Watchmakers Struggle With Supply Bottleneck As Swatch Parts Cut-Off Comes Into Effect

Luxury watchmakers are fighting for market shares of the lucrative Swiss watch industry, which the Federation of the Swiss Watch Industry FH pegs at a worth of US$23 billion. With growing demand in Asian, European and American markets, luxury watchmakers are scrambling to secure production means in order to maintain growth, but Reuters reports that there is a serious supply bottleneck.

The supply-and-demand problem began this time last year, when the Swatch Group announced it would cut off access to purchases of its mechanical movements and watch components. The luxury conglomerate, which is the world’s largest holder of watch manufactures, produces the inner workings for its own companies, including Breguet, Blancpain, Glashütte Original, Omega and Longines. And until 2012, it also sold movements to smaller rival companies incapable of producing their own components. However, as the Swatch Group moved to increase their market share (with earnings of US$8.79 billion in 2012), they cut off supply in order to ensure growth capacity for their own companies.

Reuters quotes Jean-Marc Jacot, the CEO of independent watchmaker Parmigiani, as saying; “Everybody is rushing to get organised. For dials or cases you can buy an existing firm that works smoothly. But for all the parts going into the movement (such as balance-springs) there is nothing to buy. Nobody invested into these skills.”

Since then, the Swatch Group has worked with Weko, the Swiss competition commission, to determine a fair manner of reducing deliveries from its 156 production facilities. The aim is to eventually cut off supply to competitors altogether. As a result rival conglomerates like LVMH and Richemont have been scrambling to find alternatives, but options are limited if their companies are to maintain their status as “Swiss Made”.

Jacot told Reuters that luxury watchmakers were flooding Parmigiani with requests to buy parts from its production branch, Vaucher. However, according to Jacot, the company has no desire to go head to head with the Swatch Group, and as such have no plans to increase production. The few remaining independent Swiss movement manufactures, including Metalem and Aiguilla, are likely to be the focus of intense competition for control. Meanwhile, companies like Audemars Piguet have developed their own production facilities after struggling with supply issues.

Source courtesy Reuters. Photo credit.