Brian Lum, Fund Manager at Baillie Gifford Shin Nippon: Seiko’s Growth Logic Is Premiumization, Not Sales Volume
Brian Lum explains why Seiko was included in the small-cap portfolio focused on high-growth stocks: its growth is built on a mechanism where sustained brand premiumization drives profit margins from single digits toward double digits. Using the quartz crisis as historical context, he notes that both the margin improvement and the projected rise in brand ranking are estimates rather than verified results.
When managing Baillie Gifford Shin Nippon, Brian Lum’s inclusion of Seiko in the portfolio raised a specific question: how can a watchmaker with a century-and-a-half history coexist with other fast-growing technology small-caps in the fund? Lum’s answer is that this is not the same type of growth. Most companies in Shin Nippon are driven by rapid revenue expansion and disruption of the status quo; Seiko is different. Its growth is built on sustained premiumization—shifting the company’s focus from mass-market quartz watches to luxury brands, using accumulated brand equity to push profit margins from single digits toward double digits.
The underlying logic of this mechanism is a pyramid structure: consumers enter the brand ecosystem with entry-level casual watches and gradually upgrade to become enthusiasts and high-end collectors. Grand Seiko is the core vehicle of this structure, currently accounting for approximately 20% of Seiko’s sales, but with production volumes far below one-tenth of Rolex’s output. Lum believes that if the brand narrative and craftsmanship perception continue to accumulate, Grand Seiko could long-term reach the top five watch brands. In his view, the shift in profit margins from single digits to double digits is a natural outcome of this process.
The historical basis comes from the quartz crisis itself. Around Christmas 1968, Seiko launched the Quartz Astron 35SQ, and within a decade, two-thirds of jobs in the Swiss watchmaking industry disappeared. Lum cites this history not to prove that Seiko will again disrupt Switzerland, but to show that the company possesses the technical capability and cultural capital to challenge the existing landscape. He states directly: 'Seiko almost killed the Swiss watch industry before; it is not entirely impossible that it threatens its luxury watch sector again.'