The Swiss watchmaker industry is facing an existential crisis from the advent of smartwatches according to a new report from RE Analytics.
The industry enjoyed an air of exclusivity in absence of substantial competition, gaining a position of monopoly until the 1970s. The late 1960s mark the beginning of a change. This is when Japanese watchmaker Seiko introduced new technology in the market with its Seiko Quartz-Astron 35Q, the world’s first wristwatch based on a quartz crystal oscillator.
The Astron was unveiled in Tokyo on December 25, 1969, after ten years of research and development. Within one week 100 gold watches had been sold, at a retail price of $1,250 each.
This ushered in an era of cheaper, more accurate alternatives to Swiss mechanical watches. At the time, the industry nearly collapsed under siege from new upstarts. The number of Swiss watchmakers feel from 1,500 in 1970s, to 600 at the height of the “crisis” in 1983. Ultimately Swiss watch companies managed to ride out the storm, and found their niche in the luxury high end of the market.
The industry is now facing another crisis. Technology is once again drawing a battlefield for Swiss watchmakers. The RE Analytics report, Rolex: An industry under threat, goes in detail in analyzing the Rolex business model, and how it is being affected by the challenging market conditions.
The report identifies two main business segments for Rolex: the entry-level luxury watch (€3,500 to €12,000 range) and the high-end luxury watch (€20,000 to €35,000 range). Together these two clusters represent more than 80% of the business at Rolex.
According to the report, Rolex’s entry-level luxury watches are seeing a threat from high-end wearables. For example, with a price tag ranging from $1,150 to $1,500 (depending on model), the Apple Watch Hermés is at the door of the entry-level luxury watch segment. Apple’s device was announced in late 2015, some six months after the original collections first shipped. Now in its second iteration, the watch brought together Apple’s tech smarts with Hermès’ classic leatherwork.
“There are touch points in the lower end of luxury watches and the higher end of wearables,” Andrea Squatrito, the founder of RE Analytics said.
“The Apple Watch hasn’t reached its full potential in terms of sales yet, but there are signals that Swiss watch makers may soon see a large portion of their business threatened”.
Some traditional watchmakers are making tentative steps in the fast-growing wearables market via technology partnerships and investments. TAG Heuer has, for example, recently partnered with Google and Intel for its TAG Heuer Connected watch. And Frederique Constant, a manufacture of luxury wrist watches, is working on nine new designs of its Horological Smartwatch.
Squatrito adds that Swiss watchmakers may also be forced to look for other opportunities. They could, for example, follow fashion companies and expand into non-core products.
The industry’s unique positioning in the luxury segment, the strong brand image, the appeal of the Swiss Made label, and new markets could all offer opportunities to Swiss watch makers. If it is to survive, the industry cannot afford to ignore the potential opportunities and threats posed by this new market segment.
Source: Business Insider
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