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PARIS — In a surprise ruling, Switzerland’s competition regulator announced on Friday it had rejected an agreement struck between its Secretariat and Swatch Group AG, which temporarily allowed the world’s biggest watchmaker to reduce deliveries of components to rival watchmakers.
This story first appeared in the July 15, 2013 issue of WWD. Subscribe Today.
The Swiss Federal Competition Commission, or Comco, said it was sending both parties back to the negotiation table because it considers it “premature” for Swatch Group to phase out the supply of essential regulating mechanisms like high-tech hairsprings.
“The Comco has not approved the amicable agreement signed in spring 2013 between the Secretariat and Swatch Group and has sent it back to the Secretariat so that it may be renegotiated,” the regulatory body said.
Swatch Group chief executive officer Nick Hayek deplored the ruling. “We regret that Comco has not taken a definite decision and rejected the common agreement, suggesting to renegotiate it,” he said.
Hayek has stated repeatedly his intention to wean other brands from their dependence on ETA, the Swatch Group subsidiary that supplies watch movements to most of the industry, and Nivarox, the division that produces oscillating and escapement parts, in order to stimulate research and development.
Biel-based Swatch Group, whose 19 brands run the gamut from luxury Breguet timepieces to affordable plastic Swatch watches, had been given the green light to reduce the supply of mechanical movements in 2012 and 2013 to 85 percent of 2010 levels, and deliveries of assortments to 95 percent of the 2010 quantities. Rivals like LVMH Moët Hennessy Louis Vuitton and Compagnie Financière Richemont SA have been snapping up suppliers of movements, cases and dials to secure greater independence, but they remain mostly dependent on third parties for the assortments, which are technically complex to manufacture.
The Comco said it agreed in principle that Swatch Group should be able to reduce the delivery of mechanical movements in a gradual way and under certain conditions. It approved a further 10 percent reduction for 2014.
“Regarding the essential components of mechanical movements [the assortments], the Comco considers that a reduction in deliveries would be premature, considering the situation currently facing the market, as well as the unpredictable developments in this field,” it said.
“It would like to wait to see what developments emerge on this market in the next few years before agreeing to a reduction in deliveries,” it added. This means that in 2014, Swatch Group will have to revert to delivering 100 percent of the quantities of assortments it supplied in 2010.
Officials at LVMH, Kering and the Federation of the Swiss Watch Industry declined to comment on the ruling. Richemont did not return calls requesting a comment.
The Comco had launched a probe in June 2011 into whether shutting off supply to third parties would constitute an abuse of Swatch Group’s dominant position, in violation of competition law.
Supply shortages are one of the main challenges facing the group, which posted a 14 percent increase in sales last year, breaking the barrier of 8 billion Swiss francs, or $8.5 billion, for the first time.
At the Baselworld watch and jewelry fair in April, Swatch made a splash with the launch of its Sistem51, billed as the first mechanical watch for the masses.
The company, which is credited with saving Switzerland’s mechanical watch industry in the early Eighties, has developed a revolutionary movement consisting of only 51 parts and a single screw, meaning it can be automatically assembled.
Hayek has contended the easy availability of his group’s components has made rivals disinclined to invest in their own production capacity, and allowed them to divert spending to marketing and store networks instead. He sees the Sistem51 as proof that it is possible to produce mechanical watches in Switzerland at a low cost.
On Friday, he said he was surprised that practically nothing had changed in the 10 years since Swatch announced its intention of phasing out the supply of parts.
“The lack of interest of the players in the Swiss watch industry to create novelties or to become more independent from Swatch Group is amazing,” Hayek said.