Philippe Stern December 2007: President of Patek Philippe
By: MTF (registered) Friday, December 21st, 2007 -
Philippe Stern
INTERVIEW: PHILIPPE STERN – KEEPER OF THE PATEK PHILIPPE SPIRIT
Of the 'Premier Grand Cru Classé' of watch brands, readers of International Watch , collectors and aficionados consistently single out Patek Philippe as being "the ne plus ultra of watches." The brand has become synonymous with perfection, exclusivity and the finest craftsmanship. With a watchmaking tradition going back more than 160 years; the family Stern has helmed the company for 75 years and through surviving the industry's economic crisis of the 1970s and 1980s, risen to even greater heights. Radical introductions like the Nautilus luxury steel watch and breakthrough movements like the Cal.240 – a self-winding, micro-rotor movement that allowed Patek Philippe to produce flat automatic wristwatches, only served to seal their place at the top of the horological firmament.
Philippe Stern, who began working at Patek Philippe in 1977, has been responsible for overseeing the company's business activities and introducing successful models such as the World Time, the Annual Calendar, the Twenty-4® ladies watch and many others. In addition, Patek Philippe consolidated its many workshops in Geneva, moving into a new state-of-the-art headquarters in Plan-les-Ouates.
Mr Philippe Stern granted International Watch this interview and openly shared his views not only on Patek Philippe but also the watch and auction industries.
Participant Key
IW: Dr Melvyn Teillol-Foo for International Watch
PS: Mr Philippe Stern
Introduction
IW: The last time we met was in Tokyo, when you were introducing Thierry to the Japanese industry in 2004. (Editor's Note: Thierry Stern, VP Patek Philippe is Philippe's son).
PS: Yes, I remember.
On Patek Philippe Reference Numbers
IW: Many new collectors of Patek Philippe watches get a bit confused with the numbering system. Is there any logic or taxonomy to the numbering?
PS: There is no "logic" (smile). For example, we had a reference 3919, which was famous, so when we made a new model that was a bit larger and it was similar…we called it 5919. But it is not logical…I agree…but just for us, since we know the 3919, we remember better the 5919.
On Philippe Stern
IW: International Watch readers and watch fans on Internet websites like PuristsPro.com are familiar with the Stern family history and your biography…
PS: They know more than we do, sometimes…
IW: There is a lot of emphasis that Patek Philippe is a family-owned or family-run company. You have been quoted saying, "Its my obsession to keep Patek Philippe in the family". Let's explore Philippe Stern – the current Keeper of the Patek Philippe spirit. It may appear a strange question but as I am a physician, the answer may reveal something about your decision making in business – Given the choice, are you a dog lover or cat lover?
PS: I would be closer to dogs because we had many dogs. At one time, quite a few years ago, we were taking part in dog sled races. We had about 30 dogs at home, so I am used to dogs. When the children were small we had a few cats…. but they didn't go well with dogs. From the character point of view, I don't know what it means.
IW: It may have some meaning. You were seven-time champion at the Geneva Regatta, a former Swiss national ski-team member, and as you mentioned – a competitor in international dog sled racing. Do you think those were incidental past-times or were those skill sets connected to being President of Patek Philippe?
PS: They could be – I started in sports with skiing. I found out later on that it was a very good 'school' for Life. I specialised in downhill racing, where you go very fast but not straight down. You have to be careful but also take risk. You are always calculating how fast you can go, and balancing risk with benefit. I think it was good training. Being responsible for one business, we also have to go fast and take risks sometimes. You have to move…. I'm more an Action Man; I cannot just stay in one place in my business life. I was not just waiting for something to happen. We're always trying to move forward like building the new factory at Plan-les-Ouates. My wife was the dog sled champion and I was just secondary…
IW: How did it feel to compete in the sled races with your wife when she was the champion? Who led the pack?
PS: There was no doubt about it. She was running in the A-league and I was in the B-league. She was training the dogs for me and I was taking out the dogs that were not good enough to go with her! It was just fun for me but for her it was more serious.
IW: How much did she help you in the business?
PS: Not so much. She never wanted to, or maybe I never wanted her to be involved directly. She has only been involved when it came to decoration of the renovations at the Museum, the Geneva Shop and this Manufactory; she was in charge of those projects.
On Industry Idols
IW: Which non-active watchmaker or executive do you admire most and why?
PS: Should it be this century or before?
IW: Any century you like…
PS: A.L. Breguet was a big name; I've been collecting Breguet watches from 1800-1823. He had a watchmaker technical side and he was good with design; his watches were always in good taste. He was also quite a good commercial man. He had the three things – technical, aesthetical and commercial, which is quite unusual. Even before or after Breguet, there were many good watchmakers but they were not good with design or absolutely not good in commerce.
On Stewardship of Patek Philippe
IW: Going back to watch industry executives, I have to refer to your late father, Henri. You served a long apprenticeship with him. How have you changed since you took over Patek Philippe and how has that changed the company?
PS: My father used to say: "We should ensure we remain independent, remain small and still be profitable." This was in the 1970s when we were independent and small, but maybe not so profitable. If you want to stay independent in any business, you have to be profitable. I didn't really change the company philosophy but I made it sustainable. The basic philosophy and strategy has not changed – to keep top quality, reliability and credibility – but we have become streamlined and profitable, for example by centralizing the Manufacture here in Geneva.
Our customers, retailers or consumers, should trust us and our credibility with them is very important to me. There are too many people in industry today (and not just our industry) who promise a lot but knowing that they cannot. That is why I say to Thierry that for Patek Philippe, when you say something, you have to abide by it and maintain the relation with your customers. Today, you don't have that many people who still have that ethic in the business. In the big groups, it is more challenging to try to maintain that ethic because they have to reach quotas and please their shareholders in each fiscal quarter with ever-increasing profits and share value. We will never work this way. First, we are not concerned about shareholders and we concentrate on long-term development. Some people may complain that we are not producing enough complicated pieces (sic) or coming up with many new ideas but we are doing so, only in a measured way.
IW: You've been able to do what you wanted since 1977; how about a little speculation? Suppose that in 1977 you had to stop working in Patek Philippe and switch jobs. What would you have liked to do and what could you have done?
PS: It never came to my mind, really; since I was small, I was prepared to enter business and Patek Philippe. I never really asked myself this question. I don't know what I would have done…
IW: But you were business trained so perhaps any other business?
PS: Yes, but you do a good job if you have the interest and passion. At that time, I had no other passion. I was already a watch collector and not necessarily Patek Philippe pieces. Of course, if I would have found a job elsewhere; I would not have just sat crying and doing nothing! (laugh)
On Thierry Stern
IW: You mentioned Thierry earlier; you mention him quite a lot, and he mentions you almost in every sentence when I am talking with him. I noticed the physical similarity between Thierry and you in photos taken at the same age. You both trained in business studies but Thierry went on to take watchmaking courses and he has worked in production, design, after-sales service and even marketing. Did you feel that for the future, business studies alone were insufficient to lead Patek Philippe like you did?
PS: One of the big advantages compared to other brands is that we (the family) are really inside the business and we know about watchmaking as well as the other aspects of the business. Our retailers and consumers are confident that Patek Philippe still knows about the watch business because they are dealing with many other people who don't know about watches. They may be fantastic at marketing or advertising but not about watchmaking.
I never went to Watchmaking School but I know a little bit about watches in the workshop. That is why the Patek Philippe Museum was so important; it shows that Patek Philippe is really the Guardian of traditional watchmaking and we can still talk about watches through generations and the last couple of centuries. Thierry has had a very good background, inside and outside, in Switzerland, USA and Europe.
IW: What do you think of Thierry's personal qualities, as a son and as a business leader? If he came for a job interview today and he wasn't your son, how would he rate?
PS: It is always difficult for a father…(smile) but he has many interesting and useful talents for Patek Philippe. He has good interpersonal skills. Of course, he is educated and that is fine, but he has been trained to be 'open' and has good contact with many people in our business – distributors, retailers, and consumers and also inside Patek Philippe.
Today, he cannot do what I did. I started with a very small business of 150 people and maybe 5,000 pieces/year; so I could get involved with all aspects of the business – production, marketing, finance etc. Today, the business is too big to be involved with everything. That is why we have a CEO (Editor's Note: Claude Peny) who is in charge of daily operations and Thierry's role is to go out as the trusted public face of Patek Philippe and cultivate his human relations more and more.
IW: What is the role of Claude Peny before Thierry can take over?
PS: Thierry would not take over as CEO. At the beginning, when Mr Peny arrived, we thought it would be nice to have someone who would be a bridge, if I "disappeared" and Thierry was too young to run Patek Philippe on his own. As the business has grown, it has proven that whomever heads up Patek Philippe will need a CEO to deal with the daily business because that job is too much for the President to control – it's just not possible anymore.
On Selling the Company
IW: You are very firm about Patek Philippe being an independent company but that does not stop people from offering to buy the company; did you receive any?
PS: No – I don't receive anymore…
IW: When was the last time? How much was it?
PS: I don't even remember – maybe 15 years ago. There was no discussion; I remember a few people calling but I said, "Not interested."
IW: I congratulate you, as it is so difficult today to keep such an attractive company 'in the family'.
PS: As I said before, when you have the passion and if you think this is your Life, it's not so difficult. I'm not so interested in money – of course we have to be profitable and have enough reserves to see us through difficult times.
IW: Who made the offer?
PS: It was not even a brand or a group; it was an anonymous private investor through a commercial bank.
IW: Do you think Patek Philippe will be in good hands in 50 years time?
PS: I hope so; I believe so. Thierry has been in training for many years and I do not see why he should not be doing well. It is something you learn with many years in the business.
On Production Numbers
IW: Can you confirm the current annual production total is 38,000, of which, there are 28,000 mechanical and 10,000 quartz pieces?
PS: Yes, that is about right with a small increase yet to be achieved for 2007. It depends on what we are producing. If we are concentrating more on complicated pieces, it is difficult to raise that figure. It is easy to increase quartz watch production and the numbers have been rising over the last 5 years, mainly with the 'Twenty-4', which have been very successful with different new models. Mechanical watch production is more difficult to increase. First, you have to find the people and train them. We have a very slow increase in production but then again that is not the purpose of Patek Philippe. Our concern is to stay interpreters of this product, to satisfy our customer, and to be sure that what we are doing is really done the right way.
IW: Some of the customers who can't get their watches may complain and say that you don't need a marketing department if your demand outstrips supply; in fact, you need a pacifying department. How do you respond to that?
PS: Today, it is a different situation – conditions are so good everywhere – you don't need marketing, advertising and PR, maybe…. (Aside to PR staff: "You have no more job!). Seriously, it was not always like this; business goes up and down.
Marketing is not that important for Patek Philippe but it is important for us to have the demand for our brand. Even in difficult times, we should always be able to create demand first and adjust production, if possible. Today, we cannot adjust the production and demand is much higher. But in difficult times, we may have to cut production, as shareholders who always want figures to increase do not dictate us. If you produce excess, then you have problems with parallel business and discounts – that we should avoid. Marketing for Patek Philippe today is to ensure better visibility in the store and that advertising is aligned with our strategy. It is not done to find out what to sell, at what price and what to produce.
IW: I'm sure you know which models are not selling so well and are on dealers' shelves. Why don't you just cut those to free production capacity?
PS: In one way, we are doing this; but you still need some 'normal' models like the Annual Calendar. Of course, the demand for a Perpetual Calendar is higher and the dealers can easily sell them but we cannot produce enough. We are cutting models every year as we introduce new pieces but of course, you never know which pieces are going to stay unsold until you have made them!
On Pricing
IW: Recently on the PuristS websites, there was a big discussion about regular production models selling above suggested retail price at authorised dealers. What is your view on that?
PS: Personally, I don't like this. I cannot be proud because we just came out with some Nautilus that garnered huge demand and sell at full price from the Geneva store; then, we find those pieces at some other place selling for 50% more. I don't think this is right but what can we do? It would be, of course, worse if we found those pieces at 20% less.
IW: Do you have a policy that the dealers must stick to a price? Does this policy change from region to region?
PS: Yes – we have the same policy everywhere that they should not make a discount. We want our dealers to have the best margin with Patek Philippe. In volume, of course, we would never be No.1 but when it comes to margin and profit, Patek Philippe should be No.1.
IW: But do you have a policy capping to a list price?
PS: No – we do not have a policy. We state a list price that we believe to be fair; we have taken our profit and the retailer should have a profit too but there is no reason to sell it above this price. It has been done in some countries; Hong Kong specialises in this; if they know it is a very 'hot item', they like to sell it higher.
IW: With the reality of such demand, why not just raise the suggested retail price of 'hot items' to 'market clearing price'?
PS: I don't think this is fair. We have one price and we are happy with it so I don't see why we should overprice it because, one day, when business is a little more difficult and you will have more problems. Many people today, especially 'newcomers' who make some complicated piece – very nice – but in my view, completely overpriced. If the business goes down a bit, you will find those pieces at auction for 1/3 of the price; it's happened already with some brands.
IW: Surely the issue is not about setting the list price but about insufficient production. If I had a coveted Ref 5959 today, and put it on for sale or auction, I know that I could get twice the price.
PS: You can – but then we would know it and you would not be one of our customers anymore…because you will be on the blacklist!
IW: We are talking about people who are already doing this and they are 'professional' enough to hide it.
PS: It takes time but slowly and surely, we find those people. We trace back to their supplier or retailer; it takes time but we will find out. We have been controlling this pretty well for the minute repeaters and Sky-Moon Tourbillon. The situation is much better although we still know that some people who have been buying here (Geneva) saying, "It's for me…for my son…I'll never sell." If they come back to obtain pieces that we only sell at our Geneva store, certainly they won't be served anymore. We have no influence on the price of non-production pieces at auctions. If you have a Ref 3448 or the old perpetual calendars, the prices have just been jumping – what can we do?
On Auctions
IW: You are labelled as the 'King of the Auctions' as a brand.
PS: As a brand, Patek Philippe has been doing very well because people have confidence in the brand; they know the quality is there with lasting value because we can repair the watch. It is also interesting for collectors because Patek Philippe has been making many different movements and the prices have just been going up – sometimes I'm even surprised.
IW: Do you think the auction houses have a role in increasing the 'grey market'?
PS: Today, it may look like this because more new pieces are appearing in the catalogues. They are nearly brand new pieces in their plastic bags, and I don't think this is right.
IW: Thierry was telling me that an auction house goes into great detail about production numbers in each case metal for each model reference and that such detail is not even known within Patek Philippe. What do you think of this detail and 'buzz' built up, for example, by Patrizzi when he was in charge of Antiquorum?
PS: Yes – Patrizzi…but he was not the only one. Sometimes the figures are not even correct and we don't know how they came to those figures but it is not up to us to go and say, "Its wrong." But they want to make the watch "exclusive" for a high price and a bigger commission, so they utilise all sorts of tricks. The current fashion is to say that this watch has never been brought to auction before – how is this a plus? (smile)
On Minute Repeaters
IW: Patek Philippe minute repeaters are frequently considered the 'ne plus ultra' of striking watches, for tonality and purity of sound. Even Thomas Mao (Founder of ThePuristS.com and specialist in the field of 'ding-dong' watches) has admitted to this on the website – what's your secret? Is it the urine of pregnant horses? How does it work?
PS: No! No! There is a lot of know-how and no mathematical rule. We have been utilising a special alloy for the gongs for many years. We are always trying to improve the gongs, position and tightness of fixation and other such details. We have a lot of 'savoir faire' about small details but altogether it makes a good sound. The case is also important like a violin case and you can have good and bad ones. The gong should not be too close to the case to allow some space and air. The beauty of it is that no two minute repeaters have the same sound even of the same model reference number.
I listen to all our minute repeaters and now, Thierry is listening with me too. We just have to decide for each piece, "Yes – it sounds nice". For intensity, we have standardised testing equipment but the final decision is still a human judgement. You can have a high intensity but it may not be musical. We also do frequency spectral analysis of the 1st and 2nd hammers with ideal band limits in the human musical hearing range. There is no big secret – just little things that add up over the years.
IW: You are personally approving all the minute repeaters and that is my worry as a physician because human hearing acuity deteriorates with age….
PS: (laugh) That is why we are improving and they have to be louder….
IW: Usually, people who can afford these watches have accumulated wealth with age and so if you can hear them, the customers can hear them. As Thierry takes over, maybe the sound might change but as you say, you are both doing the listening tests now…
PS: Yes – we listen together now…
On Steel Watches and the 1970s Quartz Crisis
IW: For a 'conservative' brand, it looked too risky to make luxury watches out of steel about 30 years ago. How did that arise?
PS: Patek Philippe had made steel watches before, albeit very few like the nice chronographs in steel. In 1977, we took the decision to make the Nautilus in steel as a series production because people were starting to have sportier lifestyle. Our customers before were older, fatter and 'not moving so much', with a lot of money, of course, but they were not so active (smile). We started to get requests for sportier watches and were also coming out of the 'quartz crisis'. When slowly but surely, the interest in mechanicals came back it had to come back with a new product. You could not make the same watches as before quartz watches. At that time, we came up with the Ellipse to raise more interest. Then Nautilus was something new in steel for sporty people. We were developing more complicated pieces.
During the quartz period, I had started the nice Cal. 240 movement in 1972. We had considered what could we do to get into quartz watches. Pulsar was very strong at that time and our designers were coming out with digital display and with diamonds all over. I decided that was not for Patek Philippe; we would go into quartz movements because customers wanted the high precision but in analogue display. Many brands were throwing away their tooling because they believed the mechanical watches were passé. The Swiss watch industry dropped from 90,000 to 33,000 people in six months. My hobby was already collecting old mechanical watches and I knew many collectors. I took the decision to keep our tooling; if one Swiss brand were going to stay in the mechanical field, it would be Patek Philippe.
We decided to make a thin, automatic movement because the quartz watches were becoming thinner and the basic Cal. 240 was on the market around 1974/5. Then we tried to make it more interesting with the perpetual calendar Cal. 240Q movement in 1984. Over that period, we were moving in new directions and materials, so steel was not a problem. I did not think that steel was moving us down in our exclusive positioning. It was still very expensive; the most expensive steel watches at that time.
On Silicium and Other Materials
IW: A number of brands have been making much noise about their investment in new technology recently; what is Patek Philippe's position on that?
PS: We are always investing in 'new technology'; that's nothing new. We have a special section working on new materials and technology for more than 5 years. Our Advanced Research Department has been working with Silicium. To be fair, the first was Girard-Perregaux but we went much further. We developed a special alloy to utilise in hairsprings, working with Rolex and ETA. Spiromax® is a totally new type of balance spring made of silicon-based material (Silinvar) jointly developed with a research institute and other partners in the watchmaking industry within the scope of a confidentiality agreement. The Spiromax spring can be crafted three times thinner than a spring with a Philips or Breguet overcoil, thus facilitating the construction of ultra-thin movements.
The objectives of this innovation philosophy are to further improve the rate accuracy and stability of mechanical watches crafted by Patek Philippe, and to enhance their longevity and long-term value. With new technology, we don't want to make any gimmicks. It has to improve the movement. We are not interested in making a bridge with new material for the sake of using it.
For the silicium materials, we have pieces running for more than 5 years with no lubrication and the amplitude is staying very high and stable. The long-term test movements go for testing every month and remain the same as first testing, which is fantastic. Some are even improving with time! We even had to reduce the amplitude to improve precision; in the range of 220 - 240°. Even in 2007, we are already up to 10 major patents for new technology.
On Global Customer Knowledge Base
IW: We have a growing readership of International Watch Middle East Edition. What about the business in Middle East?
PS: Business is very good today in the Middle East. Maybe 10 to 15 years ago, business could be good if you had a special event like a Royal wedding or special event but it was not very regular business. We have much more regular business today and our customers are more knowledgeable than before. We have many people, who maybe due to International Watch and ThePuristS, are more informed of what is going on and being very interested in the product.
IW: What about the USA?
PS: USA is a growing market and the potential is huge. We are still developing because the market has been growing since we started working with Tiffany & Co in 1845. More and more people in USA are interested in fine watches. It was not like this even 20 years ago. Today, all markets are very good; Asia is a fantastic market so let's hope it is going to stay like this!
On Wine and Food
IW: If you could choose the 'perfect meal', what would the courses and wines be?
PS: I would concentrate more on "small tastings" rather than a big dish.
Entrée: crab, lobster, a little piece of meat and foie gras, of course, in the right order.
Wine: I will not switch wine; normally, I decide on one wine – even with fish, I'll drink red wine. It'll be Bordeaux that is not so heavy; I really like Cheval Blanc. That is a beautiful wine and getting so expensive. I think I have no more in my cellar. An alternative may be Latour but it has to be older…20 years old. I don't like Petrus; maybe that's too harsh to say but I never found anything special about it.
(Editor's Note: Château Cheval Blanc is one of only two wines ranked as Premier Grand Cru Classé (A) in Saint-Émilion. Château Latour in Pauillac is amongst the five First Growth Châteaux of the 1855 Bordeaux Classification).
IW: Thank you, Mr Stern.
PS: You're welcomed and thank you.
