Timex Enterprises Inc.

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Timex Enterprises Inc.

Park Road Extension
Middlebury, Connecticut 06762
U.S.A.
(203) 573-5000
Fax: (203) 573-5143

Private Company
Incorporated: 1941 as Timex Inc.
Employees: 7,500
Sales: $400 million
SICs: 3873 Watches, Clocks, Watchcases & Parts

Timex is the largest watchmaker in the United States, controlling over a third of the country’s market. For decades its image was utilitarian, but that began to change in the 1980s when it brought out lines of sports and fashion watches made popular through aggressive and innovative advertising campaigns.

Timex was founded by Norwegian shipbuilder Thomas Olsen and engineer Joakim Lehmkuhl, both of whom fled Norway to live in the United States after the German invasion of their country in 1940. The following year they purchased the nearly bankrupt Waterbury Clock Co. in Waterbury, Connecticut, seeking to aid the allied war effort by producing bomb and artillery fuses, which relied on clockwork mechanisms.

When World War II ended in 1945, Olsen, the majority shareholder, returned to Norway, while Lehmkuhl remained in the United States to run the company. During this time, Lehmkuhl decided to convert the Timex plant to mass produce inexpensive timekeeping devices. Using the simplest and most standardized production methods available, Lehmkuhl’s plant incorporated a high degree of mechanization in the manufacturing process. Furthermore, the wristwatches Timex manufactured used hard alloy bearings, producing a more rugged and less expensive alternative to watches that used jewelled bearings. Timex’s product and production methods eventually won Lehmkuhl a reputation as “the Henry Ford of the watch industry.”

The first Timex watches rolled off the assembly line in 1949 and soon became known for their dependability. At the time, most watches were sold by jewelers, who typically marked up prices by 50 percent. To keep its prices low, Timex insisted on only a 30 percent markup, and, consequently, most jewelers refused to sell Timex watches. Robert Mohr, head of Timex’s marketing operation, opted to bypass the jewelers, instead selling the watches directly to consumer outlets including drugstores, hardware stores, and even tobacco stands. During the 1950s and 1960s Mohr built a distribution network that reached nearly 250,000 outlets. By 1961, sales were up to $71 million, with after tax profits of $2.9 million.

Advertising heavily both to build its name and to sell the dependability of its watches, Timex relied chiefly on the visual impact of television. Commercials depicted Timex watches remaining functional and accurate after being attached to churning boat propellers and the hooves of galloping horses. The phrase “takes a licking and keeps on ticking” became widely known, and by the late 1960s Timex watches accounted for about half of U.S. watch sales. During this time, the company deliberately underproduced, manufacturing only 85 percent of the watches it thought it could sell. This practice created a scarcity that kept prices up and dealers tractable. In addition to the manufacture of timepieces, Timex continued to produce the clockwork mechanisms for the military that it had begun during the war. Timex facilities were also used to assemble cameras for Polaroid. In 1970 Timex had record profits of $27 million on sales of about $200 million.

However, change lay just around the corner, as the firm was facing intense competition in a changing market. Although few companies producing watches in the same price range as Timex could challenge the company for quality or popularity, digital electronic watches were rapidly overtaking the conventional watch. Timex began producing digital watches in 1972, but it had not moved as fast as its competition. In 1974 the company’s net income fell by one-third to $8.7 million on sales of $348 million. By 1976 digital watch prices had fallen into the price range of the company’s mechanical watches, and Timex began losing market share. Its major competitors in the electronic watch market were Texas Instruments and Fairchild Camera and Instrument Corp., both of which had more experience with electronics. A price war ensued, and by 1977 Texas Instruments had slashed the price of one of its most popular watches to ten dollars.

Also during this time, Timex management was in turmoil. Lehmkuhl had become increasingly eccentric and difficult to work with, and in 1973, Olsen’s son Fred had the 78-year-old founder and chairperson removed. Furthermore, the company’s three presidents were constantly at odds, and when electronics experts were brought in to help the company fight for digital watch market share, the infighting intensified and the company suffered. Timex was soon restructured to reflect Fred Olsen’s belief that making electronic watches required a radically different approach than that of mechanical watches. The mechanical watch operation was thereafter isolated from the new electronic operations, a change that eventually created resentment among the employees. The restructuring also led to numerous mistakes as the isolated electronic division was unable to take advantage of the mechanical division’s experience.

Consequently, Timex’s electronic watches were awkwardly large and 50 percent more expensive than those offered by competing firms. Management felt sales of mechanical watches were in an irreversible decline, so they planned to keep production capacity below the level of likely sales in order to make as much money from the line as possible as the market shrunk. Advertising for mechanical watches virtually ceased, and, as spending decreased, the capital was shifted to the manufacture and sale of digital watches.

The entire watch industry had a good year in 1977, and Timex decided to slow the downsizing of mechanical watch production. However, the company failed to reinstate its advertising budget, and, as a result, its only profitable product began to decline in popularity. Timex lost $4.7 million on sales of $600 million in 1979. Sister corporation TMX Ltd., a Bermuda-based company that supplied watches and parts to Timex, also lost $5 million that year.

During this time, chief executive Robert Weltzien began diversifying the company. He bought a clock and timer operation from General Electric Co., and in early 1980 he held the company’s first ever press conference, announcing that as Timex had gained experience from assembling Polaroid cameras—more than 40 million between 1952 and 1979—the company would soon begin manufacturing a new type of 35-millimeter camera. However, these moves were not enough to offset Timex’s declining watch sales, and later that year Olsen flew in from Norway, fired Weltzien, and took his place as CEO. Thereafter Olsen spent two weeks a month overseeing his businesses in Norway and the other two weeks with Timex in Connecticut.

While Olsen was a brilliant long-term strategist with immense energy, he had little experience with the day to day running of an organization, and some managers became frustrated as he interfered with the details of their projects. He began closing factories, cutting wages, and selling off side businesses, as he reshaped the company into a consumer electronics concern that would sell watches, clocks, computers, and electronic products geared toward home health care.

In 1980 Commodore Computers explored the possibility of a merger or other working relationship with Timex, but Olsen declined. Instead, Timex opted to attempt duplicating Commodore’s success by producing its own computer. Created by British inventor Clive Sinclair, the Timex computer was brought out at the end of 1982 and quickly achieved 500,000 sales. However, critics noted that the Timex computer was extremely limited in its capabilities and inferior to Commodore’s product. After Commodore engaged Timex in a price war, Timex made little money from the venture.

In 1983 Timex brought its first home health care products to market. The products, made by Singapore subcontractors, included a $69.95 blood-pressure cuff, a $24.95 digital thermometer, and a $49.95 digital scale. Timex relied on its widely recognized name and large distribution base to give it an advantage over companies already selling similar products. The market was very competitive, however, and Timex was also hampered by the breakup of its Silicon Valley computer engineering staff due to continuing political infighting as well as the slow start of its new lab in Connecticut.

Watches still accounted for 90 percent of Timex’s business in 1983. The firm’s digital watches had improved considerably, and it introduced a new quartz calendar watch at $100 that was billed as the world’s thinnest. While the majority of its electronic watches were more expensive than those of its competitors, Timex had succeeded in bringing out one model that sold for only $7.95.

Also in 1983, Timex endured negative press from an employee strike at its plant in Dundee, Scotland, which strikers occupied after management fired 1,900 workers. Members of the British parliament and finally Prime Minister Margaret Thatcher intervened before, the six-week occupation was ended.

Throughout the 1980s, inexpensive fashion watches rapidly gained popularity and were released by a number of companies, most notably the innovative Swatch company. Timex’s sales needed bolstering as some industry analysts estimated that the company only produced half as many watches as it had five years earlier. Consequently Timex began producing watches that were more fashionable, sporty, and colorful, and invested money and energy in advertising. In the spring of 1983 the company launched a $20 million television advertising campaign focusing on its new technological sophistication and style. The commercials, by Gray Advertising, playfully exaggerated the features of Timex watches. In one ad a group of joggers ran up and down the contours of a Timex sports watch; in another, a groups of people climbed out of a boat and walked across a waterproof Timex watch that served as a dock. Timex also showed its ads in movie theaters, purchasing four weeks of ad time at Screenvision Cinema Network’s 4,500 theaters in 1986.

One of the firm’s greatest successes during this time was its sports watches. In 1984, an Olympic games year, the company brought out the Triathlon watch, which was water resistant to 50 meters, could recall eight laps of running times, and had a 16-hour stopwatch. In its first year, 400,000 of the watches were sold at $34.95 each. Encouraged by this success, Timex brought out a ski watch that included a thermometer as well as a racing watch that could measure speeds of up to 999 miles an hour. The company launched its Atlantis 100 water resistant sports watch in 1986 with a $1 million ad shown during football’s Super Bowl. This ad featured a groups of divers discovering a 65-foot replica of the watch on the bottom of the Red Sea. Five other “adventure” commercials were also produced.

In 1988 Timex brought back its “takes a licking and keeps on ticking” campaign, which had not been used in ten years. This time, however, the ads were humorous and took the premise of the old ads to extremes, one ad showing the watches being thrown to ravenous piranha. Timex also stepped up advertising for its new line of men’s and women’s fashion watches, influenced by those being sold by Swatch. Having formerly advertised mainly in such magazines as Time and Life, Timex began buying space in sports and fashion magazines. The ads were part of an effort to help Timex shake its staid image at a time when watchmakers like Swatch were making inroads by giving their watches a fun, quirky image. The firm spent $6 million dollars on ads during its Christmas ad campaign, representing 60 percent of its $10 million dollar annual ad budget.

Timex released new sport watches in 1988 that were aimed at niche markets while also being designed to appeal to a broader audience. One model, the Victory, included features useful in sailboat racing and a design influenced by traditional nautical instruments. While the Ironman watch was geared toward triathlon participants, the watch’s memory feature and rugged styling proved so popular that Timex was soon able to claim that it was the bestselling watch in the United States.

At the end of the 1980s the color plastic watch business pioneered by Swatch was beginning to decline, but Timex continued producing colorful watches with classic styling and increased the distribution of its watches to upscale department stores. Timex remained at the top of the U.S. mass market watch sector with a share near 50 percent. Sales for 1988 topped $500 million. It was still the largest company in the $1.5 billion U.S. watch market, despite the fact that all of its watches were priced at under $75.

Although the information age initiatives the company had announced in the early 1980s had been sharply scaled back, Timex announced it would develop a wristwatch that would double as a telephone pager. It anticipated that the pager, to be developed with Motorola Inc., would be available by 1992.

In 1990, with its market share under continual pressure, Timex spent $7 million on a unique two-month print ad campaign. Again picking up on the “takes a licking” theme, the ads featured portraits of people who, along with their Timex watches, had survived serious mishaps. One woman, for example, had fallen 85 feet while rock climbing and suffered only minor injuries. The ads, by the Minneapolis based agency Fallon McElligott, appeared in 31 magazines and included several three-page spreads.

In 1992 Timex introduced a watch with a luminescent dial that glowed like a full moon at the push of a button. The watch used a dial made of zinc sulphide and copper that other companies had used on clocks, though Timex was the first to adapt it to watch size.

Although not as overwhelming a presence as it had been during the 1950s and 1960s, Timex held onto its position as the leading U.S. watchmaker as it approached the twenty-first century. The company remained adept at marketing and had succeeded in revamping its image in times of tough competition.