LVMH will increase production of Zenith brand watch movements

LVMH plans to increase manufacturing at its Zenith brand to supply watch movements across the luxury group's watch division.

“We believe we can go beyond the brand to develop them as a movement manufacturer for the group,” Frederic Arnault, head of LVMH's watch unit, said Thursday.

The strategy to boost production of Zenith movements (the mechanical heart of a watch) suggests that LVMH Moët Hennessy Louis Vuitton SE wants to expand its Swiss watchmaking capabilities internally rather than acquiring component manufacturers. Known for its El Primero chronograph, Zenith already makes some movements for LVMH's Hublot brand and has provided them to Tag Heuer in the past.

Manufacturing mechanical movements is a critical and expensive component of modern industrial watchmaking, and Zenith has a long history of producing high-end movements. Increasing production could provide cost synergies for LVMH and give Zenith a path to growth at a time of cooling demand for luxury watches.

“We aim to become an industrial player for the industry of our brands,” said Arnault, one of the five children of LVMH's billionaire founder Bernard Arnault, after an event at the company's Bulgari facility in Saignelégier, Swiss.

Frederic, who took up a newly created position heading the watch division in January, said the group did not bid for any watch operations put up for sale by the Swiss Sandoz Family Foundation. Those assets included movement maker Vaucher Manufacturer Fleurier and the Parmigiani Fleurier brand.

“We are not interested and we did not make any offer,” said Arnault, 30.

Vaucher supplies major Swiss brands, including Audemars Piguet, and premium models from LVMH brands such as Tag Heuer.

LVMH rival Hermès International SCA owns a 25% stake in Vaucher and has the right of first refusal over any takeover bid. LVMH's lack of interest could put Hermes in prime position to acquire Vaucher and any other watch assets offered by the Sandoz Family Foundation in the sale, which is led by Deloitte.

A Hermes representative declined to comment on Sandoz's assets. Last month, Chief Financial Officer Eric du Halgouet told reporters that the Birkin bag maker continued to monitor Vaucher.

LVMH's jewelry brands Bulgari and Tiffany also produce watches, as does the Louis Vuitton brand under the leadership of Frederic Arnault's younger brother Jean, who recently revived the Daniel Roth and Gerald Genta brands.

LVMH trails rivals Richemont and Swatch Group AG in watch manufacturing and sales, according to analyst estimates. Rolex is the largest Swiss watchmaker, producing more than a million watches a year and selling more than 10 billion francs ($11.3 billion), according to Morgan Stanley and LuxeConsult.

“It's interesting to see that, despite having a small presence in Swiss-made watches, LVMH is investing in movements,” said Bernstein analyst Luca Solca. “It seems like a sign that they are serious” and could intensify the watch business at Tiffany, “which today is insignificant,” he said.