
tremendous brand recognition in the luxury watch market, could Seiko find a
way to lure customers away from the traditional luxury watch leaders

17

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 1: SEIKO GROUP COMPANIES

Company

Key Product Lines

Annual Sales

Employees

Seiko
Corporation52

Watches, Clocks, Electronic Devices (eg,

camera shutters, system clocks), Optical
Products, Consumer Electronics,
Jewellery, Golf Clubs.

US$1.82
billion

6,699

Information-Related Equipment
(printers, scanners and projectors,
computers and peripherals), Electronic
Devices (semiconductors, displays and
quartz devices), Precision Products
(watches, plastic corrective lenses and
factory automation equipment).
Electronic Components (eg, CMOS ICs,
LCD modules, quartz crystals, micro
batteries), Scientific Instruments (eg,
thermal analysis equipment, scanning
probe microscope), Communication
Products (eg, communications servers,
high-speed data transmission cards),
Machine Tools, Printer Modules,
Information Systems.

US$13.19
billion

Seiko Epson
Corporation53

Seiko
Instruments
Inc.54

30 April 2007).

(Consolidated;
Year Ended 31
March 2006)

90,701

(Year Ended 31
March 2006)

US$2.4
billion
(Consolidated;
Fiscal 2005)

14,841

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 2: SEIKO CORPORATION FORECASTED RESULTS BY

BUSINESS SEGMENT FOR THE YEAR ENDING 31 MARCH 2007 (BILLIONS OF YEN)

Net Sales
2006

Watch Business
Precision Products Business
Optical Products Business
Clock Business
Other Business
Total for all Business Segments
Consolidated Total

Operating Income
2005

2006

2005

108.0
107.6 42.0
38.5 30.0
28.2 13.0
12.9 29.0
32.7 222.0
220.2 215.0
213.7

8.0
1.0
0.6
0.4
0.3
10.3
11.0

8.0
(1.2)
0.4
0.3
(0.5)
7.0
9.3

Note: Consolidated total represents figures after consolidation adjustments such as the elimination of inter-segment sales.

EXHIBIT 3: SEIKO EPSON CORPORATION NET SALES BY BUSINESS SEGMENT

Millions of Yen
Year ended 31 March
Information-Related Equipment:
Customers
Inter-segment
Electronic Devices:
Customers
Inter-segment
Precision Products:
Customers
Inter-segment
Other:
Customers
Inter-segment
Eliminations and Corporate
Consolidated

2004

2005

2006

917,116
3,264

942,401
3,628

973,690
2,753

413,540
27,613

454,616
27,995

489,460
37,507

77,736
3,366

76,827
4,316

81,463
4,315

4,851
24,606
(58,849)
1,413,243

5,906
28,604
(64,543)
1,479,750

4,955
28,022
(72,597)
1,549,568

19

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 4: SEIKO INSTRUMENTS INC. (PRIVATELY HELD)

SALES BY BUSINESS SEGMENT
Seiko Instruments Sales Breakdown (Fiscal 2005)
Micromechatronics
18%

Others
23%

Solutions
8%
Network
Components
51%

Micromechatronics: Watch movements, Hard disk components, etc.

Network Components: CMOS ICs, LCD modules, Micro batteries, Quartz crystals, etc.

Solutions: Restaurant ordering system, Electronic dictionaries, Wireless card payment

systems, etc.

Others: Thermal printers, Colour printers, Scientific instruments, etc.

20

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 5: GEOGRAPHICAL BREAKDOWN OF LUXURY WATCH MARKET (2003)55

Geographical Breakdown of Luxury Market
The Americas
20%

Oceania
1%
Africa
1%

Europe
28%

Asia
50%

Source: Montagnani, M. and Amoroso, J.R. (2003) The Watch Industry: What
Makes it Tick? Pictet Company Research.

55

Defined as having a retail price greater than US$1,271.

21

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 6: GLOBAL WATCH MARKET BY PRICE, TECHNOLOGY AND

COUNTRY OF ORIGIN (2003)
Global Watch Market by Price, Technology, Origin
<US$395/
Predominantly
Quartz
(Others)
41%

>US$2370/
Mechanical
(Swiss)
22%

<US$395/
Quartz (Swiss)
11%

US$395US$2370/
Quartz (Swiss)
15%

US$395US$2370/
Mechanical
(Swiss)
11%

Source: Montagnani, M. and Amoroso, J.R. (2003) The Watch Industry:

What Makes it Tick? Pictet Company Research.

22

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 7: WATCH MARKET IN VALUE TERMS BY REGION (2003)

Watch Market in Value Terms by Region
Middle East
7%

North
America
20%

Asia
33%
Latin
America
2%

Other
1%
Europe
37%

Source: Montagnani, M. and Amoroso, J.R. (2003) The Watch Industry: What
Makes it Tick? Pictet Company Research.

23

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 8A: MAIN WATCH EXPORTING COUNTRIES BY VOLUME (2004)

1,200.0

1,000.0

800.0
U
nit
s
in
mi
lli
on
s

600.0

400.0

200.0

1,001.5

713.6

25.0
China

11.0

6.2

Hong Kong Switzerland

5.8
USA

5.6
Thailand

France

Japan

Country
Note: Data from Japan excludes watches made by overseas plants and exports from overseas ports.

Source: Federation of the Swiss Watch Industry (2005) The Swiss and World Watchmaking
Industry in 2004, http://www.fhs.ch/statistics/watchmaking_2004.pdf (accessed 30 April 2007).

24

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 8B: ANALYSIS OF WORLD EXPORT OF

WATCHES AND MOVEMENTS BY COUNTRY (2004)

Country
Japan (including
overseas plants)
Switzerland
China
Hong Kong

Units

Total Value
(US$)

712 million

Estimated
Average Unit
Value (US$)
21

25 million
1,001.5 million
713.6 million

360
1
5

9 billion
1 billion
3.5 billion

15 billion

Source: Japan Clock and Watch Association The Japanese Watch and Clock Industry in
2004: An Outlook on its Global Operation, www.jcwa.or.jp/eng/statistics/industry_04.html
(accessed 30 April 2007) ; and Federation of the Swiss Watch Industry (2005) The Swiss and
World Watchmaking Industry in 2004, http://www.fhs.ch/statistics/watchmaking_2004.pdf
(accessed 30 April 2007).

25

507-110-1
CSVS/107C

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Seiko Watch Corporation: Moving Upmarket

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lli
lli
ret

on
on
ail
on
on
A
pri
nn
ce
ua
l
Re
po
rt
.

27

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 11: SEIKO WATCH CORPORATION

FINANCIAL RESULTS SUMMARY 2002-200556

Financial Results Summary

Net Sales

1,200
1,071

1,01
6

Operating Income
1,076

1,024

1,000
800

7.2

7.8

7.3

8.0

600

400

200

2004
2002

2005

2003
Fiscal
Year

(Billions of Japanese Yen)

Source: Seiko Watch Corporation Annual Reports, 2002 to 2005.

EXHIBIT 12: TOP SELLING FINE WATCH BRANDS (US WATCH SALES, 2005)

Rank
1
2
3
4
5
6
7
8
9
10

Unit Sales
Citizen
Seiko
Bulova
Pulsar
Carvelle
Movado
Swiss Army
Esq*
Rolex*
Tag Heuer*

Dollar Sales
Rolex
Citizen
Seiko
Movado**
Tag Heuer**
Bulova
Cartier
Breitling
Omega
Patek Philippe

Note: *Tie for 8th place; ** Tie for 4th place.

Source: Kuczynski, T. (2006) U.S. Fine Watch Market Tilts Toward High End in 2005,
National Jeweler; and LGI Network (2005) Annual Report.

29

5
EXHIBIT 13: US WATCH MARKET: UNIT SALESGROWTH BY PRICE POINT (US$)

4500000

4140000

4000000
U
ni
ts
so
ld
(2
00
5
vs
20
04
)

3500000
3000000
2500000

1562000

2000000
1500000
1000000

157000

645000

400000

500000
0

$5,000+

$1,500 - 5,000

$500 - 1,500
Price point

30%
D
oll
ar
sa
le
s
gr
o
wt
h
(2
00
5
vs
20
04
)

$50 - 150
$150 - 500

25%

25%
20%
15%
5%

10%

2%

5%
0%

$5,000+

$1,500 - 5,000

$500 - 1,500

$50 - 150
$150 - 500

-5%
-10%

4%

-6%

Price point

Source: Kuczynski, T. (2006) U.S. Fine Watch Market Tilts Toward High End in 2005,
National Jeweler; and LGI Network (2005) Annual Report.

30

507-110-1
CSVS/107C

Seiko Watch Corporation: Moving Upmarket

EXHIBIT 14: US WATCH SALES: FINE WATCH BRAND OVERVIEW (2005 SALES)

Accutron
Audemars Piguet
Baume
&
Mercier
Bedat & Co.
Breitling
Bulova
Caravelle
Cartier
Chopard
Citizen
Coach
Concord
Corum
David Yurman
Ebel
ESQ
Girard Perregaux
Gucci
IWC
Jaeger-LeCoultre
Maurice Lacroix
Michele
Movado
Officine Panerai
Omega
Patek Philippe
Piaget
Pulsar
Rado
Raymond Weil
Rolex
Seiko
Swiss Army
TAG Heuer
Vacheron
Constantin
Wittnauer
Zenith
Average
Median
Overall

Average MSRP
per Watch Sold
(US$)
690
18,550
2,680

Number of
Retail
Storefronts
1,950
45
680

4,810
4,320
275
92
5,610
9,510
235
305
3,520
4,630
2,690
3,530
245
9,910
1,010
6,990
8,490
1,900
1,040
880
5,380
2,530
20,320
24,630
115
1,910
1,100
7,360
270
270
1,645
16,500

Sales by Gender
% Male
% Female
78%
89%
43%

22%
11%
57%

105
365
11,500
3,700
275
160
15,700
730
430
200
430
320
3,400
80
990
115
130
400
430
4,600
83
990
160
86
7,350
720
1,040
830
15,500
2,700
1,500
64

12%
89%
44%
35%
47%
20%
52%
16%
34%
80%
15%
12%
49%
65%
24%
100%
78%
76%
4%
49%
98%
62%
74%
49%
44%
48%
39%
67%
60%
78%
69%
93%

88%
11%
56%
65%
53%
80%
48%
84%
66%
20%
85%
88%
51%
35%
76%
0%
22%
24%
96%
51%
2%
38%
26%
51%
56%
52%
61%
33%
40%
22%
31%
7%

640
7,900

2,900
93

58%
97%

42%
3%

4,932
2,680
-

2,182
430
31,480

49%

51%

Source: Kuczynski, T. (2006) U.S. Fine Watch Market Tilts Toward High End in 2005,
National Jeweler; and LGI Network (2005) Annual Report.

31