Will Apple’s 'iWatch' Rattle Luxury Watchmakers?

NEW YORK, United States — Ben Clymer, editor of wristwatch news site Hodinkee, spends his days reviewing and reporting on high-end watches. His recent stories have featured Montblanc's Villeret 1858 Vintage Pulsographe — an "under the radar" style featuring a chronograph complication that costs over $40,000 — and Rolex's "Paul Newman" Daytona family of watches. But amidst the Audemars Piguets and Girard-Perregauxs, Clymer has begun to acknowledge the arrival of another wrist-worn contraption: the smartwatch.

In recent months, he’s even reviewed a couple of smartwatches, including the Swiss-made Withings Activité, which has embedded digital technology but is designed to look like a mechanical watch. “There is a peripheral interest in smartwatches amongst our readers, in that it’s something that goes on the wrist,” he said. “They are innately interested in anything that goes there.” But Clymer also believes that, so far, smartwatch makers have yet to design something compelling enough to really hold the attention of watch-lovers. “They’ve been pretty lackluster to be honest,” he said. “Everyone is waiting for the iWatch.”

Indeed, they are. According to numerous market reports, the highly secretive Apple is set to launch a wearable device for the wrist, often dubbed the 'iWatch,' which may arrive in stores as early as this fall. In moves thought to be linked to the new product launch, Apple is thought to have collected hours of feedback from watch industry insiders. It has even recruited executives from several fashion and luxury brands, including watchmaker Tag Heuer's former vice president of sales, Patrick Pruniaux, who is thought to be working on the project.

So will the new device pose a threat to luxury watch makers?

Despite the fact that traditional watches (whose primary practical function is telling the time) have been rendered virtually pointless by the ubiquity of mobile phones with clocks, the watch market is still growing at every price point. Sales of watches reached $61.7 billion in 2013, up 9.6 percent from 2011, according to Euromonitor International. Low-priced watches generated $16.5 billion, up 6.4 percent, while mid-priced watches reached $20.9 billion, up 9 percent. High-end watches saw the biggest jump to $24.3 billion, up 12.4 percent from two years before. And while a lot of that growth comes from developing countries, particularly in Asia, many mature markets also saw an uptick. In the US, overall watch sales reached $8.3 billion, up 17.6 percent from $7 billion in 2011.

That said, some expect large parts of the market to be swallowed up by smart, Internet-enabled devices. “In 2020, we expect 60 percent of all watches sold in the world to be connected with the Internet,” said Pascal Koenig, managing director at Zurich-based Smartwatch Group, an independent research company. He predicts that $2.5 billion worth of smartwatches will be sold globally in 2014. “The term ‘smartwatch’ will be lost — customers are starting to expect that watches can do more than indicate time.” And while there are hundreds of smartwatches currently on the market, Apple’s product will be a game-changer. “Apple will integrate many of the functionalities that are already out there and make them simple and intuitive to use. This doesn’t sound like a big deal, but it is,” he said. “Today’s smartwatches are cumbersome to use. Compared to Android Wear, Apple has the big advantage of a closed ecosystem. And the improved design will significantly increase the target segment from male tech-nerds to the broad consumer market.”

While this prospect is likely to affect the lower-end of the market, it may not significantly impact the market for luxury watches, which, like all luxury goods, derive their value less from their functional attributes than their ability to send social signals, indicating belonging within certain social tribes and differentiation from others. This is largely rooted in the relative inaccessibility of their pricing. And while Apple produces personal tech devices with luxury-like appeal, the Cupertino, California-based company's 'iWatch' will most definitely not be priced like a luxury watch; watches made by luxury brands like Montblanc and Vacheron Constantin (both owned by Swiss luxury goods conglomerate Richemont) can hit the five, six and seven-figure mark. In contrast, Apple's device is expected to be priced in the hundreds of dollars.

Indeed, according to a recent report by Mario Ortelli, senior research analyst at Sanford C. Bernstein, only one percent of watches produced by Richemont brands will overlap, in terms of pricing, with the iWatch market. Ortelli warned, however, that Swatch, which owns a number of high-end watchmakers as well as its famous lower-end namesake brand, could be exposed to revenue losses of as much as 3 percent if smartwatches capture 20 percent of the market.

Large luxury conglomerates like Richemont, Kering and LVMH should not ignore the iWatch, however, stressed Ortelli — and not just because Apple keeps poaching their executives. “It’s an opportunity,” he said. “I’m not sure if [the iWatch] will be a success. But if it is, it could get the younger generation used to wearing a watch.” What’s more, it’s highly possible that luxury customers could be interested in snapping up the iWatch in addition to their $40,000 Swiss-engineered timepieces. “It wouldn’t be surprising if watch collectors do buy the iWatch,” said Clymer. “It’s going to change things.”