Cutting Edge

By Sarah Raper Larenaudie/Wattens

IT HAS BECOME ALMOST ROUTINE in the booming luxury business for curious minds to draw back the industry's proverbial Oz-like curtains to learn the tricks of the trade--how a $10,000 French handbag is stitched or where Brazilian gemstones are mined. But at Swarovski crystals in Wattens, Austria, a town of 8,000 about 20 minutes northeast of Innsbruck by car, the factory--and all the technical knowhow stashed inside--is strictly off limits.

In the 111 years since its founding, Swarovski has established itself as the largest supplier of high-end crystals to the fashion and design industries, adding sparkle to jewelry and evening bags as well as a growing number of interior-design products, from expected items such as chandeliers and vases to more original pieces like curtain tassels. Crystals are essentially sand and water and chemical coloring agents fired and then cut and polished by machine, so a factory visit would seem harmless.

But for years the founder's rule has stood: Only members of the Swarovski family, two independent board directors and a few dozen top managers have unrestricted access to the production facility. Even the 6,200 employees who work in the factory (and they make up the better part of the population of Wattens) see only bits and pieces of the production cycle.

"We feel that what we have learned over time is a big asset for the company," says Markus Langes-Swarovski, 32, an executive-board member who oversees branding and communication and is a great-great-grandson of the company's founder, Daniel Swarovski. "Protecting your know-how is one element of showing appreciation for what you've achieved so far."

That is unusual. Even defense companies let school groups in to ogle the missiles. And most companies in the luxury-goods industry go to great expense to persuade journalists and style tastemakers to drop by their ateliers to witness artisans at work. There's pressure to differentiate themselves from the increasingly sophisticated fast-fashion chains and copyists--and to justify their prices.

"Establishing authenticity is very important for all luxury companies," says Robert Buchbauer, 40, a great-great-grandson of the founder who directs the company's consumer-goods business. "The more interchangeable products become, the more important it is, but so far we're in the lucky position that our product is unique."

On this sunny, clear day in the Austrian Tyrol, Langes-Swarovski and Buchbauer, two of the 20 family members who manage and work in the privately held company, are seated at a table in a conference room at the corporate headquarters. Floor-to-ceiling windows provide a view onto the 60 other buildings of the corporate and factory complex, which include a water-purification center. There are five cranes on the property, a sign that business is good.

Competing for our attention, on the table is a giant, 33-lb. version of the company's new star product, the Xilion, which in its oversize form suggests a fortune teller's ball. The commercial version is pea size, perfect for necklaces and dangling earrings. True, it's brilliant, throwing off hundreds of sparkles--but unique? Exactly how unique can a rhinestone be?

Langes-Swarovski explains that the Xilion is cut with 14 facets instead of the usual eight. "But it's not actually the number that's the most important; it's the angle of the facets," says Buchbauer, pointing out a pattern in which sizes and shapes alternate. "Several years back, we looked around the marketplace and saw our competitors getting stronger and advancing technically. There was market demand for a new, more brilliant stone. We had always claimed to be the innovation leader, so we knew it was time to bring out the next generation."

Competitors could certainly copy the Xilion, but building the machines to produce high volumes--Swarovski says its loose-stone production is in the double-digit billions--is the obstacle. "You could hire 200,000 people in China, and they would do the same quantity for probably a lower price," says Buchbauer. "But you could never, ever come out with the same quality. You could never achieve the same standardization."

Besides new cuts like the Xilion, the company innovates by developing coatings that produce various effects to make the beads more pearl-like or more metallic looking, for example. New colors or even variations in coloration make the stones milkier or more opaque in appearance. Recently the company has experimented with new materials, applying crystal glazes to silicon or weaving the tiniest crystals into mesh.

Swarovski claims to offer the highest quality on the market and the most extensive range of sizes and colors--15,000 in its catalog. In July, Bruno Frisoni launched a couture shoe-and-bag collection for Roger Vivier starring clusters of colored Swarovski crystals. The same week, Dior, Chanel and Jean Paul Gaultier all sent gowns embroidered with Swarovski crystals down their runways.

None of the cousins have worked harder to make a place at the fashion table for Swarovski than Nadja Swarovski, 36, a London-based cousin of Buchbauer's and Langes-Swarovski's. In a previous job at a New York City p.r. firm, Nadja says, she realized Swarovski had not been effective at communicating its link with fashion. She launched several initiatives, including setting up a showroom in New York, where American designers are invited to paw through 200 drawers filled with crystals. There are event sponsorships and clever collaborations with fashion and interior designers, the most successful of which has been Crystal Palace, launched in 2002 for inventive lighting projects. Several of them, particularly Norwegian designer Tord Bontje's Blossom chandeliers in the shape of a branch (the small one is priced $15,500), have been widely copied. "We never just give money or just give product," she explains. "Instead, we say, Please go beyond the comfort zone with your creation. Make the crystals your own."

Langes-Swarovski argues that crystal should not be considered a mere pedestrian trim. "It's more of an expressive element than a zipper or a button. In all the various creative disciplines, whether it's fashion or interior design, crystal has a role of amplifying creative expression," he says. "With Liberace or in the late '90s, crystal was sometimes a metaphor for superficiality because of this bling-bling element." Today, however, company executives talk about the "poetry of precision" and how to take founder Daniel Swarovski's original ideas to new levels.

In fact, the company was started with a secret. In 1895 Daniel, then 33, moved his family to Wattens from Bohemia, where it had been involved with traditional glassworking. He had developed one of the first machines to cut crystal. "He knew he had a breakthrough," says Buchbauer. "Like Bill Gates when he moved away from Silicon Valley and up to Seattle, he just wanted to get away from the competition." Wattens was a town of several hundred people with a shed for rent near the river, which Swarovski needed to produce his own electricity. The move also put him closer to his key market, Paris.

"Through Swarovski, people like Chanel and like Schiaparelli were able to create their costume jewelry," says Langes-Swarovski, noting that advances in technology make the crystals today superior to those his ancestor could produce. "But in his time his quality was superior compared with all his competitors because they were only capable of hand cutting the stones," says Buchbauer. "He had two advantages: he had very high and, even more important, standardized quality, and he was able to produce them in large quantities."

Early on, Swarovski chose to produce his own raw crystal rather than outsource it. At the factory, various sands and powdered ingredients--as many as 50 different kinds for colored crystal and 10 for transparent crystal--are mixed and then melted. "If you see it--which you can't," says Buchbauer, laughing, "it's the most important and also the most impressive part of the process, because this is really where sand and fire meet in order to melt all the ingredients and make them a new material."

It is a process that imitates the way nature forms natural rock crystal and is similar to the way the raw material for crystal glasses is produced. The so-called rough is either in small, preformed pieces or in large pans of liquid, depending on the product. One might imagine a giant pan of cherry Jell-O, but Nadja, who grew up tagging along with her dad Helmut, Swarovski's chairman and head of technical development, says it looks more like honey.

The next step is crucial: "You have to cool it very slowly in order to remove all the tension that is still within the material," Buchbauer explains. "If I cooled it down quickly and then put my finger on it, it would fall apart." The giant Xilion rock on the table, for example, took a month to cool. Next the material is polished, cut and coated.

After decades as the leading supplier to fashion companies, Swarovski created its own jewelry line in 1977 and later branched into accessories and home objects. Together those goods represent half of the 2005 annual sales of $2.7 billion, and the best sellers are the small animal sculptures in crystal prized by collectors. In an effort to capitalize on its newfound cool factor, the company has just launched a major advertising campaign and will overhaul the first of its 565 retail stores worldwide in early 2007 with a new concept slated to be created by the Japanese designer Tokujin to showcase products in a modern setting.

Still, Nadja says she sometimes encounters resistance to the idea of crystal as a luxury good, since it's machine made in massive quantities. "My response is, 'Try making a perfect crystal that won't break easily,'" she says. "'Try making billions of them and ensuring that not a single one has a bubble.' I salute the fact that my great-great-grandfather embraced the Industrial Revolution."