Swatch Group cut watch movements supply | Swiss watch brands

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Its hold or fold as Swatch Group moves to cut watch parts supply
by Michael Weare 1 Comment | Discuss this article
TAGS
Alain Spinedi, Comco, Frederique Constant, Johann Rupert, Louis Erard, Nick Hayek, Nicolas Hayek, Peter Stas, Richard Lepeu, Richemont, Swatch Group, Swiss watches

ABOUT THE AUTHOR

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: michael@clicktempus.com

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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
Schauer winners 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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Swatch Group cut watch movements supply | Swiss watch brands

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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 schedule especially 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.

Is time up for the pocket watch?

Stranglehold
Trends in time: Watches thin, large and retro are in 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.

EPOS Switzerland

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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Swatch Group cut watch movements supply | Swiss watch brands

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 of HH Magazine.

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: michael@clicktempus.com

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