Swatch Group, Tiffany Form Watch Company

The Swatch Group, the world’s largest watchmaker, and Tiffany & Co., one of the globe’s leading luxury retailers, announced Dec. 2 that they have formed a new watch company to “further the development, production and worldwide distribution of Tiffany brand watches.” The strategic alliance, in discussion for over a year, is for 20 years, and can be extended another 10 if certain conditions are met.

The agreement is “a path-breaking strategic move,” said Nicolas G. Hayek, Sr., chairman and co-founder of The Swatch Group. Swatch and Tiffany are “again setting trends. It allows without any financial capital transaction the maximum utilization of manufacturing and distribution resources of both partners.”

“The Swatch Group is the best conceivable strategic partner for Tiffany’s long-planned re-entry into watch distribution,” said Michael J. Kowalski, Tiffany chairman and chief executive officer. “It’s the leader in the high-end watch business with unparalleled distribution capabilities and experience in the luxury segment of the watch business.”

Nicolas Hayek Jr., chief executive officer and president of the group management board of The Swatch Group said the two companies will “collaborate on design, engineering, manufacturing, marketing, distribution and service. We fully expect to see Tiffany & Co. strengthen its position among the best known and most respected watch brands worldwide.”

According to the announced agreements, the Swatch Group will incorporate the new watchmaking company in Switzerland; it will be wholly-owned by Swatch Group. It will be authorized to use Tiffany’s trademarks and operate under the Tiffany name.

Tiffany & Co. will participate in the new company’s before-tax profits and have one seat on its five-member board of directors, and seats on its product design and marketing committees. The watches will be produced in Switzerland, using Swatch group’s technological expertise and manufacturing capacities. The watches include both watch designs for which Tiffany is noted and new ones, too.

Tiffany & Co. watches will be distributed through the Swatch Group’s network (i.e., Swatch Group affiliates, Swatch Group retail facilities and third party distributors), as well as Tiffany stores. Swatch Group affiliates will have the right also to establish and operate Tiffany & Co. watch stores in some markets outside the United States. Those stores may also offer some Tiffany jewelry.

The watch company will support distribution with significant marketing, which will be “fully integrated [with Tiffany advertising] and support a common objective,” said Kowalski.

Officials of the two companies were expected to discuss details of the strategic alliance and the new watch company at a Dec. 5 press conference at Tiffany & Co. flagship store in New York City.

The Swatch Group produces 18 watch brands and had in 2006 of over CHF 5 billion (above $4.5 billion). It has 160 production centers in Switzerland.

Tiffany & Co. watches are distributed worldwide through more than 180 company-operated stores and boutiques, and approximately 100 independently-operated locations. It had net sales of $2.6 billion in 2006.