Watchdog says Swatch must stick to movements deal

Swatch controls around 60% of the domestic market of watch movements Keystone

Switzerland’s largest watch maker, Swatch, must abide by a 2013 deal to slowly phase out the delivery of mechanical watch movements to rivals and not sell excess stock to new customers, the Swiss Competition Commission (COMCO) said on Thursday.

“Changing the supply agreement at this stage would threaten the projects of competitors” of Swatch Group’s ETA watch movement unit, COMCO said in a statement. It thus turned down a request from Swatch to amend the accord set out three years ago due to weak global watch demand.

COMCO said difficult market conditions for watchmakers did not justify changing the rules of the 2013 deal to gradually stop supplying rivals with vital mechanical watch movements.

Swatch controls around 60% of the domestic market of watch movements.

Under the 2013 agreement drawn up at the time at Swatch’s request, the watchmaker can progressively reduce its supply of parts to rivals until the end of 2019, when the group will be relieved from the obligation to sell watch parts, produced at its ETA unit, to any other company.

COMCO said it was swayed after speaking to Swatch competitors who explained that amending the supply agreement would create problems as they build up movement production capacity.

In reply, Swatch said COMCO’s ruling would force it to “consider massive price hikes” at ETA to cover the costs of maintaining production capacity. It said customers, such as Sellita or Tudor, had ordered 700,000 fewer movements for 2017 than for this year, leading to idle capacity at ETA.

The group, known for Omega and Swatch watches, said it had to maintain capacity to deliver roughly 1.5 million mechanical movements, and would now not be allowed to find new customers for movements that existing customers left on the shelves.

In 2013, COMCO initially vetoed Swatch’s plan to stop supplying rivals with vital parts on the grounds that other Swiss watch companies, some of whom did not have the capacity to make their own parts, would suffer.

But the competition watchdog reversed its decision after agreeing a plan with Swatch that would cushion the blow for smaller watch makers in the case of them suffering extreme hardship. COMCO stated at the time that it would reassess its decision if market conditions deteriorated dramatically.