Rapaport Magazine

Smart Time Or Not?

Will Apple’s luxury Edition watch take a bite out of the Swiss watch industry?

By Lara Ewen
When Apple announced in 2014 that it would be entering the luxury watch market, the Swiss watch industry collectively and loudly yawned — perhaps a little too affectedly, but no matter. After all, Apple was not the first challenger to Switzerland’s dominance in this segment. And if the introduction of quartz movement did not destroy the Swiss industry in the 1970s and 1980s, then the Apple Watch could not possibly be much of a threat.
   But as the anticipated April 2015 release date for the three Apple Watch models looms closer, a few brands blinked. LVMH’s TAG Heuer confirmed at the end of 2014 that it’s working on a smartwatch program. Its general manager, Guy Semon, told Reuters it could not ignore the “tsunami” of smartwatches that it envisions coming onto the market. Then, in early February 2015, Swatch Group announced it would be releasing a smartwatch, with a mid-spring release scheduled to coincide, coincidentally or not, with Apple’s. Richemont, too, is dipping a toe in the high-tech waters with Montblanc’s new interchangeable smartphone-compatible watch e-Strap, with an integrated technology device, set for a June 2015 release.
A New Opportunity?
   So the game’s afoot. Smartwatches in general, and the Apple Watch in particular, are about to bring something new to the watch industry. And with its luxury Apple Watch Edition, made with 18-karat yellow or rose gold and a sapphire crystal face, Apple is nudging its way into the luxury watch sector. But how much of an impact will this new device really have?
   First, the numbers. In mid-February, The Wall Street Journal reported that Apple was on track to produce approximately 5 million watches for its first quarterly release. Of those, half would be the lowest-tier Apple Watch Sport, another third would be the midtier Apple Watch, reportedly priced at $349, and an estimated 850,000 pieces would be its Apple Watch Edition, which is expected to sell for at least $4,000. By any measure, this is an enormous financial undertaking, and it’s unlikely that Apple expects to fail.
   In its official statement about smartwatches in 2014, Swatch Group Chief Executive Officer (CEO) Nick Hayek said, “We see smartwatches as a big chance for the watch industry, not a threat. Everything that makes millions of people more open to put something on their wrist will boost the opportunities to sell more watches, more jewelry and, why not, more interactive objects on the wrist.”

Industry Rumbles and Reactions
   The general attitude in Switzerland has been a combination of gentle smiles and subtle digs at Apple, which is seen as a bit of a toy manufacturer. When discussing the Apple Watch specifically, Hayek was even more dismissive. “Many, many brands have done very beautiful, iconic watches that are collected, sold and bought in auctions for many millions, Swatch watches included,” Hayek said in comments posted on an Apple blog in October 2014. “Since Apple says it’s a watch, I have to compare the aesthetics with the industry leaders in watches. Here, I think indeed, it does not seem to be a milestone. However, if you compare the consumer electronics companies’ different, so-called smartwatches, Apple has certainly created a very good design, but it’s within the consumer electronics category, and not watches.”
   Other Swiss watch brands had different takes, though. “The launch of smartwatches will no doubt bring some changes to the watch market, as high-tech devices open up an entirely new dimension of wrist-bound functionalities for wearers,” says Sascha Moeri, CEO of luxury Swiss timepiece manufacturer Carl F. Bucherer. “But for all that, I do not see smartwatches posing a threat to the classic segment of luxury timepieces. Both are status symbols of a certain kind; the values they convey, however, are entirely different. Smartwatches represent the cutting edge of technology, while mechanical watches embody the traditional craft of watchmaking, which has evolved over centuries.”
   According to Paul Erhard, managing director for North America for luxury Swiss timepiece brand Maurice Lacroix, the Apple Watch can only be a good thing. “I personally feel that the Apple Watch is a great product for the watch industry as a whole,” he says. “Apple is presenting an enormous segment of the population with a watch to wear, and over time, these Apple Watch clients will hopefully become watch clients, broadening the market for everyone.”
   That said, Erhard also left room for the possibility that a younger generation might emotionally embrace different status symbols than previous generations. “The Apple Watch customer will be, at least initially, curious of the technology, interested in the novelty and an early adopter,” he says. “Over time, I think that this buyer will remain focused more on the added connectedness that the piece provides. The luxury timepiece buyer is looking more for an expression and extension of who he or she is. The only case for overlap is if there is a group of people who feel that an Apple Watch is a reflection of their interests, tastes or style.”

Retail Appeal
   That’s where things get tricky. Apple is a brand notorious for its rabidly loyal customers, and the Apple Watch, which only works in conjunction with an iPhone, is a way for Apple to deepen its customers’ connection within its own ecosystem. In addition, the iPhone is already perceived as a status symbol, and a “masstige” product, meaning a mass-market product that carries with it the prestige of a luxury market brand. So there may be a customer out there who is looking for a new kind of prestige product and this may be the right one.
   “I think there’s going to be a customer who’s going to like the Apple Watch,” says H. Bredemeier, owner of H & H Jewels in Coconut Grove, Florida, a jewelry store that stocks high-end watch brands, including Breitling and Carl F. Bucherer. “There’s always going to be a client who’s going to love the technical nuance. And we’re already carrying Apple watches on the iPhones in our pockets. But as far as affecting the Swiss watch industry? People wear fine timepieces as part jewelry and part of their wardrobe and as a piece of art. And watches are not about telling time anymore. Of course, it depends on what we think of as luxury. Some people define Coach as luxury and some people define Hermès as luxury. It’s all perception.”
   For some retailers, the thought is that the Apple Watch will be something customers wear in addition to a more expensive mechanical timepiece. “Apple Watch won’t have significant impact on the Swiss watch category,” says Cory Berry, manager and chief technical officer at Bernard Watch, an Austin, Texas, store that sells such Swiss watch brands as Rolex, Omega and Breitling. “We have a lot of customers who use Apple products. But I think our affluent customers will be wearing both. The Apple Watch offers functionality and biometric feedback, but it won’t replace mechanical Swiss watches.”
   Berry is not alone in his line of thinking. “Like every Apple product, the Apple Watch will have an impact on the price point that competes with it, but I think it’ll be more of a second watch for people,” says Steve Smith, fine watch buyer for Tapper’s, which has three stores in Michigan and sells brands that include Rolex, TAG Heuer and Breitling. “They’ll wear the Apple Watch like they wear a Fitbit, but it’s not going to be a replacement watch. It’ll be in addition to another watch.”

Selling Strategy
   Retailers and brands also agree that it is unlikely that Apple would sell its products, even its luxury Apple Watch Edition, outside its regular brand channels, making it less likely that any Apple customer would see its watches side by side with Swiss timepieces and make a direct comparison between them. “If I were Apple, I would take full advantage of my pre-established, fully immersive, company-owned environment to sell products that would otherwise require an additional business worth of employees to provide support,” says Lacroix’s Erhard. “I do not see the Apple Watch being sold alongside many traditional watch brands.”
   Berry agrees. “Apple might have some of its Edition watches in fancy boutiques in New York City or Beverly Hills,” he says. “But I don’t see Apple selling watches in jewelry stores. I bought an iPad on Amazon, so I see these watches at Best Buy and Amazon. And I don’t see Ben Bridge selling Apple Watches.”
   Some of the luxury watch industry’s current caution regarding the Apple product launch undoubtedly stems from its cavalier dismissal of the threat posed by quartz watch technology when it was introduced almost 40 years ago. The resulting impact on Swiss watch sales was devastating. “In 1980, a lot of people wanted a watch and quartz watches made it cheap for everybody to have a watch,” says Berry. “I had a cheap quartz watch. And it took the Swiss industry over a decade to regain their ground and make Swiss watches appealing again, and make people want to buy them again. The 1980s were a bad decade for Swiss watches.”
   Smith concurs. “If you remember years ago, the Swiss watch industry said that the quartz movement was just like this, no big deal. But if this is successful, like the quartz movement was,” he points out, the Swiss will end up coming up with their own versions. But, Smith continues, “nobody is saying, ‘I’m not buying a Patek Philippe, I’m buying an Apple Watch instead.’”
   According to Bredemeier, though, the Apple Watch Edition may simply be an entry point into a deeper connection to luxury watches in general, especially for the younger generation. “The guy who is now a retired CEO wasn’t buying Patek Phillipe when he was 22 years old,” says Bredemeier. “You work your way up the food chain. Jewelry and fine timepieces mark events in our lives and milestones, and are important in people’s lives.”
   Of course, underestimating Apple and its ability to succeed with this product is probably as big a mistake as expecting one watch to change an entire industry. “This will be successful,” says Smith. “Apple doesn’t fail at anything. They do the research, and they are probably ten years ahead of where they want the watch to be.”
   So it’s likely that Apple’s end game with this new product category has yet to be seen. “There’s not a watch group in the world that has the capital that Apple has,” sums up Bredemeier. “Apple’s got way more money than LVMH. If Apple wants to make something work, it will make it work.”

Article from the Rapaport Magazine - March 2015. To subscribe click here.

Comment Comment Email Email Print Print Facebook Facebook Twitter Twitter Share Share
Tags: Lara Ewen