1swatch group cut watch movements supply _ swiss watch brands

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Its hold or fold as Swatch Groupmoves to cut watch parts supplyy Michael Weare

Comment | Discuss this article

chauer winners

The late Swatch Group CEO Nicolas Hayek warned this would happen. As of 2012,

hundreds, if not thousands of mid-range Swiss and partially Swiss-made watch

brands can no longer depend on the Swatch Group for their movements,

assortments, escapements, balances and springs. Now that supply is likely to be

curtailed as his son Nick Hayek starts to put the plan into practice.

Hurdle

In what is an undoubted fresh hurdle for the Swiss watch industry, several

manufactures will now have to manage without Swatch Group for its parts. To add to

the problem, viable alternatives are still some way off from being ready to make up

the shortfall, yet the gradual reduction of parts is likely to start as early as January

2012. The first part of the process is already under way.

As Quentin Simonet reports, the Swiss competition commission Comco has

authorised the worlds number-one watch group to cut deliveries of mechanical

movements to 85% of quantities sold in 2010 (95% for assortments).

It is still unclear whether Comcos investigation against Swatch Group to determine if

their actions constitute an abuse of a dominant position from the point of view of

competition is progressing.


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POS Switzerland

However part of Comcos responsibilities is to ascertain whether or not alternatives

to Swatch Group exist, and the timeframe required for alternative suppliers to offer a

realistic alternative.

Reductions

Watchmakers could see reductions of up to 30% for certain parts. Many firms,

particularly those in the mid-range segment, have been critical of the scheduleespecially as the reductions include deliveries of assortments.

Several manufactures plan to petition the Swiss federal administrative tribunal. What

exactly is Comco for, other than favouring monopolies?asked an indignant Peter

Stas, Chief Executive of Frdrique Constant.

Stranglehold

Vontobel Bank reports that Swatch Group holds 70% of the market for mechanical

movements and 90% for assortments. Alain Spinedi, head of the Louis Erard brand,

believes this decision is akin to creating another stranglehold on supplies.

The problem is twofold. The industry is just recovering from the 2009 crisis and the

alternatives that exist are still a long way from replacing the Swatch Group.

Mr. Spinedi believes Comco have failed to anticipate that this move will rekindle the

grey market.

This is something we already experienced with the bottleneck in supplies in 2008,

when prices increased threefold.said Mr. Spinedi. Maybe a high-end brand can

afford to pay CHF750 ($865) for a movement that normally costs CHF250 ($290),

but for brands such as Louis Erard that shift large volumes, its a disaster. We have

no room to manoeuvre.

Warning lights

Swatch Group remain determined to have its way. Meanwhile analysts at Kepler

Capital Markets expect deliveries of parts and movements to cease completely in six

to seven years time.

Quentin Simonet writes: All of this should set off warning lights for watchmakers,

especially as, in principle, only the anti-trust law could oblige the multinational to go

on supplying competitors. Previously, this obligation has applied solely for the

provision of essential or vital supplies and equipment, primarily in the telecom and

energy sectors. The decision to end Swatch Group deliveries of movement blanks

could set a precedent, which would be synonymous with an amicable agreement.

Comco would then define a reasonable timeframe for each category of component.

Investment

Watchmakers now face having to inject massive amounts of capital and fast, but

where to find the huge funding required to build production resources that could

match Swatch Group supplies? It takes an investment of some CHF100 million

($115 million) and 200 to 250 staff to manufacture 250,000 ETA 7750 type base

calibres. According to Nicolas Hayeks calculations, in recent years Swatch Group

invested between CHF1.7 and 2 billion ($1.9bn) in its production tool, which includes


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Michael Weare | Website

Michael Weare has been a professional writer for 30

years, writing about Japanese technology, German and

Italian cars, British tailoring and Swiss watches. Michael

manages the editorial content of Click Tempus and will

be keeping the magazine fresh and informative with

regular features, as well as bringing great writers to the

magazine. Email: [email protected]

Discuss: Its hold or fold as Swatch Group moves to cut watch partssupply

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ETA and Nivarox-Far.

The Group currently employs around 9,000 people in its various subsidiaries that

manufacture movements and parts. The sector would have to invest CHF1 billion

($1.1bn) and create between 4,000 and 5,000 jobs to equal just half this potential

an indication of the massive effort and investment required to get a foot in the door

of the Swiss watch industry.

Threat to Swiss made

All of which means the end is nigh for cheap movements and low-cost components.

Richard Lepeu, Richemonts deputy CEO, recently stated: For the good and the

higher interests of the Swiss watch industry as a whole, we mustnt go too far in

integrating production resources which could, at a certain level, entail exorbitant

costs for those who want to produce everything themselves.

Johann Ruperts right-hand man also referred to the pressure the sector was under

from the dollar and euro exchange rates. Our branch would be well advised to pool

production of certain parts. The sector also has everything to gain from a network of

independent, innovative suppliers delivering to all brands,he declared. Otherwise,

chances are high that some brands will turn to foreign suppliers instead. And where

would that leave Swiss Made?

Article edited from a report by journalist Quentin Simonet ofHH Magazine.


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