PARIS — Swatch Group is lending its muscle to Tiffany & Co. in the New York jeweler’s bid to grow its watch business worldwide.

This story first appeared in the December 4, 2007 issue of WWD. Subscribe Today.

The Swiss watch firm and Tiffany on Monday said they had sealed a 20-year strategic alliance that foresees the creation of a new Swiss-based company to manufacture, design and market luxury watches under the Tiffany name.

Swatch Group, whose stable of brands includes Breguet, Blancpain, Omega and Swatch, will own the new watch company. Tiffany will hold one of the five seats on the company’s board, through which it will participate in before-tax profits and offer input on design and marketing.

“The alliance will place Tiffany & Co. within the distinguished collection of luxury watch brands manufactured and distributed by the Swatch Group,” said Michael J. Kowalski, chairman and chief executive officer of Tiffany & Co.

Kowalski said discussions of the tie-up began more than a year ago. “Swatch Group is the best conceivable strategic partner for Tiffany’s long-planned reentry into watch distribution,” he said.

The deal is the latest alliance between an American brand and a major Swiss watch conglomerate. In March, Polo Ralph Lauren and Compagnie Financière Richemont — the owner of Cartier and Van Cleef & Arpels — formed a joint venture to create fine watches and jewelry under the Polo and Ralph Lauren brands.

Likewise, the deal reflects buoyancy in the luxury watch market and underscores a desire among brands to profit from growing demand generated by wealth creation and meteoric growth in fast-emerging markets such as the Far East and Russia.

“Tiffany & Co. is a true luxury brand with a long-standing heritage in watches,” said Nick Hayek Jr., ceo and president of the group management board of Swatch Group. “We fully expect to see Tiffany & Co. strengthen its position among the best known and most respected watch brands in the world.”

Watches have been underdeveloped at Tiffany, accounting for only 2 to 3 percent of the retailer’s total sales, which were $2.6 billion last year. Recent attempts to energize the category include the redesign of the Mark and Atlas collections and the introduction of the Tiffany Grand line.

The new deal should accelerate Tiffany’s efforts. In April, for example, the company said it would operate a stand at the important watch fair in Basel, Switzerland. The company also revealed plans to wholesale its watches to broader distribution for the first time.

The new Swatch-operated company will produce a full line of Tiffany & Co. watches, all made in Switzerland, to compete with the likes of Cartier and Baume & Mercier. Distribution will be made through the Swatch Group network as well as Tiffany stores.

Equally, the deal allows Swatch Group to operate Tiffany watch stores in certain markets outside of the U.S. Those stores may offer “a targeted collection” of Tiffany jewelry, according to the alliance. Tiffany also plans to increase visibility through greater marketing and advertising campaigns.

“Our advertising and that of the new watch company will be fully integrated and support a common objective,” said Kowalski.

“This deal is a pathbreaking strategic move [for Swatch Group],” added Hayek. “It allows, without any financial capital transaction, the maximum utilization of manufacturing and distribution resources of both partners.”

The two companies plan to host a news conference in Tiffany’s New York flagship on Wednesday to provide further details on the hookup.

Swatch, which operates some 160 production facilities in Switzerland, last year recorded sales of more than 5 billion Swiss francs, or $4.45 billion.