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How Swatch Group's Reduction of Supply Will Invigorate the Watch Industry

When Swatch made the announcement that they would stop providing movement kits to the industry, there was a collective outcry. Without a doubt Swatch is a powerhouse owning 19 brands across all price ranges from haute horlogerie marques like Breguet to Flik-Flak – a children’s brand. What makes Swatch such an influential player in the industry is their manufacturing capability. They provide movement kits and balance springs to a majority of the industry. Smaller, independent brands in particular rely upon this supply. Recipients also include big boys under the Richemont umbrella such as IWC, Panerai and Cartier. According to investment firm Sanford C. Bernstein and Co., Swatch has 70-80% of movement production locked up.

Under the current resolution, which looks to be contested by affected brands, Swatch plans in 2014-2015 to reduce supply by 30% from 2010 levels, then cut it to 50% in the following two years, followed by 30% thereafter. Though movement manufactures like Soprad and Concepto have risen to fill the gap, their production cannot keep up with demand. This will leave many brands vulnerable. Director of Louis Erard, Alain Spinedi, said in an interview on RTS, Swiss Radio and Television, “This proposal does not allow enough time for the mid-priced brands to arrange new sources of supply. Their growth prospects will be seriously damaged.” Spinedi further asserted that without access to Swatch’s stock there wouldn’t be any more watches in the mid-range priced in the $750-2,500 CHF range.

Spinedi’s claim might be a bit farfetched, however he makes a legitimate point. Watch companies that don’t have or intend to have manufacturing capabilities might be forced out of the business. And this is exactly what Hayek had in mind when he sent down his resolution. Swatch Group heavily invested in research and development while others without investing a dime took advantage of the technology.

With his edict, Hayek wanted to stir the pot and give a push to what can be a rather complacent industry that clings to the norm. By squeezing supply, genuine contenders would step up and dilettantes fall away. In this environment Hayek believed creativity and innovation would flourish. Necessity is the mother of invention, after all.

We’ve already seen some of the results of Hayek’s strategic move with the demise of brands that couldn’t adapt, while those that could have brought fresh ideas to the table. In response to Hayek’s decision, competing corporation Richemont has ponied up a big percentage of its budget to get its watch brands to independence. Witness the high complications and base calibre coming out of Cartier’s now established manufacture, which just got up and running in the last five years. Similar developments can be seen at Panerai and IWC. Even little guys like Frederique Constant are producing in-house calibres, including a tourbillon. In addition, A. Lange & Sohne and H. Moser & Cie, among others, make their own balance springs – the hardest component to get right.

Though Hayek passed away two years ago, his presence is still being felt. Like he did with the Swatch watch, Hayek is turning Swiss horology on its head and at the same time saving it from obsolescence.

Meehna Goldsmith hails from Los Angeles but found her tempo in the Big Apple, where she gets to indulge her horologic addiction as Editor-in-Chief of Longitude, Christie’s blog for collecting watches. She also writes about watches for several publications both online and off, including the Financial Times, International Watch, Robb Report, and The Huffington Post. As a veteran of Hollywood, Meehna appreciates a good story in any form and can spin a tantalizing yarn with the best of them. In addition to watches, she admits to a certain obsession with perfumes. You can find her on Twitter as @thewatchlady or @longitude1761.

Date: /Author: Meehan Goldsmith
Category:  Editorial/Tags:  Watches, Swatch, Op-Ed
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