Swatch: Creating a Shakeout in the Swiss Watch Industry

30-day Challenge – Day 24

A watchmaker at Edox, one of the Swiss companies challenging Swatch's decision to stop selling timepiece components.

For a company with revenues in excess of $6.5B, Swatch is considerably the worlds largest watchmaker. The Swiss company recently received approvals from the regulatory agencies to stop supplying competitors with the movements they use to make their timepieces. This is an ironic twist of events, because I am forced to ask myself, “why didn’t Swatch’s competitors invest in producing their own inner workings?”

The answer:

everybody else was perfectly happy to spend everything on marketing rather than building up their own production.

– Olivier Müller, independent watch consultant and GM at Laurent Ferrier, a boutique watch firm

Swatch believes its decision to competitively strangle other watch firms will bring innovation and investment to an industry, which includes:

about 500 companies, ranging from the behemoth Swatch to boutique companies that make about 100 timepieces a year but sell them for more than $300,000 each.

This is a very smart play on the part of Swatch, which was formed from a merger between two failing watch companies in the early 1980s. The obvious reason appears to be the surge in Asian demand for luxury goods. You should read the article published by the NY Times.

The plaintiffs predict that several companies will disappear because they have few other options for the parts, which must come from Switzerland to keep the lucrative “Swiss made” label. They also argue that if Swatch goes through with its withdrawal, the result could be as wrenching to the Swiss watch industry as the arrival of Japanese digital watches, which almost led to the industry’s collapse in the 1970s.

Swatch’s decision has not gone unnoticed. It is now part of a flock of separate lawsuits filed by competitors who are understandably hampered by the huge costs it would take to develop their own manufacturing verticals. Some of the plaintiffs (firms/brands) include:

  • Frédérique Constant, Geneva.
  • Edox, independent Swiss watchmaker.
  • TAG Heuer: Owned by LVMH, and recently withdrew its complaint. Maybe it did so because its sister brand, Hublot, is building its own manufacturing capabilities. Hublot currently produces 37% of its timepieces in-house.
  • Sellita, the second-largest maker of movements in Switzerland.

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