Swarovski, maker of all things bejewelled, goes high-tech

A group of millennial programmers swapped jokes recently in their office’s well-stocked kitchen while preparing salads for a weekly barbecue. Others mingled around a new foosball table, playfully arguing over the prospective teams.

The budding entrepreneurs had arrived at the space, replete with fridges crammed with craft beer and a €3,500 coffeemaker, only late last year.

"When we moved in, we weren't sure this place was for us," says Valentin Schuetz (24), a founder of Gronda, a smartphone application for hotels to use when recruiting staff members. "I mean, we're literally in the middle of nowhere."

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“The Crystal Cloud & Mirror Pool”, a massive art installation at the corporate museum of Swarovski. Photograph: Mattia Balsamini/The New York Times

Here, in this bucolic village nestled in the Austrian Alps, a coworking space sits in the original 19th-century manufacturing compound of a decidedly old-school manufacturer: Swarovski, the crystal company. The project is part of an unusual effort to refashion Swarovski into, of all things, a tech company.

Fearful of cheap Chinese competition and wary of a profitable complacency that has felled giants in the past – Eastman Kodak, destroyed by digital cameras, is often cited – Swarovski is developing new crystals that double as solar panels or change colour when tapped with a finger. It has revamped how it sells online, invested millions in high-tech machinery, and signed partnerships with smartwatch makers such as Misfit.

Swarovski has also hired Silicon Valley advisers and sent executives to the US West Coast to meet venture capitalists and others, trying to add a little tech pizazz to a business whose roots date to the days of buggy whips.

"Tech companies can disrupt whole industries within a couple of months," says Markus Langes-Swarovski (42), chairman of the board of the Swarovski Group and a great-great-grandson of the founder. "We need to do that to ourselves before it happens to us."

Cinderella’s slipper

To many, Swarovski’s tech dream seems an odd strategy for a 121-year-old crystal maker better known for its (sometimes ostentatious) figurines, designer jewellery and even a €2,500 Cinderella slipper. It also raises questions about whether it is an industry suited to embracing the hoodies, startup incubators and other trappings that have given Silicon Valley such global cachet.

"Big legacy companies want to reinvent themselves for the digital era," says Julian Birkinshaw, a professor entrepreneurship at the London Business School. "Few, if any, have been successful at it."

Within Swarovski, which is owned by members of the extended family, the revamp was not a slam dunk. Family shareholders were concerned that Langes-Swarovski and his executives were merely jumping on the Silicon Valley bandwagon, forgoing the company’s heritage for the chance to mingle with West Coast technorati.

Some were sceptical that the company, which employs more than 31,000 people and owns retail stores from New York to New Delhi, would benefit from shifting toward sensors and startups rather than focusing on making shiny crystal.

The reluctance was compounded by the fact that Swarovski is far from facing ruin. The company’s annual revenue reached $3.8 billion (€3.4 billion) in 2015, up 10 per cent from 2014. Swarovski does not disclose its profit.

“It was hard to get the family on board,” says Langes-Swarovski, who in 2002, at the age of 28, took over the company from his father. “And of course, it still is.”

High security

The crystal maker, which has avidly guarded its trade secrets for more than a century, rarely gives a glimpse into its inner workings. Swarovski’s manufacturing centre is usually off-limits even to most employees. One enters via a high-security revolving door that would not seem out of place in a spy movie.

More industrially functional than catwalk chic, the Alps campus is dotted with people driving forklifts, shuttling boxes of crystal and other raw materials between buildings. At one new production line, two robotic arms, painted bright yellow, spin in a midair ballet as workers checked the gauges while Kings of Leon played on the radio.

In another building, several 3D printers whir away, producing spare parts and prototypes of jewellery designs. Engineers keep watch over machines that were originally built for the semiconductor industry but have since been modified to pump out minuscule crystals, some barely visible when held on a fingertip.

Only a disused, shabby warehouse – one of the company’s original buildings – harks to the company’s past.

In 2012, Langes-Swarovski began outlining a new strategy to the company’s 79 family shareholders. At dinners, board meetings and social gatherings, he told them that despite Swarovski’s decades of success, things had to change: the company needed to channel his great-great-grandfather’s engineering roots to cut costs, respond faster to new ideas and, most important, embrace technology that had become part of people’s everyday lives.

New production line

The revamp began with small steps. Starting in 2013, a team of engineers spent a combined 50,000 hours and nearly $5 million to build a production line that made smaller batches of crystals, at a cheaper price, to compete better with Chinese rivals and meet demand for smaller orders.

Swarovski’s tech development, marketing and sales teams also were given more independence to try new ideas. In 2014, one engineer, part of an 80-person research-and-development team in Wattens, stumbled on to a way to turn a Swarovski crystal into a solar cell.

After some tweaks, including making the crystal round and thinner to meet jewellery standards, Swarovski signed a deal with Misfit, which sells smartwatches and other wearable gadgets, to build the world’s first solar-powered fitness tracker. It went on sale early last year.

Taking the concept further, Swarovski's scientists, spurred by the Misfit deal, have created another crystal that changes colour when touched, using sensors built into the crystal. The technique was on display at the Met Gala in May, when Slumdog Millionaire actor Freida Pinto wore a crystal-studded gown designed by Tory Burch, the first time Swarovski's colour-changing technology had been used in a fashion design.

"We created a solar cell that isn't boring," says Michael Hutter, head of the applied research group behind the technology. "We want to be the missing link between the tech and fashion industries."

The new devices are a tech-tinged extension of Swarovski's long-standing marketing strategy for the fashion world. In the past, it has worked with design houses such as Christian Dior to affix crystals to dresses and jewellery. In the company's corporate archive, Swarovski earrings worn by Marilyn Monroe in Gentlemen Prefer Blondes sit side by side with an oversize necklace once worn by Beyoncé.

Silicon Valley sights

Last summer, Langes-Swarovski and a dozen members of his management team flew to Silicon Valley for a week-long field trip. They met with Google and various startups, including Diamond Foundry, which is building man-made diamonds, as well as with the San Francisco 49ers.

Emanuel Riccabona, a Swarovski executive who took part in the West Coast visit, says the management team members left California with their heads spinning – and a plan to build a wider digital community with Swarovski at the centre. This includes creating a new ecommerce service aimed at making the company an online hub for third-party jewellers. This would be a relatively cheap way to sell more jewellery, bags and other fashion items without investing in costly new retail stores.

Another lesson from the Silicon Valley trip, which was arranged by a former senior executive at Apple who is now advising Swarovski, was to focus more on partnerships that could provide the company access to new tech ideas and trends. Such collaborations were not previously part of Swarovski’s DNA.

That led to an investment of some $5 million to refurbish Swarovski’s original manufacturing plant into the coworking office for startups, Destination Wattens, named after the village of 8,000 people.

The 19th-century building also houses a Fab Lab, or high-tech DIY space including 3D printers, robotic arms and other equipment used by local schools, company apprentices and anyone else who wants to tinker.

In its first year, the space has focused mostly on building a community of twentysomething programmers and other digital natives willing to move to the village. Swarovski plans to invest eventually in some of the startups, as well as run its own tech programs.

Such corporate incubators have become popular during the recent tech boom, as traditional companies look for ways to tap into new ideas before they upend their industries.

So far, few partnerships have resulted. The Fraunhofer Society, a German foundation that has turned scientific projects into business ideas, opened a three-person office here in September, but much of the refurbished factory remains empty.

New opportunities

For Lukas Kinigadner, a Wattens native who once worked at the Swarovski factory, the company's willingness to be more collaborative is a change from his childhood, when there were few job opportunities beyond crystal making.

Today, Kinigadner (32) runs his own text-recognition startup, Anyline, which he began in 2013 and which now employs 23 people, some in Vienna and some in the Swarovski coworking space .

He decided to set up shop here, he said, partly because of his local roots – but also because the rent is so much more affordable than in the city. “When we started out, it would have been impossible to do it from here.”

In February, Kinigadner’s startup received more than $200,000 (€182,0000) in investments from a separate Swarovski family fund. “People now recognize that something is going on here with technology.”

– ( New York Times News Service)