Swatch Chairwoman Nayla Hayek said in March that Tiffany Watch Co, set up in 2007 to produce Swiss-made watches under the Tiffany brand, was not as successful as hoped for because Tiffany was not giving the watches enough prominence in its stores.
Swatch Group, the world’s largest watchmaker and a major supplier of components, said in a statement that it would sue for damages to make up for lost future sales, faulting Tiffany for “systematic efforts to block and delay development of the business.”
Tiffany countered in a statement that Swatch has not honored the terms of the agreement and has been unwilling to work cooperatively with Tiffany.
“Swatch has failed to provide appropriate distribution for Tiffany & Co. brand watches, with the result that our current business forecasts do not include any meaningful increase in watch sales or royalty income,” Tiffany said, adding that it expected its position will be vindicated during arbitration proceedings over the matter.
A top Tiffany executive hinted at an investor conference in June that the companies were not seeing eye to eye on how to manage their deal.
“They’re not used to having a license arrangement where they can’t make 100 percent of the decisions without possibly stopping for approval along the way,” James Fernandez, then chief financial officer, said at the time.
The strategic alliance, signed for an initial term of 20 years, was meant to boost the development, production and worldwide distribution of Tiffany branded watches, and several watch collections had since been launched.
But according to Tiffany’s most recent annual report, the deal with Swatch represented less than 1 percent of sales.
Vontobel analyst Rene Weber said he estimated Tiffany watch sales at about 30 million Swiss francs in 2010. “There was a potential of 300-400 million francs,” he said.
Tiffany reported last quarter that high end jewelry sales were soaring, even as sales of moderately priced jewelry made with silver slowed.
“What we’ve seen is that the consumer has chosen to migrate to higher price points,” Fernandez, who is now Tiffany chief operating officer, said later in June.
That has made mid-tier watch sales less crucial, an analyst said.
“Tiffany rightly so is focused on their jewelry business,” said Morningstar analyst Paul Swinand. “For both of these companies, this is a distraction.”
Kepler Capital Markets’ analyst Jon Cox said he expected costs of around 20 million Swiss francs ($22.7 million) associated with closing down the venture, which was effectively controlled by Swatch Group while Tiffany received a royalty.
Cox said Swatch Group had lost its only real jewelry brand.
