Swatch backpaddles on phasing out watch movement deliveries

Mon Jun 20, 2016 9:50am EDT
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By Silke Koltrowitz

ZURICH (Reuters) - Swatch Group SA (UHR.S: Quote) said on Monday Swiss competition authority Weko was examining if the world's biggest watchmaker could supply more mechanical movements to its customers than was set out in a 2013 agreement on phasing out deliveries.

Swatch's ETA unit still supplies the lion's share of mechanical watch movements -- the tiny mechanisms that make a watch tick without help of a battery -- to the industry.

Rivals built up production capacity after Swatch got the green light to phase out deliveries, a development that together with weak global demand for luxury watches led to an oversupply of movements. "Weko is currently examining if a certain liberalization of the mutual agreement is possible given the structural change that has taken place in the area of mechanical movements," Swatch Group said in reply to an inquiry from Reuters.

Swatch said liberalizing movement delivery rules would let it better meet the needs of ETA's third-party customers.

Weko confirmed a review was under way.

"I think it is to do with the lower production the industry is going through and Swatch Group probably wanting to improve its capacity utilization by supplying more movements to third parties," Kepler Cheuvreux analyst Jon Cox said:

"If business was more brisk and there were more demand for watches overall I doubt it would be looking to do that."

Watch movement makers told Reuters at an industry event in Geneva last week that weak demand had led to a glut of mechanical movements and that Swatch had signaled readiness to again deliver more movements to the industry.   Continued...

Watchmakers work on mechanical watch movements in the Dubois Depraz workshop in Le Lieu, Switzerland June 10, 2016. REUTERS/Ruben Sprich