Chopard

When German jewellery- and watchmaker, Karl Scheufele, bought the small Chopard Swiss watchmaking firm in 1963, his intention was to develop a distinctive brand, while maintaining a tight control over the production process.

Some 38 years later the Chopard 'manufacture'ranks among the first four Swiss producers of haute horlogerie(top-of-the-range) luxury watches, selling timepieces and jewellery through some 1, 300 retailers worldwide with its own international network of 50 Chopard boutiques. In addition, the company has recently announced record sales for 2000 of SFr500 million (€330 million), 30% up on the previous year.

Background
The story began in 1860 when Louis-Ulysse Chopard founded a high precision watchmaking factory in the small town of Sonvilier in the Swiss Jura. By 1920 the company had moved to Geneva and was specialising in producing luxury watches.

Meanwhile, in 1904, Karl Scheufele founded a company called Eszeha in the German town of Pforzheim. Eszeha specialised in the production of bracelets and jewelled watches.

Eszeha grew rapidly during the 1930s, but in 1943 the company's workshops, together with most of Pforzheim, were destroyed by bombing and the family were forced to rebuild the firm.

In 1963, Paul André Chopard (the grandson of founder Louis-Ulysse Chopard) had to take a big decision. The collection should have been renewed, and he needed to create new products and a new workshop. However his sons did not want to continue the company. He saw an announcement in a Geneva newspaper – Karl Scheufele, the grandson of the Eszeha founder, was looking for a company in Switzerland to expand his watchmaking activities and create an internationally renowned Swiss brand. Karl Scheufele knew that Eszeha could only grow, in the long run, with a strong Swiss watch brand and a factory in Switzerland. He chose Chopard believing that it would be the best basis for success.

Karl Scheufele is still chairman of the company, his wife Karin is actively involved in management, and their two children, Karl-Friedrich Scheufele and Caroline Gruosi-Scheufele, are vice-presidents. Karl-Friedrich's wife, Christine, directs the purchasing department and Caroline's husband Fawaz Gruosi runs Chopard Italy.

"My father's decision to buy Chopard in the early 1960s was very forward thinking. The prestige of Swiss luxury watches at that time was nothing compared with what it is today, "explains Karl-Friedrich Scheufele. "His idea was to develop the base for manufacturing, selling and distributing an own-name Swiss brand, "he adds. Up till then the Scheufeles had been buying Swiss movements, and distributing Swiss brands under licence as well as under the Eszeha name.

At the time of acquisition Chopard had declined to a tiny undertaking of no more than a dozen staff, relying on a handful of faithful trade customers to keep going. Paul-André Chopard, the last of the Chopard family watchmakers, although devoted to his craft, was averse to travelling and marketing – and neither of his sons were keen on continuing the business.

Strategy for success
"Vertical integration of the production and distribution process has formed a key element in our strategy for Chopard over the years, "states Karl-Friedrich Scheufele. Contrary to companies in many other sectors that currently aim at outsourcing the maximum number of processes, the Scheufeles believe it is important in their business to aim to control as much of the chain as possible from original conception and design through to final distribution.

"One individual development of importance was the introduction of our Happy Diamond watch in 1976, "recalls Karl-Friedrich Scheufele. Created by designer Ronald Kurowski, the Happy Diamond watch features mobile diamonds spinning and sliding freely inside the dial between two sapphire crystals. "This move subsequently encouraged us to branch out into jewellery before rival Swiss watchmakers had similar ideas, " Karl-Friedrich explains.

Family structure
Karl-Friedrich Scheufele stresses how vital the family structure of the firm is to running the business, and the importance of maintaining the full participation of each member of the family. "As family members running the firm we not only take an overall view as the board of directors, we are all actively engaged in day-to-day management, "he says. Each member makes a particular contribution in the area for which they are best adapted, thereby helping to shape the company according to individual abilities.

"For example, my father oversees the broad issues of finance and production, and my sister, Caroline, takes a particular interest in the design elements, especially jewellery, jewellery watches and accessories, "says Karl-Friedrich. "This involves her following through the whole development process from conception to the prototype stage and then to production, thus ensuring overall control and continuity. "

Caroline Gruosi-Scheufele is also the driving force behind many of the publicity events organised by Chopard, such as the company's participation in the Cannes film festival. She regularly travels the world as the company's representative. KarlFriedrich's wife, Christine, is responsible for the advertising side of the business. This includes advertising to retail customers, as well as heading corporate purchasing activities.

"Moreover, my mother still plays a large part in the business. Once a week she visits our sister company in Germany, which concentrates on the jewellery side of the business, and she is also responsible for product allocation, " states Karl-Friedrich Scheufele.

"I am particularly involved in developing our mens'lines of watches and in overseeing distribution through our subsidiaries around the world, " KarlFriedrich continues. For instance, in 1996 he was instrumental in creating a new "manufacture"at Fleurier in the Swiss Jura to produce a line of mens' watches called LUC (from Louis-Ulysse Chopard). Based on traditional mechanical movements, these watches have since proved a considerable success. Karl-Friedrich and Caroline have also spearheaded the company's participation in events and organisations such as the Italian Mille Miglia vintage car race and the Cannes Film Festival.

The family places particular emphasis on the need for full and open discussion amongst themselves on all important issues affecting the business. "Everyone is free to speak his or her own mind, and all important decisions are taken in a democratic fashion, either by arriving at a consensus or by taking a vote, "Karl-Friedrich indicates. "My father does not take decisions on his own just because he is the senior member of the family and the chairman of the company. Everything is discussed, "he explains.

This approach leads to lively discussions on all subjects. "We believe this is very good since it shows that everyone takes the interests of the business to heart, and is prepared to expound and defend his or her own point of view robustly, "says Karl-Friedrich. "At the same time, we all realise that at the end of the day, after all this heated discussion, it is essential that we should all finally pull in the same direction. Thus even if one of us does not agree with a particular decision, we all accept and implement the decision of the majority, "he adds.

"On the basis of our experience, I think it is essential to keep up a good dialogue at all times between the family members running the company. After that, with regard to the rest of the company, we must all stand as one, " adds Karl-Friedrich Scheufele. "It is extremely disruptive and irritating to staff if different family members give them different messages. Problems should be sorted out within the family, "he states.

Future challenges
The very specialised world market for haute horlogeriewatches is dominated by a dozen firms, all situated in and around the Jura area and Geneva in the western part of Switzerland. It is still a growing market where demand continues to exceed supply, and a market characterised by high barriers to entry. This has been prompting multinational luxury product firms such as LVMH and Gucci to buy up Swiss haute horlogeriewatchmakers.

Estimated figures for total world watch production in 2000 illustrate the Swiss stranglehold on the higher end of the market. According to these estimates, the total value of watches produced worldwide in 2000 exceeded €11 billion, representing some 1. 4 billion individual pieces. Swiss producers generated some 55% of this production in value terms but only 6% in volume. Japan and Hong Kong between them were responsible for around 67% of total production in volume terms.

Something over 200, 000 haute horlogerie watches are produced each year, and the industry leaders in this segment in terms of production are Richemont, Patek Philippe, Chopard and the Swatch group. Chopard produced 70, 000 watches and 60, 000 pieces of jewellery in 2000.

There is no official definition, but to qualify for haute horlogeriestatus, watches have to satisfy the most searching tests of mechanical precision and sophistication and carry a minimum retail price tag of approximately €2000.

The market situation described above is creating new management challenges for Chopard, which the family is currently squaring up to. "The next 2–3 years are vital, " reckons Karl-Friedrich Scheufele. "We already have a good management system in place, including non-family managers for a number of subsidiaries and for our IT department. We now need to build on this to adapt our structures to the rapid expansion we have experienced over the last few years and to face the challenge of further growth and development, "he explains.

Karl-Friedrich admits however that this process is still in the evaluation phase, and that questions such as whether the top management team should be reinforced with non-family members remain to be addressed.

"One important project that we are in the course of implementing is the introduction of a management information system. This should help to provide us with timely and complete information from subsidiaries and units that is not always easily available at the moment, "explains Karl-Friedrich.

Another key issue is how to manage succession from one generation to the next. Interestingly, the question of control over operations seems to be proving trickier than that of ownership.

"My father trusts my sister and myself completely, and he resolved the financial succession issue a long time ago by transferring all the shares in the company to the two of us, "states Karl-Friedrich Scheufele. "What we will need to do over the next five years or so is to set up a structure that will enable our father and mother to become less involved in the daily running of the business, "he adds tactfully. He says that there is already a family understanding on this approach, though it has not been set out in a formal document.

Chopard today is one of the few remaining independent Swiss watchmakers. Most of the others have been bought by larger groups. Karl-Friedrich Scheufele is nonetheless confident that his company can maintain its independence for the foreseeable future since he reckons that Chopard has attained a sufficient market size to maintain itself under the current ownership structure. He also thinks that the family basis of the business provides Chopard with definite advantages in terms of personal relationships with retailers and staff and projection of a friendly image to individual customers.

"On the other hand, we decided a few months ago that over the next three years we are going to organise our company as if we wanted to prepare it for a public flotation, " confides Karl-Friedrich Scheufele. "We have no plans to go public, since we can finance our needs internally. However, the exercise will show us what it takes, and introduce a useful measure of additional discipline in the way we conduct our family business, "he adds.

Like the other members of the Scheufele family, Karl-Friedrich is a busy man. When he receives visitors, he likes to look at his wrist watch and remark wistfully, "If only we could add an hour to every day. But there again, even if we could, it would doubtless be filled instantly". This must be the ultimate irony; even the masters of watchmaking are inescapable subjects of time.