Stéphane JG Girod and Niccolò Pisani, both Professors of Strategy at IMD, consider the reasons behind a fall in profits at Swarovski post-COVID and the steps being taken to pull the iconic company back onto a profitable growth trajectory
Established in 1895, Swarovski has over the years built a global reputation for its iconic crystals, seen everywhere from the star on the Rockefeller Center Christmas tree to adorning movie and pop legends including Audrey Hepburn, Jennifer Lopez, and recently Harry Styles. Yet a combination of new competitors to the market, changing consumer trends, and, of course, the pandemic saw a dramatic fall in profits and left Alexis Nasard, the company’s new CEO, with some serious strategic decisions to make.
With a family history in crystal craftsmanship, founder Daniel Swarovski’s vision for the company was to “create a diamond for everyone”. Based in Watterns, Austria, Swarovski built strategic access to Paris, where crystal jewelry was in high demand. It opened its first boutique store in the 1980s, and the crystal business boomed. In 2019, the company ranked fourth in the world in luxury jewelry, but it was its cheaper costume jewelry that was driving company revenue – particularly in China, which accounted for 25% of total costume jewelry sales. By 2020, the company had built a massive global presence with nearly 3,000 physical and 34 online stores in 170 countries.
Trouble ahead
Swarovski uniquely positioned itself as a diversified player, competing with both luxury giants such as Richemont and LMVH as well as low- to mid-range entrants like H&M. However, consolidation among some of the bigger players in the luxury market – LMVH’s acquisition of Tiffany & Co for example – posed a threat to Swarovski’s position at one end, while rampant digitization trends started weakening the company’s stronghold on mid-range luxury jewelry and grand physical stores. Through their growing online sales, H&M and other new competitors were gaining traction in the market, with online sales of fine jewelry also expected to significantly increase. While most sales would still be made in store, it would be crucial for retailers to blend online and offline offerings to meet customer expectations and retain brand loyalty.
The biggest problem would prove to be the effect of the COVID-19 pandemic. In 2020, the company reported double-digit growth declines as the combination of physical store closures, falling demand for discretionary items, and travel restrictions took their toll. Newly appointed CEO Robert Buchbauer (the great-great grandson of the founder Daniel Swarovski) announced the need to “reimagine and rescale our entire Swarovski business”. He devised a restructuring plan that would shift Swarovski away from a mass market luxury company to one focused on the high end.
Buchbauer’s view was that “Swarovski crystals on a 10-euro T-shirt don’t add to our profitability and hurt our brand image.” The change would mean 6,000 redundancies and 750 store closures, a move that was strongly opposed by other family board members. They saw it as a shift from the company’s founding vision and were sensitive to the impact it would have in Watterns, where 45% of residents’ jobs would be on the line. The differing views led to a damaging and high-profile rift, leading to Buchbauer’s resignation just 18 months after taking up the post and Nasard’s subsequent appointment.
Luisa Delgado, chair of the board, stated that: “With the appointment of Swarovski’s first external CEO, we are taking an important further step in establishing a sustainable governance model.” Chief among Nasard’s priorities would be to learn lessons from the difficulties the company had recently faced and return Swarovski to its former glory.