BIEL, Switzerland — Nick Hayek challenged rivals Compagnie Financière Richemont and LVMH Moët Hennessy Louis Vuitton by warning that Switzerland’s biggest watchmaker would stop supplying crucial movements to its major competitors after the expiry of their current contracts.
The threat, made at Swatch Group’s media conference at the flamboyant new home of its top-selling Swatch brand, marked the latest salvo in the years-long tussle between the watchmaking operations of some of the world’s top luxury goods groups.
Movements are the hearts of mechanical watches, and Swatch Group, through its ETA subsidiary, is by far the dominant Swiss supplier. Swatch tried almost a decade ago to restrict sales to third parties. However, its initiative provoked an investigation by Switzerland’s competition authority, which ascertained ETA’s market dominance and obliged it to maintain sales, albeit at an annually declining rate. That obligation expires at the end of this year.
“We’re not worried at all. We need all the capacity for ourselves. They should be worried, It’s not self-service anymore,” said a combative Hayek, referring to his big rivals.
Like his now deceased father, the current Swatch Group chief executive officer has railed against Richemont and especially LVMH‘s mid-market Tag Heuer brand.
The Hayeks, Swatch Group’s biggest shareholders, have for years argued that their rivals have failed to invest in production capacity, and diverted spending into marketing instead, while preferring to buy movements off the shelf from ETA.
“We sell 510,000 movements a year to third parties and can use all that ourselves,” revealed Hayek. He said some small Swiss brands had renewed their supply contracts, which ETA would honor. But failures to renew by both LVMH and Richemont — which Hayek defined as inexplicable — meant ETA would not be able to supply them with further movements after their current contracts ended.
“We would really encourage them to invest more, but that’s their problem, not ours,” he added.
Richemont, and, to a lesser extent, LVMH has increased spending on essential watch parts and movements. But their focus has been on higher-end products, with movements for both groups’ less exclusive models still often being sourced from ETA. One major reason is ETA’s economies of scale, which make its products relatively cheap compared with the limited number of lower volume rivals, let alone the likely cost for competitor brands to set up production of their own.
Hayek implied he would consider supplying LVMH and Richemont — whose IWC mid-market brand bought at least 45 percent of its movements from ETA, he claimed — in order to support Swiss watchmaking. But he argued both groups had been preoccupied and neglected to think sufficiently ahead.
Tag Heuer was unavailable for comment, while an IWC spokesperson declined to comment on what she said were group matters.
Hayek, speaking for the first time at the new 270 million Swiss franc headquarters for the Swatch brand and an adjoining group conference center, also revealed buoyant sales for the new Swatch Paymodel introduced in Switzerland in January.
The newcomer, available initially in four variants with more to come, allows automatic payment, akin to an existing Swatch watch on sale in China. He said sales would be extended in coming months to Italy, probably in July, the U.K. and Germany.
The new model replaces and enhances the previous Swatch Bellamy, a payment enabled watch launched in Switzerland that failed to take off because of significant barriers and delays with the banks involved. The new WatchPay, by contrast, is much simpler, allowing contactless payment up to 40 Swiss francs and much higher sums thereafter subject to customer verification.