The anti-trust agency recently ruled that the world’s number-one watch group can continue to phase out deliveries of its mechanical calibres to third-party brands. That Swatch intended halting supplies was never in any doubt; this new agreement states when the cut-off point will be. From December 31st 2019, Swatch Group will no longer be under obligation to supply parts produced by its ETA subsidiary to the competition. While not all watchmakers will be affected, some are entirely dependent on ETA movements, particularly base calibres priced under CHF 300. Indeed, ETA has a virtual monopoly on this segment with a market share in the region of 95%, according to a 2004 Comco estimate.
The agreement states that based on the average number of movements sold per year between 2009 and 2011, ETA must supply 75% of those quantities in 2014-2015, dropping to 65% in 2016-2017, and 55% in 2018-2019. There is no planned reduction in supplies of “assortments” (i.e. regulating organs) which form the heart of mechanical movements. From 2020, Swatch Group will therefore be able to pick and choose its clients. The Biel-based giant will of course continue to supply movements to companies outside the group, as its own portfolio of brands cannot at the present time absorb its entire production. The question being, who will continue to benefit? On numerous occasions, the group’s number one, Nick Hayek, has made it known that it will continue to supply “friends”, namely those brands which have invested in their own production capacity rather than taking a purely marketing approach. No doubt the group has drawn up a list of names that will continue to enjoy the favours of ETA, which produces around two-thirds of all mechanical movements in Switzerland, but this list is, of course, kept secret.
The second option: the brands in question join forces and pool investments in new production capacity.
Three options
The others will have to take their fortunes in hand now that the “supermarket” is closing. They have three options. Firstly, they can develop their own production resources, something the Richemont Group is doing on a massive scale. This means giving themselves the means to produce in-house sufficient movements to cover their needs. A “declaration of independence” if you will. The late Nicolas G. Hayek pushed in this direction, but such a change can’t happen overnight. It will take time and substantial investment, and not everyone in the sector has the necessary funds to hand.
The second option is that the brands in question join forces and pool investments in new production capacity, thereby spreading the risks. This would be an innovative, not to say revolutionary approach in an industry whose philosophy has always been “every man for himself”. Hence why experts have ruled out this solution as being incompatible with the current industry mindset. Still, the idea isn’t as far-fetched as it may seem, given the 2020 deadline. For it to succeed, however, everyone must sit down at the same table and talk. Which isn’t about to happen.
The Swiss Watch Federation is confident
The third and final option will be to turn to alternative suppliers such as Sellita and Soprod. They in turn must take measures to increase capacity for entry-level and mid-range mechanical movements so as to rapidly fill the gap left when the supply of Swatch Group movements dries up. The “ETA affair” could be exactly the boost they need, although time is of the essence. The only certainty at this stage is that movements by those manufacturers which are indeed able to pick up the slack are more expensive, and this extra cost could be passed on to the end customer.
The main watchmaking groups and numerous independent manufacturers of watches, movements and parts are already increasing their industrial capacity with an eye to the 2020 cut-off point. Already, hundreds of millions of francs have been invested in the Jura region, the cradle of Swiss watchmaking. Jean-Daniel Pasche, who is president of the Federation of the Swiss Watch Industry, is convinced the branch will have developed the necessary capacity to be sufficiently independent of ETA before the end of the decade. Not everyone shares his opinion but at least now the rules are clear.