It was five years ago that Apple launched its first smartwatch and turbocharged the nascent industry for connected timekeepers. By 2020, some commentators suggested, the entire Swiss watch industry should have been wiped out, if not by Apple alone, then certainly with the help of Samsung, Huawei and Garmin.
Apple kept its end of the bargain, selling 50% more wristwatches in 2019 than the entire Swiss watch industry combined (31 million units compared to Switzerland’s 20.6 million), according consumer insight consultant Strategy Analytics.
Samsung and Garmin have done their bit too. Figures from the first quarter of this year show Samsung in second place in the smartwatch market with shipments of almost 2 million units and Garmin is third with 1.1 million sold in just three months. Overall, global smartwatch shipments grew by 20% year on year to 14 million units in the first three months of 2020, despite lock downs beginning in most markets in March.
Exports of Swiss watches have declined in volume terms since 2015 from over 28 million to 20.6 million in 2019, but the watches are getting more expensive so the value of exports has nudged up from CHF 20.2 billion to 20.5 billion over the same five year period.
It has even been argued that smartwatches have benefited the Swiss because they have got younger people wearing something on their wrists again rather than check the time from their phones. A backlash against tech that becomes obsolete every couple of years and a yearning for authenticity is encouraging historic watchmakers to believe millennials, and younger adults will upgrade to analogue eventually.
The Swiss have reason to feel satisfied that they have weathered the first onslaught from Apple and the other tech giants. After all, this is a company worth $1.6 trillion and R&D spending of $4.2 billion in 2019 and once spent $1.8 billion on advertising in a single year. Its R&D spend is greater than the turnover of every Swiss watchmaker except Rolex.
The fact that traditional watches still have mainstream appeal, and not gone the same way as vinyl records to become hyper-niche collectibles, is a considerable achievement.
Watch brands at the volume end of the spectrum have not fared as well with the biggest players such as Fossil Group, Movado Group, Citizen Watch Company, Casio and Seiko under pressure in the hyper-competitive sub-$500 price point where the tech companies are so strong.
Looking at the publicly-listed companies, Fossil Group revenue from all watches has dropped from $2.5 billion in its 2016 financial year to $1.8 billion in FY2020. Movado Group’s watch sales have increased from $595 million to $701 million over the same period, but the figures are impacted by the acquisitions of MVMT for $100 million in 2018 and Olivia Burton for around $80 million in 2017.
Among the biggest groups, Fossil has moved furthest and fastest into the smartwatch market, and now has either full touchscreen smartwatches or connected hybrids that combine limited smart features with long battery life analogue watches. Signs that the strategy was starting to cut-through caused a share price rally in 2018 from $7 to $31, although the stock has since dropped back.
Strategy Analytics data shows that Fossil Group brands such as Diesel, Emporio Armani, Michael Kors and Fossil, collectively accounted for around 4% of the global market share for smartwatches in 2019, an impressive result up against the might of Apple and others.
That battle boils down to whether smartwatches from Fossil’s brands can compete with Apple as fashionable wristwear. If Apple Watch is seen as hotter, it wins. But if a fashion house-branded smartwatch breaks through as a must-wear item by the fash-pack — just as it did with its Michael Kors Bradshaw watch in 2015 — then sales could surge because there is little to choose between the watches from a functionality standpoint.
A price point above the fashion space, Apple also competes in the fastest-growing category for smartwatches, sport and fitness watches, and this is where the likes of Garmin and Suunto have territory to protect because they have long been the go-to brands for athletes.
Garmin is on the offensive with a multi-pronged strategy that includes broadening its distribution into specialist watch shops like jewelers, piling on the functionality and value for money for its mainstream connected models, and creating a spectrum of upmarket specialist smartwatches under the MARQ name that are designed for sports enthusiasts such as sailors and golfers.
Sailors and golfers are totemic customers for luxury watchmakers like Audemars Piguet, Omega and Rolex, which pay millions to be associated with such upper-class, middle-aged, mainly male pursuits (I generalise). TAG Heuer has sniffed an opportunity to break into the golfer market with a special version of its Connected smartwatch and accompanying app that helps players plot their way around thousands of pre-loaded courses. The tech displays 3D renderings of greens, bunkers, water hazards and trees. It measures the distance to all the hazards on the golf course and recommends which club to use. It is retailing now for $2,550.
Garmin’s MARQ Golfer, which competes on both functionality and luxury finishing with the TAG Heuer offering, is priced at $1,850. It will be interesting to see whether golfers, who are likely to be familiar with both Garmin and TAG Heuer as trusted brands, choose the sport and tech ancestry of Garmin over the sport and horological history associated with TAG.
Right now, Strategy Analytics estimates that all Swiss watchmakers combined accounted for just 1% of all smartwatches sold worldwide in 2019. “Swiss brands are failing to make the transition from mechanical wristwatch to digital smartwatch,” says the consultant’s executive director Neil Mawston.
One percent is a terrible return for the Swiss, particularly when you consider there are several well-funded brands now making smartwatches. Frederique Constant, Montblanc and Hublot all have new luxury models for 2020. Hublot is hoping customers will part with $5,200 for it Big Bang E, which TechRadar pointed out is 13 times more than an Apple Watch. That is quite a mark-up when you consider that Hublot is using industry-standard chipsets from Snapdragon and the ubiquitous Wear OS operating system from Google and doesn’t even have on board GPS or NFC.
If Hublot continues with smartwatches, expect it to go the route of focusing more on special interests, particularly in sport. Its very first smartwatch was created for referees at the 2018 FIFA World Cup, for which it was official timekeeper, and its association with sports extends into cricket and motor racing. A red ceramic smartwatch associated with Ferrari and Formula 1 would be an interesting development, and would dramatically increase the appeal of the watches in a tech-obsessed space where thousandths of a second count.
Ironically, it is not the perfect timekeeping accuracy that comes as standard with smartwatches that counts. Nor is it being able to use miniature versions of apps like Google Maps, messaging and Spotify that are pushing sales. Today, it is all about the growing sophistication of health tracking, and this year’s pandemic is only likely to make this even more important to customers.
Apple, Garmin and others already have sensors measuring heart rates and even heart health by performing echocardiograms. Future editions are likely to add blood pressure monitoring and other indicators of stress or strain on the heart, making them sophisticated instruments for giving early warnings of any health problems. That is certain to appeal to much older customers living with long term conditions like hypertension.
The good news for traditional watchmakers is that advances in technology, mostly instigated in the tech sector, quickly feed into widely available hardware and software packages they can adopt at relatively low cost.
The question then is whether they can add enough value to attract customers away from the likes of Apple by adding a desirable fashion brand name as Fossil Group does, leaning on niche sectors as Garmin can with sailors, or elevating watches to Swiss luxury standards as TAG Heuer and Hublot do?