REVOLUTION had the pleasure of chatting with the CEO of Frédérique Constant, Peter Stas, while he was in Kuala Lumpur recently to launch a new subsidiary office in Southeast Asia as a firm commitment to the Asian markets. Mr. Stas shared with us the company’s unique market position of affordable luxury and in-house manufacture pieces, as well as Frédérique Constant’s plans for the future

REVOLUTION: With the announcement of the Swatch Group limiting supplies of their ETA movements, what has been your strategy to cope with this?

PETER STAS: We are producing 130,000 pieces per year now, about 70,000 of which are mechanical movements from Sellita; about 15,000 to 20,000 are our in-house manufacture calibers, with the balance being quartz movements from Ronda. We would like to keep this proportion by working together with Sellita and Ronda, as well as by continuing with our own manufacture calibers. In Geneva itself, in fact, we have hired 20 percent more people for the manufacture department, as well as introduced many new processes there. We have really made a lot of upgrades in this area. We need the time still, and we’re making progress. Meanwhile, we will continue with quartz movements from Ronda for some chronographs and for some of the ladies’ pieces. We will, of course, stay with the Sellita-based movements for our entry-level automatics.

Did you think this could happen when you started the company?

We had a board of advisors, and there was an older man there who was maybe about 74 years old, and he always said, “Do you realize how dependent your company is on the supply, and what happens if they stop tomorrow?” To which I said, “I don’t want to think about that, because if they stop tomorrow, we have a big problem.” This was 20 years ago, and we’re happy that we are now where we are after we started with our own movements in 2001. So, we have had 12 years of experience now, and even today, we are still learning. This is not something you can buy or learn in one year because it’s really complicated. It’s not just about making one watch; it’s about making a movement in large quantities, and for that, you need the know-how to be able to handle many things — in terms of the logistics, tolerances, suppliers, people and systems — to be able to put it all together.

Sellita has done it and they have three movements now. We are still encountering lots of issues, and we have basically one main base movement. In the end, we had to go this way, because, otherwise, we would be fully dependent on Sellita and be in the same situation again. We knew that we did not want that anymore.

What advantages are there in having your own manufacture caliber despite the difficulties?

Well, with your own caliber, you can also make nicer watches. The design will be different, and we can have the date in a different place. It’s not entirely unique, but compared to a regular ETA movement, it gives a different feeling. Also, we are able to add other things that we want — we can have a moonphase or a world-timer, for example. We would never have been able to do that if we did not have our own movement.

Does this coincide with the fact that Frédérique Constant seems more aggressive these past few years?

I think we were already aggressive, but we were under the radar, so nobody knew it. Maybe what’s true is that the whole industry has become more aggressive. When that happens, some brands become quiet; for others, it provokes a bigger reaction. For me, it was definitely the latter.

Frédérique Constant has always felt like a brand in the shadows, with decent pieces at accessible prices. Suddenly, however, there was an explosion of creativity, with standout pieces like your Worldtimer Manufacture and the Slimline Tourbillon Manufacture — one exciting piece after another. What happened?

I think it is all perception. We’ve had the Heart Beat Manufacture and the Heart Beat Retrograde already for some time. Really, from what I’ve seen, we’ve grown step by step. Suddenly, people see something memorable like the Worldtimer, and then they start to see us everywhere. I hear this from friends who tell me, “We see you everywhere!” but there has not been much change compared to three years ago. Of course, we have grown roughly 25 to 30 percent in those years, but we were spending, in terms of advertising and awareness, more or less the same in that period. I believe it’s a matter of perception and of building [awareness]. That’s really important. So, you build and build and build, and suddenly people see something, and then the awareness is grown. When we launched the Maxime Manufacture line five years ago in 2008, it had the second-generation manufacture movement, and it was a beautiful watch. Then, I wondered why we were not able to sell more at the time. Maybe now, as you say, the awareness has grown to a critical mass.

We’ve met many fans of Frédérique Constant who, in the past, didn’t really think much of the brand. But with the recent outstanding pieces that you’ve introduced, we’ve seen more people actually express strong interest in owning a Frédérique Constant piece. Has this been reflected in your sales figures?

We grow every year between 10 to 20 percent, and this has been a steady growth for the past 10 years. In 2010, we grew more, but it was also because in 2009 we were a little bit down due to the [financial] crisis at the time.

What would you say is the profile of your average customer?

The core customer, we think, is 30 to 45 years old, mostly men, but some women. Also, watch enthusiasts who typically have an office job and maybe in a junior management position, and who do not yet have a budget of CHF10,000, but are really interested and enthusiastic about Swiss mechanical watches.

Will you be keeping your prices about where they are right now in the foreseeable future?

We really want to stay where we are — between €1,000 and €3,000 — even with the Manufacture pieces at between €2,000 to €3,000. We can live here very well. It is tough for the more complicated pieces; for these, we have to be more efficient. We definitely don’t want to increase prices, because we’ve seen very clearly when we analyse our competitors that when you go through the barrier of €3,000, you start to compete with other brands, and because there are many brands in that price bracket, the competition becomes very different. To be able to reach these types of prices, we need to be able to reach a certain quantity, so we need to have a lot of people interested and buying; otherwise, we would not be able to reach these kinds of quantities.

Many brands have increased their prices, but yours have been relatively steady.

We increase two to three percent per year to compensate for basic inflation, taking into account the psychological price barriers for certain pieces as well as our costs. We prefer to retain the same margin. Also, we do not reposition ourselves like other brands, to sometimes increase prices by 10 to 20 percent in one year. This is absolutely not the idea for us.

What is your favorite piece in the range?

I like the Worldtimer very much, but since we have a backlog of 2,000 pieces, I dare not wear one, and would prefer to give them to our customers first. I also like the new Slimline Tourbillon — I’ve worn that one, but they took it away. Overall, I would say I like the Manufacture pieces the most.

Do you test the watches personally?

I wear the watches for one to two weeks, and then I give them back to the research-and-development department, so that they can see if it is functioning the way it is supposed to function. This is one of the important things that I do, because it is only when you wear a watch for some time that you will notice very small things. I then give comments for improvement. I do this even for our existing production.

How would you explain the difficulties of having in-house capability to someone who’s new to mechanical watches?

It’s really a combination of things, and that’s what makes it so complex. First of all, it’s the development of the caliber itself for which you need a CAD/CAM system, engineers to program it and creative watchmakers. That’s what we call the “development phase”, which costs at least half-a-million to a million Swiss francs, and takes about a year. That was how it was for our first time, but now that we have the experience, development goes increasingly faster. For other people, however, they need to learn all this from scratch, and it’s at least a two- or three-year exercise.

Once everything is in the computer, measured, with tolerances worked out and it seems to function on the screen, then you need to start to produce the parts. We make the mainplates and some of the steel parts in-house with the CNC machines. For some parts, however, we have to go to specialized makers. These include, for example, pinions, wheels, rubies and screws. So, we give the plan to the specialized producer, and they will produce it for us, and then it comes back to Geneva to be put together. This is the second major phase; even for a simple movement with 88 components, the logistics involved and the tolerances that are needed and the entire way of working is new to any watch company that wants to do this.

So it’s not so much the design aspect that’s challenging; rather, it’s the production process?

Yes, you may be able to use a few existing parts — in the beginning, we could do that. But to make it work, it’s mostly a trial-and-error exercise like it was a hundred years ago. Even with the parts produced by a machine with high tolerances, there are, at least from what we have seen, always surprises. And you have to try to find out where the surprises come from.

Can you give an example?

It could come from the tolerance of the hole of the axe, which is five microns to one side and then the other wheel is five microns too big. Suddenly, you are 10 microns out, and the movement stops. The gear teeth might then have too much resistance, and there is too much power flowing out. Also, the springs are complicated in the movement. You can design them on the computer screen and see how they look like, but the forces inside the spring changes due to the material, the density of the metal, or even the hardening process of the metal. When it comes back, the spring properties are different from before, so it’s really trial and error. This is the reason why ETA has such a big advantage — they have been producing the cal. 2824 for the past 30 years, so all their trial-and-error [processes] happened long ago.

Then you have to order, and you can’t order for a hundred movements anymore. Now, you have to take a decision to produce at least 5,000. It’s much less complicated if you’re only producing 200 pieces, or what I like to call “prototypes”. For those 200 pieces, you can make adjustments by hand, but once you go into the thousands, you’d better make sure you don’t change anything anymore by hand, because if you do that for a few thousand of them, you will run into enormous problems. If you have after-sales issues, it’s a nightmare, and efficiency in your production line becomes a drama.

Then you get the parts in hundreds of boxes that you cannot really check. You do some tests on samples and try to see if everything is all correct. But as I’ve said before, there are always surprises. For example, a little error that is still within tolerance, or on the edge of tolerance according to the drawing, can still have an unforeseen effect on the completed movement. But you have the problem now in bigger quantities.

And the last step — the production process — is a completely different story as well. Putting together a watch is, in principle, very simple; putting together a movement is really difficult. A watch assembler who attempts to make their own movement can expect a production process that is 25 to 100 times more complicated, and that’s why almost nobody is doing it. All mechanical-movement production today is concentrated in a few large factories or in the other large manufactures. There are only a few who can do that.

How has the process of developing in-house capability been for you?

We have been able to make nice watches, caliber-wise; these are less exciting, but the process was still very exciting, not just for me, but for the people in the factory when we started. It’s still interesting to develop new things, and I enjoy this part very much. I don’t like the logistics part so much, but we have to do it — there’s no way around it.

Was it difficult to develop the Worldtimer?

One complication that was unforeseen for this was the flatness of the city discs. These discs — the outer disc and inner disc — are very large, and they needed to be flat. We had to find a supplier who could manufacture this, and it was only the third supplier who was able to do it. If not, the movement would stop due to the wobbling of the disc.

How can you offer the Worldtimer at this price?

Since we are running this base caliber in quantities of 20,000 pieces, it was only the addition of 12 extra parts to make the Worldtimer. We have a machine running 24 hours, and while the extra parts added [new] costs, they were not excessive. Other world-timers on the market are very expensive, and you will have to ask them why they offer their versions at such a high price.

Tell us about the new Kuala Lumpur office that represents Southeast Asia.

At the beginning of this year, we opened a new office in Southeast Asia, and the purpose was really to properly do the work of advertising, PR and the implementation of our future plans. This office will cover operations in Malaysia, Vietnam, Cambodia, the Philippines and Indonesia, with Singapore being represented by our partner, The Hour Glass. I see a bright future for us in Asia. After seeing some of our competitors and what they are doing here in Malaysia, I think we should have started much earlier — I think we left an opportunity open for too long.

What are you wearing now?

This is the Manufacture Tourbillon in rose gold that we introduced in 2008. I’m still wearing the older one because I like it. Normally, I get a few watches per year to test, and after I’ve worn them for one or two weeks, the R&D department takes it away from me to do their tests, to see if anything went wrong. With this one, though, I asked to have it back, and since then, I’ve been wearing it every day. The fact that it was our first tourbillon movement and our own development represented the pinnacle of what we could reach at that moment. It’s very classical and, for me, a milestone watch — I have an emotional attachment to it.

A longer version of this article was published in Revolution Asia Volume 35.