Swatch's supply cuts start to hurt watchmakers

Geneva: Swatch Group's decision to lower watch part supplies to rival watchmakers this year has already impacted the industry, forcing some brands to hold back production and others to scramble for alternatives, executives told a fair this week.

The outlook might be more gloomy than it was for 2011 but the Swiss industry is enjoying record demand, having recovered much faster than expected from the 2008-2009 downturn, putting unprecedented pressure on its production base.

Swatch Group has for decades served as the industry's "supermarket," to use its own words, with its ETA unit providing as much as 80 per cent of Swiss movements and its Nivarox arm dominating the market for escapement and oscillating parts, which make up the heart of a watch's mechanism. In 2011, Swatch's production unit, which supplies the industry's watch parts, had sales of two billion Swiss francs ($2.12 billion).

Since January 1, Swatch Group is able to lower deliveries of watch parts to rivals to ensure that it has enough supplies for its own brands such as Breguet, Omega and Longines.

Many brands at the Geneva watch fair said they were confident they could cope with Swatch Group's decision, pointing to good relations with the group, but others hinted of tough times ahead.

TAG Heuer's CEO Jean-Christophe Babin said on Wednesday that Nivarox had stopped supplying the brand starting this year.

Girard-Perregaux is having to turn away watchmakers who want to buy its in-house movements.