Zurich—Swatch Group, the world’s largest watch and component producer, received approval Thursday from Swiss regulators to reduce its output of movements, a move that could cause shortages in coming years.
Swatch Group is required to supply watch movements to other Swiss watchmakers because it holds a dominant share of the business. Its ETA movement division, for example, is estimated to produce about two-thirds of all mechanical movements used in Switzerland.
Under the agreement revealed Thursday, Swatch will be able to reduce its 2014-15 deliveries of mechanical movements produced by its ETA unit to rival watchmakers to 75% of the average quantities delivered in 2009 to 2011, Weko said in a statement. Then Swatch can gradually reduce them further, delivering 65% of sales volume in 2016-17 and 55% in 2018-2019.
Regulating Parts No Included
The gradual reduction will serve to cushion the blow to to small and mid-sized businesses in cases of severe hardship, Weko said. The forecast will permit other major producers, including Richemont and LVMH and small independents to fine alternatives.
While production of movements will be reduced, Weko said it was too soon to phase out the assortiments, important regulating parts, produced by Swatch’s Nivarox unit, since there are so few alternatives.
In July, Weko blocked Swatch’s plans to cut third party deliveries but said it was not against a reduction in principle.
Meanwhile, Swatch CEO Nick Hayek said Swatch Group would likely see a 9 billion franc (about $10.1 billion) shortfall this year thanks to unfavorable currency fluctionations.
“We still will do very good results, but exchange rates are unfortunately not helping us, that’s all,” Hayek said. “Making 9 billion with these exchange rates will be difficult.”
Hayek said he is “very optimistic” for next year and sees double-digit percentage growth if currency fluctuations ease.