Swiss watch industry finally moving into an era of self-reliance
After a decade of heavy investment, the Swiss watch industry is finally moving into an era of self-reliance. At this year’s spring watch fairs, a number of brands announced in-house calibres, demonstrating they are more independent of third-party movement suppliers than they have been for decades.
Brands have sunk vast sums into manufacturing these calibres, but with borrowing and investment levels at an all-time high and industry growth stalling, questions are being asked about when, if at all, brands will see a return.
The spate of investment goes back to 2002 and Swatch Group’s announcement that it would be seeking to overturn the Swiss law that obliged it to supply its movements and parts to third parties — even its closest competitors.
At the time, Nicolas Hayek, head of the Swatch Group until his death in 2010, claimed not only that this was limiting Swatch’s growth, but also that its monopoly was stifling competition. Brand self-reliance would spur innovation, he said, making the Swiss watch industry a more attractive proposition to its global consumer base.
The ensuing investigation by the Swiss Competition Commission into the group’s monopoly has since enabled Swatch to begin closing the door on rival brands, which have been forced to find alternative suppliers — or to invest in their own manufacturing facilities.
Producing movements from scratch is a slow and expensive process. But the market is now awash with “in-house” movements from high-volume brands, including Tag Heuer, Frédérique Constant and Tudor, which released the first in-house calibre in its 70-year history at Baselworld.
Jean-Paul Girardin, vice-president of Breitling, says: “There’s been a reshaping of the Swiss watch industry, from having one or two suppliers to everybody having to take responsibility for themselves.” The company has introduced seven in-house mechanical movements since 2009.
Its in-house movement programme began in 2004 and approximately a quarter of the 150,000 watches it produces annually are powered by in-house movements.
While Breitling has not released figures, Tag Heuer has stated that its investment in vertical integration has cost it SFr40m ($41.5m).
“What Nicolas Hayek said made sense, not just for Swatch Group, but for the whole industry,” says Mr Girardin. “The global Swiss watch industry is now much stronger than it was a decade ago.”
However, for all the aesthetic and technical benefits this reshaping has brought the industry, there is little evidence of financial reward as yet.
“There’s no short-term profit,” admits Aldo Magada, chief executive of Zenith, which produces around 50,000 movements a year and introduced a calibre with an improved 100-hour power reserve this year. Mr Magada adds: “But our shareholders want us to develop the brand, which means investing in movements with higher performance, which costs a fortune.”
Zenith is one of the industry’s long-time movement producers, with an established manufacturing facility. Others have been forced to build from the ground up.
Karl-Friedrich Scheufele, co-president of Chopard, says: “It’s taken us almost 10 years to get to a capacity of 15,000-20,000 movements a year.” The company began a volume movement production programme in 2007.
The question for those brands that have invested heavily in movement manufacturing is whether the consumer will buy into the product — or if they even understand it. Typically, an in-house movement watch is more expensive than one with a movement made by a third party such as ETA or Sellita, sometimes double the price.
Consensus among the brands is that although a significant return on their investment may not be imminent, it will come. This is despite the Federation of the Swiss Watch Industry recently announcing that the total value of Swiss exports — watches and movements — has fallen by 1.2 per cent in the first seven months of this year, prompting fears of its first annual decline since the annus horribilis of 2009.
Mr Scheufele says: “For the industry, the best way forward is to increase the number of aficionados and to increase awareness of fine watchmaking. And that’s what these in-house movements deliver.”