Should Watchmakers Be Worried? (Part 2 of 3 on the Apple Watch)

Should Swiss watchmakers be worried?

My favorite musings come from two leaders in the (luxury) watch industry, the CEO of the Swatch Group, Nick Hayek, and the head of LMVH’s watch brands (Hublot, Tag Heuer, and Zenith), Jean-Claude Biver. Both see Apple’s entry as an opportunity, not a threat. This seems counter to their interests, but to sum up their thoughts “anything that encourages (young) people to wear watches is good.”  

Basically, Apple’s entry into the industry may take some market share from the industry veterans or it may not, but its impact on the market as a whole may be even more important as it could increase the total size of the market.

How is this possible?

In their eyes the Apple Watch is not a direct competitor as their customers don’t wear watches just to tell time. They are status symbols focused on design, expensive materials, and long-term value, which is essentially what luxury is. Perhaps, scarcity needs to be added as an asterisk to long-term value.

Perhaps, Apple isn’t a luxury brand, but they are a premium brand. No matter what Apple product you are purchasing, you will always pay a premium to the alternative and that premium can be hefty. Now, consider that two editions of the Apple watch will sell for over $10,000. That is not a premium price. That is a luxury price. Add to that the fact that Apple created their own custom blend of gold in order for it to stand up to nicks and wear. Those are things that make you stop and think twice about whether Apple is premium or luxury or something else…maybe luxurium or premuxury. Sorry about that…but think about the luxury points above:

  • Focus on design – check. Apple has always focused on design, so this is a no brainer.
  • Use of expensive materials – check. Now that Apple is using its own patented gold blend, which most likely means it’s going to be part of an ongoing strategy I think we can say they have opened the door and this box can be checked. Gold lovers will protest as Apple has essentially found a way to make technically 18k gold by using less gold, but there’s still gold in it…the box is checked. Wait till they start using graphene.
  • Long-term value – hmmm. This is interesting because it depends on what the people of tomorrow value. Would a first edition Apple Watch sell at an even higher price than it did before?  For the low end the answer is no, but the high end watches beg the question. It will be interesting to see how many are sold. Tim Cook said there would be limited limited? After all, if it’s not scarce, then the chances of long-term value are marginal at best.  

Let’s not forget that my first post on the Apple Watch included the fact that Apples is the world’s number one brand. They also have about $178 billion in cash, so they theoretically have money to burn if they trip up (a closer look according to the Guardian reveals that most of the cash is held overseas, so it's not as simple as just spending it. Some creative accounting needs to take place first unless they're comfortable with Uncle Sam taking a sizable portion of it). In any case the most powerful brand and tons of cash is something that every industry should be wary of, including the auto industry and the search industry.

Contrary to what many believe Apple does not always sell the best product or provide the most value. They are certainly always near the top, but it’s their brand that takes them the rest of the way. It is not as cut and dry as many Apple diehards would make you believe.  

Getting back to the watchmakers’ view, they are making a long-term bet that young people will gravitate toward luxury status symbols as their disposable income rises like previous generations have done. They are also making a bet that they will want to wear anything on their wrist at all. 

These are assumptions. They are very plausible as they maintain the status quo, which is easier for people to process, but...

What happens if they’re wrong? What happens if Generation Z or whatever they’re called don’t care as much about status symbols or wearing anything on their wrist? What if it starts happening sooner with Generation Y aka Millenials?

The world is changing at an increasing rate every day and so are its people and their mindset. The population is rising and so is the consumption of resources. Add to that the belief and likelihood that many jobs will be automated by 2034 without a corresponding increase elsewhere. All of this creates conflict and we have seen this on a small scale, but something on a bigger scale seems to be imminent…barring any future innovations that solve major problems at a reasonable price without creating new problems.

While it may be too early to say anything about generation z, one thing that can be said is that they are made up of anyone born after 1995. Also called “digital natives” because they have not lived life without the digital comforts of today they are educated, collaborative, and eager to build a better a planet. They are visual, truly global, and entrepreneurial. 

That doesn't sound like the kind of people that are going to make buying a luxury item a priority, but it's definitely too early to tell. Mindsets and priorities shift as people and generations get older. 

So, should Swiss watchmakers be worried?

Yes and no. In the short and mid-term I can see what Hayek and Biver said coming to fruition. While counterintuitive, it makes complete sense. If you’re young and never thought of wearing a watch before, the Apple Watch will at least make you think about it, which is probably more than you ever thought about it before.

But, in the long term I think they should be worried and my 3rd post will explain why, but to sum up: the Apple watch and current wearables market is a precursor to something else.

Side note: Here we are a little over a month from my first post on the Apple Watch and the only thing we know about Swatch’s answer is that “it will connect to the Internet without having to be charged.”

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