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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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atch?
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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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Message
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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Prensa Nick hayeck pone en funcionamiento la maquinaria del recorte.
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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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