"Swiss-made" label lacks precision for watch industry

Citychamp Watch & Jewellery

06/12/2017 14:29

* "Swiss-made" rules tightened for watch industry 
    * Changes reducing competition for cheaper products 
    * Leave luxury brands scope to source some components abroad 
 
    By Silke Koltrowitz 
    ZURICH, Dec 6 (Reuters) - If you buy a "Swiss-made" watch 
thinking it's almost entirely produced in Switzerland, you might 
be mistaken. 
    The manufacture of components including dials, sapphire 
glass and cases is flourishing in China, Thailand and Mauritius 
and many of these end up in watches designated as "Swiss-made".  
    Stricter rules came into force this year for watches bearing 
the coveted label on their dial and for which consumers are 
prepared to pay a premium.   
    The key requirement is that 60 percent of the manufacturing 
costs occur in Switzerland, up from a previous 50 percent 
threshold that applied only to the movement -- the core 
mechanism. 
    The new rules were meant to make the label more credible in 
the eyes of consumers and to shield the industry from Asian 
competition. 
    But the change has made it difficult for the makers of 
cheaper Swiss watches to cut costs and weather a harsh industry 
downturn. And at the same time it has left the makers of more 
expensive brands enough leeway to shift a chunk of component 
supplies to Asia to protect their profit margins. 
    "Since the Swiss-made rules were tightened, we have fewer 
orders, not more," said Alain Marietta of dialmaker Metalem, 
based in Swiss watchmaking hub Le Locle. "Some customers ask us 
to produce half of the components in China so we can be 
cheaper." 
    He said he was concerned about losing customers but had 
stuck to his principles. "We want to offer a real Swiss made in 
Switzerland, otherwise for the people working in the watch 
industry here, it'll mean slow death." 
     
    COST PRESSURES 
    Affordable brands struggle to make money in Switzerland, 
where labour costs are high, margins are low and intense foreign 
competition, including from smartwatches, means they can't raise 
prices. 
    Citychamp's  0256.HK  Rotary brand, which had used the label 
for decades, offers no "Swiss-made" pieces in its latest 
collections, saying the new rules made it hard to deliver value 
and quality. 
    Swatch Group  UHR.S , whose watches span all price points 
and which has extensive production facilities in Switzerland, 
said it was benefiting from the new rules it advocated. Chief 
Executive Nick Hayek said in a recent newspaper interview the 
group might soon be without competition in affordable 
"Swiss-made" watches.  
    Mondaine Group's Ronnie Bernheim said the group's brands, 
which include popular Swiss railways watch Mondaine, had also 
abandoned some models that would not have met the new criteria. 
    National Watch Federation (FH) statistics show the value of 
exported watches with a retail price of up to 600 Swiss francs 
($610), fell by more than 11 percent in the first 10 months of 
2017, versus an overall rise of 2.4 percent for all price tags. 
    Watches account for roughly 10 percent of overall Swiss 
exports and almost 57,000 people work in the industry. 
    Specialist companies have sprung up that offer brands the 
optimum product mix that will qualify for the "Swiss-made" tag.  
    EOS Watch Development, for example, promises on its website 
to deliver "Swiss-made" products that will help customers save 
money by combining Swiss and Far East suppliers.  
     
    TOUGH AT THE TOP 
    At the top end of the market where timepieces sell for 
thousands of francs, a severe downturn in demand translated into 
sharply lower profits in recent years. 
    Profitability at luxury group Richemont  CFR.S  and more 
diversified Swatch Group is recovering now, helped by improving 
sales, but a tight focus on costs remains vital. 
    "Some brands in the high end would up to now never have 
considered buying components abroad for ethical reasons, but 
also because their excessive retail prices and resulting margin 
levels allowed it," said a Swiss dialmaker who asked to remain 
anonymous. 
    "The slowing demand forced almost all brands to reposition 
their products and they benefit from the new law, which is very 
explicit, to improve their margins by partly sourcing abroad." 
    He said his own dial company was mainly producing in 
Mauritius, where salaries are much lower, but a technical bureau 
performing some operations in Switzerland meant the dials 
qualified as "Swiss made". 
    Several sources said almost all watch case makers now 
imported sapphire glass from Asia. 
    Luxury watchmakers generally keep their suppliers secret, 
but recently there have been some initiatives denouncing this 
lack of transparency.  
    Francois Aubry, a supplier turned watchmaker, recently 
launched a timepiece with "99.99 percent Swiss production", 
publishing the list of all its suppliers, while the Swiss CODE41 
watch project raised 543,000 francs on crowdfunding platform 
kickstarter with a concept of total transparency on the mostly 
Chinese origin of its components.  
    Industry body FH said it was its task to intervene if 
"Swiss-made" rules were not respected. It has decided to set up 
a task force to make sure everybody plays by the new rules, 
especially once a transition period expires at the end of 2018. 
    However, some watchmakers have already lost patience with 
the system. 
    High-end brand H.Moser & Cie this year dumped the "Swiss 
made" label while declaring its own watches over 95 percent 
Swiss. It denounced the official rules as "too lenient, 
providing no guarantee, creating confusion and encouraging 
abuses." 
 ($1 = 0.9855 Swiss francs) 
 
 (Editing by Keith Weir) 
 ((silke.koltrowitz@thomsonreuters.com; +41 58 306 7454; Reuters 
Messaging: silke.koltrowitz.thomsonreuters.com@reuters.net)) 
 
Keywords: SWISS WATCHES/