Swatch Group, maker of watch brands include Longines, Omega and Tissot, warned of potential steep increases in the prices of ETA movements if it’s forced to continue holding onto movements it’s obligated to make but can’t sell.
Biel/Bienne, Switzerland--Swatch Group issued a statement Thursday warning of “massive” price hikes to come in the wake of the Swiss Competition Commission’s rejection of its proposal for moving non-purchased movements.

Back in 2013, Swatch Group reached what it described as an “amicable settlement” with the Competition Commission (Comco) that allowed it to begin dialing back the volume of finished movements and movement parts that movement maker ETA supplies to third-party customers, companies like Tudor and Sellita. A complete stoppage in supply is set for the end of 2019.

Until then, Swatch Group is obligated to maintain movement production at a certain level despite the fact that many of its customers have drastically reduced the size of their orders, with some major customers not placing any orders for 2017.

Because of this, Swatch Group asked Comco to allow ETA to try to sell the non-purchased movements to all its third-party customers, not just those covered under the 2013 agreement.

Comco rejected this request.

In a statement issued Thursday, the commission said, “The difficult economic environment in which the watch industry is currently located is … not a sufficient reason to modify the scheme adopted in 2013.”

Swatch Group called the decision “utterly unrealistic.”

“The Swatch Group proposal never intended to deviate from the amicable settlement but rather to supplement it in order to take the abusive customer behavior into account,” the company said.

“With this decision, ETA and Swatch Group must once again assume their customers’ economic risk … ETA must maintain the determined capacities for the coming years in order to meet its supply obligation as defined by Comco.”

Swatch Group added that it will have to consider “massive price hikes” in order to cover the additional costs associated with producing these movements that it’s not able to sell.

Jon Cox, a Switzerland-based Kepler Cheuvreux analyst who covers Swatch, said the threat “isn’t really serious” because Comco can reject any price increases it views as unreasonable.

But he added, “Of course this could be another reason it [Comco] rejected Swatch Group. It may have indicated that, given Swatch Group’s situation, it won’t stand in the way of price hikes.”

It’s an ironic turn in a case that dates back to 2011, when Swatch Group first approached Comco about a reduction in supply.

At that time, many companies bemoaned Swatch’s request, which was called a “bombshell” that would surely force smaller watchmakers that were unable to find alternative movement sources out of business.

Now, it seems, there are too many movements, between all the companies that started cranking them out when a reduction in Swatch supply became imminent and the slowdown in demand for Swiss watches worldwide.

Swatch Group said Friday that it has no further comment on Comco’s ruling.

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