Swatch Breaks Deal With Tiffany

Companies traded barbs after the Swiss watchmaker said it ended its three-year partnership to manufacture watches for the American luxury jeweler.

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Breakups can be ugly — and this one is no different.

This story first appeared in the September 13, 2011 issue of WWD.  Subscribe Today.

Tiffany & Co. and The Swatch Group Ltd. traded barbs Monday after the Swiss watchmaker said it ended its three-year partnership to manufacture watches for the American luxury jeweler.

Swatch took the first jab, blaming Tiffany for “systematic efforts to block and delay the development of the business.” As a result, the company vowed to pursue a claim against Tiffany to recoup compensation for the loss of future business.

Nayla Hayek, president of Tiffany Watch & Co. and chairwoman of Swatch, told WWD that the damages requested would amount to a triple-digit figure in millions of Swiss francs.

The blockage “occurred in various domains, such as in the marketing, for example events, ads, etc.,” she said, noting that “due to the obstructions from Tiffany & Co., the development of the distribution did not live up to expectations.”

The American jeweler fired back in what is shaping up to be a he said, she said back-and-forth, denying that it neglected its obligations in the agreement.

“Since Tiffany & Co. and The Swatch Group Ltd. entered upon this venture more than three years ago it has become increasingly clear that Swatch is unwilling to honor the terms of our agreement, make the necessary commitments and work cooperatively to develop the business for Tiffany & Co. watches in the luxury space,” the retailer said. “Despite assurances to the contrary made in 2007, Swatch has failed to provide appropriate distribution for Tiffany & Co. brand watches, with the result that our current business forecasts do not include any meaningful increase in watch sales or royalty income. “

The New York-based luxe jeweler “insisted that Swatch honor its own obligations, particularly its obligation to respect Tiffany’s rights regarding brand-management and product design.”

It added that it was “confident that its position will be vindicated” in coming arbitration.

The partners unveiled a 20-year strategic alliance in 2007, and Swatch set up a new entity, Tiffany Watch Co. Ltd., to manufacture, design and market luxury watches through Tiffany stores, the Swatch Group and independent retailers.

At the time, Tiffany’s chairman and chief executive officer Michael Kowalski referred to the alliance as an “historic agreement,” adding that Swatch Group is “the best conceivable strategic partner for Tiffany’s long-planned reentry into watch distribution.” As part of the agreement, Tiffany said Swatch would support distribution with a significant marketing campaign. “Our advertising and that of the new watch company will be fully integrated and support a common objective,” Kowalski said.

“This agreement is a path-breaking strategic move,” added Nick Hayek Jr., ceo and president of the group management board of Swatch. “It allows without any financial capital transaction the maximum utilization of manufacturing and distribution resources of both partners.”

Fast-forward to 2011 and Swatch, which has a similar cooperation contract with Calvin Klein, said it is planning on winding down current business with Tiffany over the course of two years.

According to Tiffany’s most recent 10-K filing with the Securities and Exchange Commission, watches sold in Tiffany’s stores constituted 1 percent of net sales in both 2010 and 2009 and 2 percent in 2008.

In 2010, the jeweler amassed net sales of $3.06 billion, which constituted a 13.9 percent jump, versus sales of $2.71 billion in 2009.

Either way, Monday’s news didn’t seem to faze Wall Street. Tiffany saw its stock edge up 2 percent to $69.85 at the end of trading.

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