Baselworld is going on very well this year. We expect more than 100,000 visitors, 3,000 journalists from 70 countries and the Markets are confident. This confidence comes from watch customers willing to buy at all levels of price. So the increasing demand brings watch Brands to review their production facilities and the supply chain. And here, the stress starts as the risk will be to lack of components. Swatch, Richemont and LVMH dominates the market and the race for components availability makes companies to purchase small swiss businesses to supply their demands. War has started.
It all started with a simple yet striking announcement made by Nicolas Hayek, CEO of the Swatch Group by the end of 2009:
“We no longer intend to produce or deliver to third-party watchmakers“
This sentence sounded like a big bomb. In deed, only a few watch brands do everything in-house. Most of the brands we know, they purchase some components, especially the mechanisms, to companies like ETA. But the thing is that ETA belongs to the Swatch group and if tomorrow they stop delivering competition, this might make a big cleaning in the watch market. Mr Hayek explained that by stopping the deliveries to competitors, they would lose around 7% of their annual sales (around 300 million dollars). It would be a lost they would be happy to bare as this would possible erase some competitor’s brand, especially at Richemont Group.
Since then, we assisted each year to amazing announcements of global international watch brands purchasing small swiss components manufactures. And here is a small list of recent financial operations.
Already in 2007, the Richemont group purchased the component sector of the swiss watch maker Roger Dubuis. This was already a strategic move towards a more independent approach in terms of supply chain. In the same year, the Geneva group buys Donzé-Baume, maker of luxury bracelets and cases.
2012 is the year of the component race. Hermès announced the partial purchase of Joseph Erard, maker of luxury watch cases in the beginning of the year. Now, the latest news say they would also purchase Natéber, a small company from La-Chaux-de-Fond, producing watch Dials.
March 2012, Louis Vuitton announces the buy of Léman Cadrans, a geneva based company, specialized on the production of luxury Dials. Last year LV already has announced the purchase of La Fabrique du Temps, a specialized workshop building watch movements and specific complications like tourbillons and Repetitions minute. Louis Vuitton launched its first watch 10 years ago and since 2002, all watches are produced in a manufacture in La-Chaux-de-Fond.
Patek Philippe, one of the unique high-class swiss watch Brands, announced that they will not get into this war as they have already invested into their supply chain. According to Thierry Stern: “Many companies are behind in their investments and are motivated to strengthen their Production. But these are things we have already done“. But we know, this situation is not that simple as Patek Philippe depends on a company called Nivarox, a Swatch Group company. Nivarox has a almost-monopole on “echappements“, a crucial component in the luxury watch making. So? Not that easy.
Tag Heuer, the giant Watch Brand, which belongs to LVMH, is doing trials to replace Nivarox spirals by Atokalpa ones. Tag Heuer is working with Sandoz foundation, owner of Atokalpa, to make that change. Jean Christophe Babin, CEO of Tag, announced that Nivarox did not want to renew the contract with Tag as it arrived into an end this year. Will Tag Heuer be able to make this move? The arrival of Bulgari Watches will also make a difference in terms of component production.
The last news I got in the corridors of Baselworld last week was the purchase of Prothor Holdings SA for about 5.76 billion yen. Inside Prothor, there are 2 interesting companies. The first one is the luxury watch manufacturer Arnold & Son SA. The second one is the mechanical movements makes La Joux-Perret SA. This time it is the Japanese who gets into the component race.
So which one is next? Today we realize that the label “Swiss Made” is not only a national treasure but it worth money in the world market. In a small industry with around 3,000 companies, competition is key and most of the brands realizes that in 2013, the production of components might dicrease because of the different Groups strategies. So, we might attend to a U-Turn in the Watch industry in which we will separate the true Watch-manufacturers from the others.
Watch-out!
All info sourced in Les Echos, Worldtempus, Herald Tribune, Wall Street journal, Le Monde, and the different Watch brands official websites. All images are copyrighted with no reproduction rights available.
