The Growing Impact Of Apple Watch On Swiss Interests
Hugh Langley’s TechRadar doom-and-gloom post is headlined thus:
Swiss cheesed off as Apple Watch starts to burn its watch makers
I like the pun. But I think “Swiss cheesed off as Apple Watch pokes holes in traditional watch industry” would be a better one. I consider it a missed opportunity. And, frankly, a missed point:
The numbers are in and it’s not great news for the Swiss watch industry. The Q3 figures, published by the Federation of the Swiss Watch Industry, reveal an 9.9% drop in watch exports for September, leading to an 8.5% slide for the quarter overall.
“After May and July, September is the third month to show a marked decline in Swiss watch exports,” said a representative of the Federation of the Swiss Watch Industry, according to a report by Reuters. “This negative change has spread to other, hitherto more robust Asian markets and casts something of a shadow over prospects for the year 2015.”
It’s a big slide – the biggest quarterly drop since 2009 – so it’s understandable why flags are being raised. But what’s most interesting is that the original report suggests the Apple Watch “could finally be taking a bite out of the Swiss industry’s stake”.
“The biggest quarterly drop since 2009″?
Well, what happened in 2009? Smartwatches certainly weren’t the culprit then, and while it makes some sense to pin this latest drop on Apple Watch because of the hype, I’m not buying the argument yet. The Swiss watch industry isn’t exactly bulletproof, and the smartwatch isn’t the quartz revolution. That was a race to the bottom, and recent trends in the smartwatch market indicate a race to the middle (i.e. Apple Watch, Pebble Round, Huawei Watch, Samsung Gear S2, Moto 360 2, etc.).
According to the data, watches residing in the low to mid-segment, the domain where the Apple Watch Sport currently competes, were hit the hardest. It’s reasonable to speculate that smartwatches are eating into the cheaper end of the market.
That’s a valid angle, but it’s still too early. If anything, fitness wearables like FitBit and its ilk are the main culprits here, offering entry-level training tracking paired with the world’s number-one time-teller, the smartphone. Remember, these “feature bands” are still outpacing smartwatches. But I do agree that, eventually, Apple Watch Sport and standard will disrupt the mid-tier market for otherwise overpriced dumb watches from the various “faux luxury” brands umbrellaed by the more elite Swiss conglomerates.
But the real crux of the current problem is Asia, as alluded to at the outset of Langley’s article (emphasis mine):
“The problem is further weakness of Chinese demand amid economic uncertainty and the ongoing fallout from the anti-gifting campaign,” Jon Cox, analyst at Kepler Cheuvreux, told techradar. “Over two-thirds of the value of Swiss watch exports comes from watches retailing on average at USD17,000 each – if you can afford one of those babies you can afford an Apple Watch.”
This is the primary hurdle for the current Swiss market, and — in my estimation — is the obvious reason for its current struggles. Stories about Asian outrage over such gifting and flaunting have been pervasive in the west, and it’s quite clear that the Chinese government is taking steps to dissuade the public notion that state officials and wealthy one-percenters burn through cash like wildfires through California. This picture of a local Chinese bigwig speaks volumes (via Mark D. Miller):
Of course, ultimately, the rich rarely care about the poor or what they think, and this could be a passing fad or otherwise easily circumvented by the powers that be. With Apple’s huge push into China and its luxury market (the solid gold iPhone is coming), the company must be hoping that time — or a shift in perception — will repair this dynamic. So too must the Swiss.
Who knows? Perhaps in a few years, as Miller indicates in his post linked above, the cheapest Apple Watch will mitigate some of that cultural offense, as middle-class citizens can enjoy the same functionality out of their smartwatches as the richest of the rich get out of theirs. Similarly, maybe sometime soon the Chinese Apple Watch Sport owner won’t even care about his “representative”‘s Rolex or AP or VC or PP, because the former wearable does more even if it means less. And it may not even actually mean less. Ultimately, there is always pride to be had in frugal utility.
So the Apple Watch hit is coming, but this quarter’s Swiss sales drop ain’t it.
And Apple itself may not be immune.