Tiffany, Swatch to Create Global Business

Luxury jeweler Tiffany & Co. and its new partner the Swatch Group, the world’s largest watchmaker, aim to build Tiffany’s tiny watch business into one of the world’s leading fine watch brands within the next decade.

Michael Kowalski (left), chairman and CEO of Tiffany & Co., and Nicholas Hayek Jr., 
CEO of the Swatch group’s management board, sign papers calling for Swatch Group 
to produce and distribute Tiffany watches, prior to press conference at Tiffany’s flagship store. 
Nicolas G. Hayek, Sr., Swatch Group chairman and co-founder, appears via video link.

Watches are now two to three percent of Tiffany’s total sales, and have long taken second place to Tiffany’s diamond jewelry business, admit its officials. Now, with its new 20-year alliance with the Swatch Group, “we have the resources and potential to grow that substantially,” and make its brand name watches a major player in the world’s fine watch market, said Michael Kowalski, Tiffany chairman and chief executive officer.

The Tiffany brand can become “one of the most important watchmakers in the world in the next five to 10 years,” declared Nicolas G. Hayek, Sr., Swatch Group chairman and co-founder.

Tiffany’s core lines–Atlas, Tiffany Grand, and Tiffany Mark—will continue, with new designs plus those for which Tiffany is noted. The full new collections will be unveiled in 2009, though some new watches could be ready in the second half of 2008, said Nicolas (“Nick”) Hayek, Jr., CEO and president of the Group’s management board.

Retailing pricing will be similar to that now (about $1,000 to $15,000, said Kowalski).

Distribution will be “selective”—through the Swatch Group global network, Tiffany stores, and areas where rivals like Bulgari watches are sold—and is still being “defined,” said Nick Hayek. However, “phones have been ringing off the hook” since the Dec. 2 announcement with calls from U.S. jewelers and other retailers who want to carry the watches, said Caroline Faivet., Swatch Group USA president.

Kowalski, Hayek, Jr., and Hayek Sr. (by video link with Geneva, Switzerland) outlined the new alliance—the most important in Tiffany’s 170-year history, said Kowalski—to three dozen domestic and foreign watch and financial trade journalists at a DEC. 5 press conference at Tiffany & Co.’s flagship store in New York City.

The new Swiss watch company, called Tiffany Watches but wholly-owned by Swatch, will be built in Switzerland. It will be headed by Nayla Hayek, daughter of Swatch founder Nicholas Hayek Sr. and a member of the Swatch Group board. That’s “a clear signal of how important this partnership is” to the Swatch Group, said Nick Hayek Jr.

Both companies will collaborate on design, engineering, manufacturing, marketing, distribution and service, he said. The company will produce the watches (formerly done by contracted watchmakers) using Swatch Group’s technological and manufacturing expertise, and distribute them worldwide. Tiffany will participate in before-tax profits, have a seat on its five-member board of directors, product design and marketing committees.

Both companies will provide financial support for what each called “significant” marketing and advertising of the watch brand.

Tiffany watches will be the 19th brand made by Swatch Group, and expands its high-end watch portfolio (including Breguet, Blancpain, Glasshütte Original, and Omega).

In the late 1990s, Tiffany redefined its watch collections and attempted to develop worldwide wholesale distribution, but it was “limited and too small,” to be effective, noted Kowalski. Now, the Swatch Group’s “unparalleled distribution capabilities and experience in the luxury watch business” will provide the clout Tiffany’s “long-planned re-entry into watch distribution” needs to become a world player, he said. “This will take the business to an entirely new level,” said Tiffany’s chairman.

Tiffany also said it will take a $20 million pre-tax charge to discontinue some of its current collections and related inventory, in preparation for the new ones.

On a related note, Nicholas Hayek Sr. said that Swatch Group will spend 450 million Swiss francs (almost $400 million) to increase the operating capacities of its 160 production facilities in Switzerland.

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