Industry News, December 2016

Supply and Demand Once Again Puts Swatch Group and Swiss Competition Commission at Odds

By Aaron Recksiek, CW21

In traditional economics, when a company no longer has the level of demand for a product they are producing, they simply produce less of the product. Not so for the Swatch Group. The situation they are currently in is contrary to the fundamental “supply and demand” laws of economics. On the one hand, they are required by law to produce 1.5 million mechanical movements each year, and on the other hand, they don’t have enough demand to sell these movements.
    How did they get into this predicament? In 2011, the Swatch Group approached the Swiss Competition Commission, also known as COMCO, with a request to reduce, and eventually eliminate completely, the number of movements it was supplying to third-party brands. At the time the Swatch Group was producing about 60% of mechanical watch movements to the Swiss watch industry. The Swatch Group felt it was producing too many movements for its competitors and it was bad for the industry to be leveraged too heavily on one manufacturer.
    In 2013, COMCO agreed to allow the Swatch Group to progressively taper off their supply year by year until 2019 when they would no longer be required to supply movements to any other company. This created plenty of concern around the industry as to where the supply of movements would come from to meet the ever-growing demand for mechanical timepieces. Also, many feared it would put some brands out of business due to the inability for smaller companies to develop and produce movements in-house.
    In response to the projected unavailability of ETA movements, several movement manufacturers and many watch brands, spent a lot of time and money producing their own in-house components. Fortunately for the industry, but unfortunately for the Swatch Group, this came quicker than most experts had expected. Dependence on ETA mechanical movements has dropped significantly, partly due to brands making other arrangements, but it’s also due to the declining demand in Swiss watches over the last year.
    This prompted the company to request a change to the agreement it originally struck with COMCO. They formally asked the agency to allow them to reduce the number of movements they are required to manufacture. In a statement on October 27, COMCO declined the Swatch Group’s request and stated, “Changing the supply agreement at this stage would threaten the projects of competitors.” In a statement later released by the Swatch Group, the company said, “In order to cover the additional costs arising from this enforced readiness to deliver, ETA will have to consider massive price hikes.” It seems imminent, unless the company can find new buyers for the hundreds of thousands of unclaimed watch movements.

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Aaron Recksiek is an independent watchmaker in Salt Lake City, Utah. He is a graduate of the 2008 WOSTEP class at the Lititz Watch Technicum.

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