Swatch Reaches Draft Agreement To Cut Supplies To Watchmakers

By John Revill

ZURICH--Swatch Group AG (UHR.VX), the world's biggest watchmaker, has reached a draft agreement with the Swiss competition authorities which could allow it to dramatically reduce the amount of components it supplies to other Swiss watchmakers.

The company, which owns brands such as Omega, Breguet and Tissot, could be allowed to reduce the supply of parts by up to 70% by 2018, newspaper NZZ Am Sonntag reports.

The move could mean a new round of consolidation in Swiss watch making and the end of several independent watchmakers who cannot afford to undertake their own production or cannot find other sources of supply.

Because Swatch has a dominant market position, supplying up to 80% of the Swiss watch industry's movements, it cannot unilaterally halt the supply without infringing the Swiss Cartel Act.

The dominance is a legacy of Swatch's history of the time it helped to restructure the Swiss watch industry.

Last year the Biel-based company asked the Swiss competition authorities to look into the situation with the aim of being allowed to reduce its supply.

Among the customers for Swatch's components are Swiss-based luxury group Compagnie Financiere Richemont SA (CFR.VX) and LVMH Moet Hennessey Louis Vuitton (MC.FR), as well as smaller, independent watchmakers.

Under provisional steps already agreed, Swatch has already been allowed to reduce the supply of up to 85% of watch movements and 95% of other components at their 2010 levels in 2013 as well as 2012.

But under the draft agreement with the Swiss competition commission, Swatch will be allowed to reduce the level of movements to 70% of their 2010 levels by 2014-15; 50% by 2016-17 and 30% in 2018-19.

The levels of other components Swatch must supply will be gradually reduced to 30% of 2010 levels by 2023.

Other watchmakers have voiced alarm by the move, which they say will not give them time to find other supplies.

One told the newspaper that their costs could double if they had to go to other suppliers.

"We have now asked for comments from other watchmakers who have until the end of August to make their views known," Patrik Ducrey, vice director of the Swiss competition commission told Dow Jones Newswires on Sunday.

Several comments had already been received, although he declined to reveal what the watchmakers said.

This could lead to another round of negotiations, with Swatch Group, he added, with a final outcome expected by the end of the year.

A spokeswoman for Swatch was not immediately available for comment.

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