Smartwatches Pose 1970s-Style Threat to Swiss Industry

[cornerstore]

Anyone here think the smart watch is the future?


In the 1970s, Switzerland’s watchmakers were almost put out of business when they underestimated the importance of the quartz watch. Though the industry recovered and is prospering, today it faces a new technological challenge from “smartwatches” such as Samsung Electronics Co. (005930)’s $299 Galaxy Gear.

As with quartz four decades ago, the devices are being met with a shrug. According to a survey by consultants Deloitte, two-thirds of executives in the Swiss industry say smartwatches pose no threat.

“How would you like it if your boyfriend brings you a smartwatch instead of a nice pavé diamond watch?” said Johann Rupert, the billionaire controlling shareholder of Cie. Financiere Richemont SA (CFR), which sells watches under 13 brands including Cartier and Vacheron Constantin. “I’m not sure it’s going to have a huge impact on classic watches. ”

The industry should brace for the arrival of smartwatches, said Adrian Hofer, a partner at Boston Consulting Group in Zurich. Researcher Strategy Analytics predicts global sales of 1 million smartwatches this year and 7 million in 2014. Sanford C. Bernstein forecasts that Apple Inc. (AAPL) could see iWatch revenue of $2.3 billion to $5.7 billion in the first year of selling such a device.

Swiss watchmakers “shouldn’t say too quickly it’s a trend that won’t affect them,” said consultant Hofer, who checks his iPhone to be on time. “There should be some modesty.”

‘An Anachronism’

The high-end Swiss watch is so low-tech that from a practical standpoint, it should no longer exist. When battery-powered quartz watches arrived on the scene in the 1970s, many consumers abandoned older mechanical ones -- both those that require winding and self-winders, which tap energy from the motion of the wearer’s wrist.

The number of Swiss employed in the industry fell from about 90,000 in 1970 to just over 30,000 in 1984, and companies decreased from 1,600 in 1970 to 600 today, according to the Federation of the Swiss Watch Industry, a manufacturers’ group.

A big reason: Quartz watches were cheaper and more reliable. Even the most expensive mechanical watches lose several seconds a week and require maintenance every few years that can cost more than two new iPhones. Timezone, a watch-enthusiast website, calls them “an anachronism.”

$2.9 Million Muller

Despite its continued reliance on centuries-old technology, the industry has fortified itself since the 1980s. Switzerland’s exports of timepieces rose 11 percent last year to a record 21.4 billion francs ($23.7 billion), based on wholesale prices, according to the Federation of the Swiss Watch Industry. Exports climbed 8.5 percent in September from a year ago, data from the federation showed today.

Mechanical watches made up a third of revenue in the $58 billion watch market last year, and the segment will expand 33 percent by 2016, researcher Euromonitor International forecasts. High-end Swiss watches can fetch stratospheric prices: Patek Philippe’s Sky Moon Tourbillon runs $1.3 million and Franck Muller’s Aeternitas Mega 4 is $2.9 million.

“The more you learn about watches, the more you realize there is real know-how behind them,” said Gabriel Vachette, 30, who runs a website about watches and owns roughly 20. He got the bug from his father, who has 100. “You can tell a story with a beautiful watch,” Vachette said. “People who buy a Galaxy Gear will get rid of it in a year or two.”

$5,000 Rolex

Many Swiss watchmakers will likely continue to do well because a smartwatch may often be an addition to a collection rather than a replacement for a $5,000 Rolex, according to Jon Cox, an analyst at Kepler Cheuvreux in Zurich.

“If you’re a successful young investment banker you can probably afford to own both a luxury watch and a smartwatch,” Cox said. “A Swiss watch really is a statement about yourself so other people can clearly see you’re wealthy. You don’t get the same ‘wow’ factor with a smartwatch.”

At greatest risk are low- and mid-range brands such as Swatch and Tissot, Cox said. With many timepieces in the $200-$400 price range, they’ll often be in direct competition with smartwatches in the minds of buyers.

Samsung’s watch “shows nothing new,” said Swatch Chief Executive Officer Nick Hayek. Swatch has made interactive watches for 20 years, he said, “and has gained precious experience.” Tissot, a Swatch unit whose watches have had electronic touch screens since 1999 and incorporate altimeters and electronic compasses for hikers and divers, has said it will continue adding technology.

Calculator Watches

Investors are backing the Swiss watchmakers. Swatch and Richemont shares have both outpaced Switzerland’s benchmark SMI Index this year, and 20 analysts recommend buying Swatch while none recommend selling the stock.

Swatch shares gained 0.4 percent to 588.50 Swiss francs in Zurich trading today while Richemont rose 0.9 percent to 94.40 francs. The SMI Index advanced 1.1 percent.

“So far the concept of the smartwatch is questionable,” said Michel Keusch, a portfolio manager at Bellevue Asset Management AG in Kuesnacht, Switzerland, which holds Richemont and Swatch shares among its 2.2 billion francs of assets. “You need to charge it every day. It’s a miniature screen. Everybody has a smartphone anyway.”

Keusch said consumers may initially snap up smartwatches amid media hype, but that the product may fade like calculator watches did in the 1980s. He says sales may start around 2 million units a year -- a fraction of the 1 billion timepieces sold annually.

Fossil, Citizen

HTC Corp. (2498) is developing a smartwatch that uses Google Inc.’s Android software and can take pictures, according to a person familiar with the matter. The smartwatch will join a growing segment of wearable technology that already includes devices from Samsung and Sony Corp.

HTC shares rose by the daily limit in Taipei trading, surging 6.9 percent to close at NT$139.50.

History is littered with high-tech watches that are no longer on store shelves. Microsoft Corp. (MSFT) formed alliances in 2003 with Fossil and Citizen for watches that could receive information such as news, sports, weather, and stocks. Swatch and Tissot joined the software maker with similar products the following year. By 2008, they had all been pulled from the market.

One Swiss watchmaker embracing new technology is Arny Kapshitzer. His startup, Hyetis, says its $1,200 Crossbow -- a self-winder with a camera and GPS that can pair with phones -- is the first Swiss smartwatch. Kapshitzer presented his idea to several Swiss brands, and the few that actually met him said smartwatches are just a fad that will quickly die out.

“I don’t believe it: I think it’s a real market and the future of the watch industry,” Kapshitzer said. Swiss watchmakers “are still in a comfortable situation. We’re in a situation of resistance to innovation. It’s a big mistake.”

http://www.bloomberg.com/news/2013-1...-industry.html

[GradyPhilpott]

The smart watch has a tough row to hoe. Yes, its new technology that will appeal to a certain demographic who want the latest gadgetry.

However, just how practical these will be for the average consumer remains to be seen, especially in the long term.

The more this smart watch technology becomes able to be integrated into a more normal looking digital watch, the more likely they are to be desirable to the mainstream.

However, the mainstream watch buying public started becoming less interested in digital and more interested in analog more than twenty years ago.

In the meantime, there has been a not too insignificant trend toward not wearing anything on the wrist at all among the young who have learned to depend on cell phones and a multiplicity of other devices that display the time, as well as all the clocks that pepper the landscape and walls of classrooms, businesses, cars, and such.

While we do have a contingent of young luxury watch enthusiasts here on the board, the luxury watch industry is dependent mostly on older consumers who are less interested in novelty for novelty's sake and who have the discretionary income to shell out for luxury watches.

Even those in this demographic who are not inclined to spend small fortunes on watches are more inclined to wear a nice Seiko, Citizen, Hamilton, Movado, Casio, or any number of other more affordable choices.

I'm inclined to think that the smart watch will follow the same path of digital multifunctional watches, such as calculator databanks, which gained a foothold in a niche market that eventually all but evaporated toward what could be called functional, elegant jewelry, which are more commonly called an analog wristwatches, regardless of the engine that drives them.

[dysondiver]

i can see a use for smart watches ,,,, just not for telling the time , like apples i thingy , with the watch case , handy if you need an i player come watch come ,,,,, infact nope , my phone does it.
i dont see a use for smart watches ,,,,
now i cant see why i posted this ,,, or infact , why you read it.
sorry ,
ill get my coat


leaving now



gone.

[bayerische]

I'm very skeptical towards the whole idea of a smart watch... What is it supposed to do that my iPhone does not?

I won't make a phone call with a smart watch that's for sure!

[Starbuck_413]

You're right that the smart watches have a completely different market than these high end timepieces like Rolexes, Breitlings, etc...I think the market for these smart watches will be someone who would not normally wear a watch to begin with. It's more a piece of technology/accessory.

I think the comment saying that younger people are wearing watches less and less is incorrect, though. I know at least here in New York people go nuts over those stupid Michael Kors watches and other fashion watches. Younger girls still go bonkers over the Michele watches.

I will be interested to see which of the watch companies will be the first to team up with Samsung/Apple/etc. to make a "hybrid" of sorts.

[mfer]

We don't buy the timepieces we do b/c we need to know what time it is. I buy them for the beauty, craftsmanship, mechanics, etc.

Electronics don't do that for me at all. All I think is wow, this is put together as cheaply as possible and know that it'll only last a few years. Hard to get attached to that...

[Lion]

I believe there will be a "Target Market" for 'Smart Watches' and in the beginning there will be many sales...as the younger demographics embrace the technology...but as for staying power and giving "Mechanical Watches" a run for their money it will depend on how the technology develops and can be integrated into a "Person's Lifestyle"...and the perceived need for these new 'Gadgets'!!!

[T. Ferguson]

Just don't see the iwatch having a long term impact. There will always be a place for the fine timepiece for those that can afford it.

Frankly, for the smart watch to even threaten the luxury watch market it would first have to replace the cell phone, and I don't see that happening. You can't talk and listen privately on a watch at the same time unless you use a bluetooth earpiece, in which case that makes the phone hands free anyway. A watch is also not nearly as convenient for texting or email since you can't operate it with two hands (or two thumbs) while it's on the wrist. Also, for these functions most people would want a minimum screen size that would make for a comically huge watch.

Also, I just don't see smart watches being available in precious metals, much less stainless steel that much. Because the technology will always be short lived I guess most will be made out of plastic because by and large they will be disposable. No smart watch will accommodate the advancing technology for much more than a few years, forget about decades. They certainly won't ever be looked at as heirlooms. The guy with the smart watch will be viewed as a grunt in his corporate organization while the higher ups with the country club memberships will be sporting a Rolex at the office. If anything, the fine timepiece will become an even bigger status symbol.

Lastly, consider the simple fact that the cell phone has been around to tell you the time for quite a while now yet there is still the Swiss watch and they continue to get more expensive.

This topic was recently discussed on Howard Stern's radio show. And Howard, who as far as I know is definitely not a WIS, said the fine watch will survive simply because most people are like him and enjoy wearing a nice watch. This coming from a normal Joe, watch-wise.