Excellent article in a 1947 issue of Fortune magazine. It's long, but definitely worth reading. My thanks to Mark Cardelucci for helping me transcribe this.
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Of the seven million watches bought in the U.S. in 1941, only the two million sold by Hamilton, Waltham, and Elgin were made here. The rest — such famous brand names as Gruen, Benrus, Longines-Wittnauer—are Swiss movements marketed in American-made cases. Hamilton's share of the output of the domestic industry was 400,000. The company, however, is a profitable testimonial to the theory that assets and sales are not the only dimensions of success. Even within the Ameri-can industry, its sales figure—$10 million—was but second, leading Waltham's by only $3 million, trailing Elgin's by $6 million. Nevertheless, except during the war and the depths of the depression, Hamilton has consistently earned 10 per cent or more on its capital year after year. And it made this record in spite of—sometimes because of—its habit of running counter to general trends in the watch business. In the hectic twenties, when importers sought to swell their share of the American market with flashy models of dubious timekeeping ability, Hamilton was quietly pitching its appeal to its favorite kind of carriage trade—those who expect a watch to keep good time for a long time. In the thirties, while domestic rivals were frantically shaving prices to meet low-cost foreign competition, the company deliberately concentrated its selling on what was then a high-priced line, $50 and up. The story of the Hamilton salesman who waited on the rural trade in top hat and morning clothes is probably apocryphal, but certainly Hamilton was long indifferent to the sales persuasions of smart styling, dealer promotion, and advertising. Today, Swiss competition looms as large as ever. Waltham, Elgin, and the U.S. watchmakers' union have mobilized to meet it. The favored weapon is an agreement, concluded with the government of Switzer-land, to limit the annual export of Swiss watch movements to the U.S. Hamilton does not object but it is seldom found among the pilgrims who journey to Washington in the interests of protection. There are reasons why.
Disassemble a Hamilton and you get a case plus some 140 gears, plates, bridges, springs, jewels, and screws that look suspiciously like those of any other jeweled watch. Indeed, most makers use the same manufacturing methods and set the same standards of tolerance. Quality in a timepiece is almost insusceptible of visual proof. But differences do exist. Generations of railroad men and graduates who chose Hamiltons on the basis of reputation have not been disappointed. Jewelers know that a Hamilton watch rarely comes back—except for regular cleaning. (The purchaser of the second Hamilton watch made—in 1893 recently sent it in for a minor repair.)
Hamilton quality is the direct result of the application of enormous amounts of time and money to the production of the tiniest of parts. A pound of alloy steel costing 90 cents delivered at Lancaster will go through forty drawing, cutting, turning, and polishing operations to yield 275,000 screws worth $9,100. Tolerances will be kept to one ten-thousandth of an inch or, in special cases, to one hundred-thousandth quite ordinary in some industries but exceptional where the parts handled are so small. The tool most commonly used at the factory is the micro-gauge in the eye of almost every one of the 2,600 employees is the jeweler's loupe. Before it is shipped, every Hamilton movement has been subjected to 600 formal inspections and hundreds more at the operators' benches.
Founded in 1892
The Hamilton Watch Co. was organized in 1892 by a group of Lancaster County investors and businessmen. In the preceding two decades, no less than five watch-manufacturing companies had failed in that locality because of low-grade production. and insufficient working capital. But Hamilton began at a most propitious time. Some years earlier, the incidence of railroad wrecks had reached the proportions of a national calamity. A congressional investigation found that faulty tinting was to blame and recommended vigorous watch inspection with a standard variation of less than thirty seconds a week. In that day no railroad timepiece met the specification. The men who cautiously edged into this vacuum thought they saw profit possibilities in high-quality watches. The models for the early Hamiltons -- turnips, the railroad men called them — were made by Henry J. Cain, a leading horologist of the period. By present standards bulky, heavy, and unattractive, they kept nearly perfect time. In the first fifteen years, sales of the famous No. 940 moved nicely. But Hamilton was building better than it knew. Railroad watches, which made up 24 per cent of sales, were slow in wearing out. It wasn't long before the limited market reached saturation and sales began to level off. The industry introduced a series of far-reaching innovations, but Hamilton waited until long after the handwriting had covered the wall. It fell behind the industry as a whole and stayed behind for twenty years.
The first innovation came in casing. The early practice was to wholesale uncased movements to watch inspectors and retail jewelers. If a movement was poorly cased and later returned for repairs, the manufacturer had to foot the bill. The domestic industry worked out a better system: they began to case their own movements and to advertise standard models. After a time, however, Elgin and Waltham went on to create new business by promoting new styles, like ladies' chatelaines and men's fancy pocket watches. Hamilton failed to follow suit. By 1908 the trend toward more elegant watches had become unmistakable. and in that year, when there was an industry-wide decline of 10 per cent, Hamilton sales slumped a third. Belatedly, the company decided to go along.
After 1917 the watch business was deeply affected by the growing popularity of the strap watch. Again, Hamilton was a little slow to spot the trend: in 1920 pocket watches still made up 96 per cent of its total output. as against 52 per cent for Elgin, 75 per cent for Waltham. In the middle twenties, just as Hamilton was catching up with wrist watches, the business went off on a new tack. The Swiss industry, which had been making half of the three million jeweled timepieces purchased annually in the U.S.. thought it saw an opportunity for increased sales of ladies' watches. While American manufacturers were wrestling with higher costs, the Swiss helped themselves to an additional 20 per cent of the market by means of sheer high-pressure salesmanship. They introduced a new clement to what had been an heirloom item: high-styled watches and sold them as costume jewelry subject to the influence of fashion. They made it smart to own two, three, or even four watches, and more than doubled the market. The maneuver resembled an international game of tag which the American industry was "it."
When the first American wrist movements appeared, they sold against tiny Swiss watches that made the domestic product seem elephantine by comparison. By 1925 the Hamilton had shrunk, but the Swiss had moved on to elongated baguettes. Later they put watches in metal bracelets. then in gem-studded cases, and currently they are plugging the cocktail watch. In each instance the Swiss set the style and, with some help from Elgin and Waltham, skimmed the heavy cream off the market and moved on before Hamilton could adapt production to the new models. Breathless advertising. plush packaging, and underselling -- high retail markups disguised as local advertising allowances that retailers could pocket -- rounded out the competitors' program. Dealer protests that Hamilton was too tight and backward in styling and advertising, got no response from the company.
During the booming '20s, sales did not reflect the company's drifting, but when the squeeze came the bones stuck out. By 1930, Hamilton was in trouble. The domestic in general, felt the pinch, took the easy way out: it fought for and got from a Republican Congress an import duty of about 80 percent, which helped erase Swiss cost advantages. This brought small comfort to Hamilton, for foreign competition had never been a serious threat to its high-priced product. The real difficulty lay in the fact that Hamilton's merchandising had finally broken down. The company's adherence to quality still assured it a certain minimum in sales — but not enough. In 1931 sales dropped perilously close to the break-even point of $4 million and, the next year, for the first time, Hamilton moved into the red.
Some Hamilton shareholders, like everyone else, were badly overextended in the stock market in 1929. Forced liquidations brought a shift in ownership and control. At the same time occurred the death of Charles F. Miller, a local banker who had been the company's President since 1910.
While Luckey was cutting costs, and standardizing the product, Ross Atkinson, Hamilton's slight and dapper sales manager, was working out better ways to sell it. By early 1934, Hamilton's sales outlook was the gloomiest in its history. From 180,000 watches in 1929, sales had plummeted to less than half that four years later -- and they were still dropping. The Great Depression was largely but not entirely to blame. Retailers, according to Atkinson, were just not pushing the Hamilton line, and it required no hacksaw to find out where the trouble lay.
Hamilton had been selling its watches through 105 wholesalers, most of whom also carried diamonds, silverware, and the watches of competitors. The larger houses, operating on a national scale, "high spotted" the market, concentrating on the biggest accounts, where selling costs were lowest, gravy richest. The smaller outfits had to spread out for what was left. The little fellows sought to make up in quantity of retail outlets what they lacked in quality. Hamiltons were on sale with the borax in barbershops, coal-company commissaries, and a host of fly-by-nights. Legitimate jewelers preferred to deal in prestige items.
Atkinson made an impressive number of changes designed to improve the quality of retail distribution. To start, the company dropped many of the bigger wholesalers, with whom it was just another line; the total was weeded down to forty and these were fenced into clearly defined, well protected zones and assigned stiff, though reasonable, sales quotas. By giving each distributor his own back yard, the company linked his his self-interest with its own. There was now sufficient incentive for cultivating the smaller non-metropolitan retailers who cost more to sell. There were almost instantaneous results. In 1935, the first year, sales jumped 70 per cent, and, except for the recession year of 1938, the have climbed healthily ever since. For 1941, the last normal year, they totaled $9,738,000. Markets previously lightly skimmed were now being fully exploited.
Dealers on the whole were happier. Hamilton's policy of selling only to reputable stores capable of service and repairs meant "legitimate" competition. Though the company spent only 5 per cent of sales for advertising, the Hamilton name largely sold itself. Of course, there were some recurrent gripes. Dealers resented not so much the small size of the advertising budget as the way it was spent -- too much for space in professional publications rather than magazines of general interest. Another complaint was that Hamilton's markup allowances to retail jewelers (80 per cent on wholesale cost) were the lowest in the business, about 20 per cent below the American competition, 70 below the nearest nationally advertised imports. But even this had its bright side. The narrow spread kept Hamilton out of the hands of the more raucous credit jewelers.
Reorganization of Hamilton's finances kept pace With improvements in manufacturing and sales. Charles Christian, Vice President in charge of finance, who in 1930 had redesigned and modernized the company's cost-accounting system, also put through a voluntary recapitalization in 1932. This permitted a realistic evaluation of inventories and enabled the company to show a profit by 1934. With plant and production rationalized and distribution tightened, Hamilton soared out of the depression. By 1937, when it grossed $7,500,00o, it had cleaned up arrears on the preferred and was paying $2 a share on the common. The next four years brought mounting sales and steady profits. Stockholders were contented. Hamilton. executives began dreaming of half a million watches a year. Then war came.
Hamilton times the Navy
The war proved Hamilton's claims to quality. The Navy needed chronometers when Switzerland, which had made the 300 or 400 used yearly, was isolated after the fall of France. Hamilton was asked to make them here. In a sense the company had been preparing for the job since its founding or, more concretely, since the beginning of the joint efforts of its three Vice Presidents. In any case, when procurement officers brought them the model and the tangle of technical problems that would go with its manufacture, Hamilton's executive team had the men, the machines, and the approach necessary to find the answers.
Hand methods such as the Swiss used could not meet the requirements of a rapidly expanding Navy and merchant marine. Hamilton sought to apply the mass-production techniques that worked so well with watches. But it had to start from the base line, making drawings and dies, hiring new and retraining old workers. Over Navy demurrers, the company's engineers began adding improvements to the chronometer. In February, 1942, twelve months after work had begun, Hamilton delivered the first instrument. By the time the first ten were delivered, the company had orders for hundreds more, which, with subsequent Army and Air Forces contracts for other timing instruments, were worth $32 million. By the time all contracts had been terminated the cost per chronometer had been cut to $390 less than what the Swiss had sold them for. The delivery of more than 9,800 instruments before V-J day, says Captain H. T. Chase of the Bureau of Ships, was "nothing short of a miracle."
One notable feature of Hamilton's war history was the fact that even during the height of the manpower shortage the company hardly felt the pinch. Part of the explanation of this decidedly anomalous situation can be found on the honor rolls conspicuously displayed in the factory corridors. There are over one hundred names in the thirty-year group; twice that number have worked continuously for twenty-five years; the list of youngsters with a mere twenty years of service runs into the scores. Even among women, who make up 60 per cent of the work force, longevity is the rule. Despite withdrawals every year because of marriage or motherhood, their average length of service is seven years. At Hamilton, employe3s of less than five years' standing are looked upon as "floating labor."
Underlying stability of employment, manifesting itself in low labor turnover, is one of the oldest of Hamilton traditions. It contrasts sharply with early conditions elsewhere in the American industry. At Waltham in 1924 a violent and protracted strike had stopped production for five months. But Lancaster County is agricultural and vaguely anti-union, and for a long time there seemed no pressing need for a union. Hamilton had always paid high wages for high skills—as much as $1.50 an hour to skilled machinists, about $3 an hour to expert assemblers.
The war, however, expanded nearby plants and brought numbers of highly paid workers into the community. It also brought fluent, belligerent, stocky Walter W. Cenerazzo, president of the independent American Watch Workers Union. Cenerazzo, who is a printer by trade, a politician by nature, and an organizer by profession, had set up at Waltham a local of the International Jewelry Workers Union, A.F. of L. Because of dissatisfaction with what he termed the organizing laxity of the national union, Cenerazzo led the local out. From Waltham he turned to Elgin, thence to Hamilton, where in May, 1944, his union won a bargaining election hands down.
Now that it has a union to deal with, the Hamilton management is not finding the experience too unpleasant. Mr. Cenerazzo can, of course, be difficult when it comes to fighting for what he considers the rights of his constituents. In fact, since certification he has won for his membership wage increases of roughly 50 per cent, seniority guarantees, and six paid holidays a year. But this is not the sum of his activities.
The union sets the tempo
Cenerazzo has also joined the battle for protection, browbeating government officials into turning a more sympathetic ear toward the competitive problems of the domestic industry. In context, Mr. Cenerazzo's activities in fighting industry's battles in high places have a certain elemental logic. Swiss competition is still in evidence, stronger perhaps than ever before by virtue of tariff reductions made under the Reciprocal Trade Agreements Acts and a wartime absence of competition from domestic makers. And then, watchmaking is militarily strategic. But the strange fact is that the manufacturers, who theoretically have as much to lose as Cenerazzo's Watch Workers, have been notably in-articulate, by comparison, on the question of a quota.
The explanation —- for Hamilton, at any rate —- is simple. It stems from the company's major preoccupation with quality. Hamilton stands to benefit from any measure that substantially reduces the number of imported watches. But the extent to which the company will profit is severely limited, for the bulk of imported watches sell at prices below those of Hamiltons. By hewing closely to its policy of quality before price —- the Hamilton line currently starts at $50 —- the company assures itself a top-drawer market secure against the inroads of the few high-priced watch movements coming in.
There is even the strong possibility that agitation for a quota on Swiss watches might hurt Hamilton more than it can help. During its five years of concentration on war work the company had to suspend development of new methods and machines. Hamilton had counted on catching up through foreign purchases of up-to-date machinery. The Swiss already have shown reluctance to export watchmaking machinery, and thus their industry, and could conceivably be frightened into irrevocable refusal to sell any at all. Then, too, Hamilton buys its jewels (synthetic, gemlike bearings) in Switzerland at one-third the cost of domestic manufacture.
Last April, after Cenerazzo had made things sufficiently uncomfortable through full-page ads and personal appearances in Washington, the State Department modified the Administration's trade policies and asked the Swiss for an export quota. Cenerazzo wanted to limit imports to three million movements a year, 50 per cent of estimated "normal" demand. But what the agreement actually provided was a quota of 7,700,000 movements, a ban on indirect exports to the U.S. via other countries, and a promise of expedited machine deliveries. The importers, who have some 20,000 employees, would rather die than admit it publicly, but they found the quota less painful than anticipated: it was only a million below peak imports (1945), and it has the added charm of expiring on March 1. If this was a victory for the domestic industry it was only nominal; Cenerazzo and, in all likelihood, the 8,000 watch workers he represents call it a "disastrous defeat."
For the present, Hamilton regards the quota question as pretty academic. Its short-term prospects are excellent by virtue of present demand. True, certain high-priced items are not selling now and company executives know well how sensitive jewelry can be to the slightest change in the economic climate. Against the time when the market falls off, there is ample evidence that Hamilton has adapted the best from the selling chapters in the importers' book: 1947 Hamiltons are attractively styled in most current popular models, advertising budgets are getting bigger, copy better. For about a year Elgin and Waltham have been selling straight to retailers, raising selling expenses but absorbing the middleman's profit. But Hamilton, while escaping the costs of an expensive sales force, has been getting the undivided attention of its hand-picked crew of wholesalers.
Behind all this stands the watch itself, the company's prime hedge against the threats of Swiss salesmanship and uncertain future demand. Accuracy and dependability made the first Hamilton a success and for fifty-four years have continued to bring in sales. The quiet revolution in Hamilton ticks on. As in the past there may be occasional lapses in selling. But the company's way of doing business with its own brand of conservatism will probably bring it through. It might even make profits bigger.
Photos from the article:
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HAMILTON'S MANAGEMENT TEAM and makers of the company's revolution of the early thirties. Left to right: Ross Atkinson, Vice President in charge of sales, who removed Hamilton from the cheap jewelry counters; President and treasurer Calvin M. Kendid; scientist and engineer George P. Luckey, Vice President in charge of manufacturing; and Charles C. Smith, Voce President and secretary. |
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THE BRIGHT RED BEADS ARE JEWELS (bearings) here being inserted at the friction points of an escapement lever with the aid of a magnifying glass. It is a delicate operation because of the size of the parts involved. Hamilton buys its jewels from Switzerland where they are made synthetically. Normally, jewels are colorless; color is added for the convenience of the operator. |
