Just how scared is the watch industry of Apple’s new smartwatch?
On Tuesday, when the tech giant unveiled the Apple Watch, its sleek, futuristic timepiece selling for $349 early next year, it roared into a sleepy smartwatch industry dominated by niche devices, most of which had underwhelmed. Although late to the party, Apple has already proven it can upend entire industries: Look what its iPhones and iPads did for cellphones and tablets. Now watchers of the big watchmakers are beginning to worry that the good times for “dumb” watches are running out.
Shares of major watchmakers Fossil, Movado and Swatch tumbled after Apple’s debut. Since January, Swatch has lost nearly 17 percent of its value, or about $5.9 billion, as investors worried over its once-legendary Swiss brand. And analysts for Fossil, which makes watches for the brands of Burberry, Skagen and Michael Kors, said they’ve grown “increasingly concerned” over the avalanche of Apple’s gadget hype.
“We cannot overlook what is increasingly becoming a major disruption to the entire watch industry,” Barclays analysts wrote in a Wednesday note titled “Fossil, Inc.: Watch Out.” “Future innovation at Fossil … will largely be challenged by hype and innovative offerings from deep pocket technology-credible competitors such as Apple, Samsung and Motorola.”
Market analysts believe Apple could sell anywhere from 10 million to 60 million smartwatches, which, according to estimates from Piper Jaffray analyst Gene Munster, would virtually steamroll the 3 million smartwatches companies like Google and Pebble have sold so far. Forrester Research analyst James McQuivey predicted it would be one of Apple’s “most important and brand-reinforcing launches in years.”
Apple has already begun to take a bit of a victory lap, believing itself firmly ahead of the competition: In a subtle Easter egg, promotional photos show the Apple Watch set to one minute before 10:10, the industry standard time watchmakers set their device to in ads. (The hour and minute hands frame the logo, and look a bit like a smiley face.) According to the New York Times, Apple’s design chief, Jony Ive, reportedly said that Switzerland, the world capital of watchmaking, was is in trouble — “though he chose a much bolder term for ‘trouble.'”
Watchmakers have so far waved off the threat, saying buyers will continue to turn to their timepieces as jewelry, accessories or status symbols. Speaking in Zurich on Wednesday, Swatch chief executive Nick Hayek said he was “not nervous,” according to Tages Anzeiger, a Swiss newspaper. Bulova president Gregory Thumm told MarketWatch, “Wearing a wristwatch is much less about timekeeping than it is a cultural phenomenon.”
The death of the wristwatch has been predicted before, when cellphones first became ubiquitous, but the industry has proven surprisingly hard to quash. Watches are selling better in the United States than they have in years, having climbed back from the recession with several years of rapid growth, research firm Euromonitor International said. And mechanical watches, which are often less accurate but more stylish than their quartz counterparts, accounted for a growing chunk of the $8.2 billion in watches sold in the United States last year.
Yet those steady results haven’t proven strong enough to keep investors from jumping ship. Fossil logged $3.2 billion in global sales last year, more than double what it sold in 2009, and booms in Europe and Asia have helped sales grow 11 percent through the first half of the year. But investors have responded mostly by fleeing, sending Fossil shares sliding 13 percent since the year began.
It’s not just Apple’s new addition that’s causing the concern. Smartwatches are quickly evolving past the chunky nerd infamy that blocked them from gaining mainstream acclaim. The software that powers the watches, such as Google’s Android Wear, is becoming sleeker and easier to use, and the hardware is improving with more fashionable builds, smoother response time and features like pedometers and heart-rate monitors. When Motorola launched its $250 Moto 360 last week, the round-faced smartwatch — the first to actually look like, well, a watch — sold out in less than a day.
Fossil tried to stem the tide last week by announcing, ahead of Apple’s unveiling, that it would launch a partnership with Intel to “develop the next innovation in the emerging wearable technology space.” That built on the firm’s announcement earlier this year that it planned to work with Google to help develop Android Wear.
But others have argued Apple’s push will draw in more new-tech adopters than the upper crust. Analysts at Euromonitor said smartwatches would compete less with the established fashion brands and more with cheap digital watches, already one of the “smallest and slowest-growing” type of watches on the market.
Luxury watch makers have enjoyed decades as a mostly unchecked status symbol for the affluent, allowing them the ability to charge ever-increasing prices for pretty much the same watch. Rolex’s emblematic Submariner, a diving watch that sold in the 1950s for $150, now sells for $7,500 — six times more than it would have if it had followed inflation trends.
But as smartwatches become better at doing more and more, analysts say it might not just be watchmakers who should worry. The Apple Watch “should help the entire industry grow, but that doesn’t mean there’s zero cannibalization,” said Erinn Murphy, a senior research analyst with Piper Jaffray Investment Research.
“Does it cannibalize sales of (GPS maker) Garmin? Sales of early Samsung watches? Some of the tech-oriented watches that are tracking fitness? Does it cannibalize an iPad? The functionality level evolves, so could this replace something else that’s more tech-oriented — even more than just a watch?”