There has been much debate whether smartwatches could spell the end of the Swiss watch industry. Even Tag Heuer has started producing their own smartwatch. Is it possible that smart watches will win the day? I don’t think so.This is a topic I’ve cared about ever since the Apple Watch came onto the scene in 2015. There was an article recently featuring Jean Claude Biver (JCB), the godfather of the Swiss watch industry (written by Robin Swithinbank). JCB is currently the CEO of Tag Heuer and serves on the board at Hublot. He says in the article that the industry is not in a crisis, rather the whole world is! I encourage you to read that article before reading mine as I will provide some relevant commentary and thoughts.
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The Swiss watch market is down — way down. Exports (Sales) are down over 8% in 2016. The smartwatch started to come onto the scene in about 2012 (depending on which watch you count as the first mainstream player). However, the Apple Watch didn’t strike in full force until 2015 (Apple has come to own the smartwatch market). The question: is the Apple Watch the Swiss watch killer that the industry worries it might be? I will argue through this piece that the smartwatch is not; the Swiss watch industry will endure long beyond the smartwatch era. Here are my five reasons:
Reason 1: People who wear the Apple Watch are not the same people that wear Swiss watches. I can’t prove this to you; I can only use anecdotal evidence to argue this point. Go back to the basic reason watches are useful in the first place — to tell the time. There is no way a Swiss watch or Apple Watch fulfills this purpose any better than your iPhone or the omnipresent digital clocks. Therefore, I stand by my previous post that wearing a watch helps express a personal brand. People that want to express a personal brand do so by wearing a mechanical watch because it is a classic and sends a signal. On the other hand, the people who wear Apple Watches do so because they are looking for additional function they don’t already have. The Apple Watch is in contrast to the type of people who want a mechanical watch that expresses their personal brand. Sure, some of the smartwatches out there are stylish and have different bands with which to express yourself, but the smartwatch still sends a signal — you demand to be constantly connected. That is the image you send regardless of if its true or not.
If I had access to Apple’s sales data, I bet I would find that the average Apple Watch buyer either wore a cheap but functional watch before, or didn’t wear a watch at all. The actual number of luxury watch wearers who converted from luxury watch to the Apple Watch is very small. I think that JCB would not disagree with this. In fact, Tag Heuer’s marketing strategy for their smartwatch (the Tag Heuer Connected @ $1,500) is to hook the younger smartwatch wearers on the Tag brand so they will convert to a mechanical watch later in life (again, see JCB’s interview with Business of Fashion).
However, from a marketing perspective, I am not sure this is fully required. When you sell a product, there are two questions to ask: 1) what do you think you’re selling? 2) What does the customer think they are buying? [If this topic interests you, read my previous post on Watch Company Marketing] If the customer is buying a watch, then luxury mechanical watches and smartwatches will compete head-to-head. However, people don’t buy smartwatches because they want a watch, they buy them because they want a “computer for the wrist” (to quote JCB). Tag knows they are selling a computer for the wrist, but when a customer buys a Tag, I would argue the customer thinks they are buying a nice watch. In other words, if I want a functional computer for my wrist, I go to Apple, if I want a luxury watch, I go to Tag (or the many other brands). As the Guardian put it: smart watches “are inherently for the notification-obsessed. If you don’t feel the urge to reach for your phone the moment it demands your attention, then a smartwatch is likely to add little value to your life.”
Reason 2: Smart watches will be obsolete pretty quickly. This is a fairly well-debated point but seems to have a lot of backers. First, Apple Watch sales have not exploded the way the iPhone or iPad came to define the company. In fact, in July 2016, Apple Watch sales were down 55%. I think there are many people who aren’t sure they need a smartwatch or what to do with it. Because the Apple watch is the product of necessity for the “notification-obsessed,” (I use this term coined by the Guardian because it is perfect) it will only last long enough until a newer, better alternative arrives on the scene. If mechanical watch wearers were just waiting for a better alternative, the Swiss watch companies would have disappeared by 1990 when Quartz watches dominated the market. There are a lot of posts out there that say the Apple Watch doesn’t even meet the needs of the notification-obsessed population, meaning it is only a present alternative, but not the final answer. It was never a replacement for the mechanical watch and (I argue) it never will be. Note: The functionality the Apple Watch provides is already being replaced by much smaller devices such as the FitBit that now perform smartphone notifications.
Reason 3: The Smartwatch is not an aspirational product. This means that very few people are saying “my goal is to own an Apple Watch by the time I retire.” This is not the same for luxury watches — many people (especially men) cite a nice watch on their wish list for retirement. Because it is not an aspirational product, it becomes a product of necessity or a product for early adopters that will be easily replaced by the next great widget invented by Apple or Microsoft, etc. Aspirational products become viewed as investments and therefore people become okay spending thousands of dollars on them because they will have them for decades.
Reason 4: The slump in mechanical watches is only coincidental to the Apple Watch arriving. Again, refer to point 1. The customer bases are mostly different. However, beyond who the customer is, you have to understand who buys Swiss watches. The American and European markets are fairly mature (stable). Sales in these markets have been fairly consistent over the last decade. The industry’s growth came from the Asian markets where wealth and growth were exploding, particularly in China. Yet, in the summer of 2015 the Asian Financial Crisis hit and evaporated much of the wealth of many Chinese (this is well pointed out by Robin Swithinbank in her interview with JCB). The ability of wealthy Asians to buy Swiss watches decreased. On its heals (most recently) has been the BREXIT vote who’s economic implications are still to be seen. The Apple Watch will sell better through these events due to its much lower price point, but it is still not stealing Swiss watch sales.
Reason 5: The planned obsolescence of smartwatches won’t be tolerated for long. Buying a smartwatch is like saying you want to buy a new $500-$1,500 watch every two years. We culturally accept that phones need to be upgraded every few years. This has been the case ever since cell phones came onto the scene. However, we view watches as an investment or an heirloom piece. We are willing to spend thousands of dollars on a watch because we expect to have it for many years to come. People buy the Apple Watch because it’s a new product, but people don’t buy it as an heirloom, and many people say it doesn’t really solve the need they have (read the “8 Reasons why the Apple Watch is more trouble than its worth”). Therefore, the smartwatch is filling a void for a short period of time until something better comes to market. Yet, I don’t think people will be willing to pay $500 every year or two forever. Yes, they do this with phones, but phones provide a capability we wouldn’t otherwise have. If people didn’t have an Apple Watch, they still have a phone. Apple Watches sell now due to the novelty, but their planned obsolescence is already a problem and yet another reason why I do not think smartwatches are the nail in the coffin of the Swiss watch industry.
While smartwatches are not the nail in the coffin of the Swiss watch industry, these are some events or factors that I think could cause a massive downturn in the Swiss watch industry (especially in combination):
- Today, people wear fewer watches in general, especially younger generations.
- The growing inequality gap leaves fewer middle-class people who can afford items like luxury Swiss watches. Yes, there are many wealthy people, but those people keep getting wealthier, while there are a fewer total number of wealthy people out there (as defined by middle and upper-income). [Note: if you are into this topic and would like to read more, click here to access Harvard Business School’s report on inequality in the U.S.]
- Emerging markets are the source of future growth for most products and it’s still to be seen to what extent these markets value Swiss watches. I took a trip to Jakarta, Indonesia this past year. If the interest there in Swiss watches is any indication, the future of Swiss watches is looking bright (luxury products were in high demand).
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