(Corrects IWC investment figure in paragraph 15 to 50 million
francs, not 50,000 francs)
* High-end brands say they can cope with movements shortage
* Swatch Group reduces deliveries from this year
* Search for alternative suppliers behind the scenes
By Victoria Bryan and Caroline Copley
GENEVA, Jan 18 Swatch Group's
decision to lower watch part supplies to rival watchmakers this
year has already impacted the industry, forcing some brands to
hold back production and others to scramble for alternatives,
executives told a fair this week.
The outlook for 2012 might be more gloomy than it was for
2011 but the Swiss watch industry is enjoying record demand,
having recovered much faster than expected from the 2008/2009
downturn, putting unprecedented pressure on its production base.
Swatch Group has for decades served as the
industry's "supermarket," to use its own words, with its ETA
unit providing as much as 80 percent of Swiss movements and its
Nivarox arm dominating the market for escapement and oscillating
parts, which make up the heart of a watch's mechanism.
In 2011 Swatch's production unit, which supplies the
industry's watch parts, had sales of 2 billion Swiss francs
Since Jan. 1, Swatch Group is able to lower deliveries of
watch parts to rivals to ensure that it has enough supplies for
its own brands such as Breguet, Omega and Longines.
The move was approved in Dec. by Switzerland's Federal
Administrative court, pending the outcome of an investigation by
Many brands at the Geneva watch fair, the luxury industry's
first gathering in 2012, said they were confident they could
cope with Swatch Group's decision, pointing to good relations
with the group, but others hinted of tough times ahead.
LVMH brand Tag Heuer's Chief Executive
Jean-Christophe Babin said on Wednesday that Nivarox had stopped
supplying the brand starting this year.
"At least things are clear ... The contract has not been
renewed," Babin said. In the short-term, he said the brand was
fine as it had stock but it was in talks with alternative
High-end watchmaker Girard-Perregaux, majority-held by PPR
since last summer, is having to turn away watchmakers
who want to buy its in-house movements.
"We have quite a high number of enquiries, just knocking on
the door and asking for movements. Most of them, if not all of
them, we have to tell 'no' for the moment," Chief Executive
Stefano Macaluso told Reuters in an interview at the fair.
Like almost everybody else, the brand, which only makes
about 10,000 watches per year and supplies movements to PPR's
Boucheron and Bottega Veneta, gets its escapements from Nivarox.
"We produce quite a limited number of watches every year so
(the reduction of deliveries) will not affect us. We have a very
good relationship with Nivarox," Macaluso said.
If some small exclusive brands can find alternative
suppliers because they need small quantities and command high
retail prices, others have to make heavy investments and take on
staff to cope with the shortage.
Richemont brand IWC's Chief Executive Georges Kern told a
roundtable of journalists the brand was investing 50 million
Swiss francs to add 25,000 square metres to its production site
in Schaffhausen in northern Switzerland but still could not keep
up with demand.
"We cannot produce enough," Kern said at the Geneva watch
fair, adding the new site should be up and running in 2014 or
Upscale watchmaker Parmigiani, controlled by the Sandoz
foundation, is one of the few to make its own spirals.
"We make about 20,000 spirals per year. They are more
expensive than those made by Nivarox because we have to amortise
our investment and also because they are of very high quality,"
Parmigiani head Jean-Marc Jacot said.
Kepler Capital Markets analyst Jon Cox said he assumed the
market needed 8.2 million movements in 2012 and Swatch Group
could hold back delivery of 1 million. He expects market growth
to slow to 5 percent this year from almost 20 percent in 2011.
Juan-Carlos Torres, chief executive of Richemont's Vacheron
Constantin, said the 250-year old brand was working to replace
parts from Swatch Group by in-house production.
"We do not have ETA movements in our watches. What we lack
are spirals, anchors and anchor wheels. We are working to make
spirals in-house with the help of the Richemont group," he said.
"It's a question of mastering technology."
The brand plans to almost double its headcount to 1,300
people from 700 currently by 2020, Torres said.
Bernard Fornas, head of Richemont's biggest brand Cartier,
said the brand was increasing investment in production each year
but a good relationship with Swatch Group was essential.
"We make a lot of movements ourselves. There are some
movements that we buy from ETA. I think that we now have a good
mix of what we do in-house and what we buy in," Fornas said.
Long-standing ETA and Nivarox customers like Cartier might
indeed have nothing to worry about as Swatch Group is free to
maintain its deliveries to them.
Swatch Group Chief Executive Nick Hayek has made it clear
that he no longer wants to have to supply movements and parts to
everybody and wants to be able to choose his customers. LVMH
brands such as Tag Heuer, Zenith and Hublot appear to be top
($1 = 0.9436 Swiss francs)
(Additional reporting by Nathalie Olof-Ors; Writing by Silke
Koltrowitz; Editing by Jon Loades-Carter and Astrid Wendlandt)