A new report today began by noting that "Forty years ago, the Swiss watch industry nearly died. The advent of Japanese quartz watches, cheaper and more accurate than their mechanical Swiss rivals, drove many traditional watchmakers out of business. Two generations on, a new question is occupying the country's watch industry: will Apple's new smartwatch be the prelude to a similar upheaval?
On the topic of the Apple Watch the Financial Times quoted Elmar Mock, one of the inventors of the Swatch watch and founder of Creaholic, an innovation consultancy, as saying that "I am sure that these devices represent a new market segment, and that, in the medium term, this segment will have more value than the traditional watch industry. This new segment is a fantastic opportunity."
The functionality of an Apple Watch isn't its only advantage – it's also backed by Apple's enormous financial firepower with their market capitalisation being larger than the entire Swiss watch industry, points out Jon Cox, head of Swiss equities at Kepler Cheuvreux.
Further, Apple's fashion credibility has been recently been boosted by hires such as Angela Ahrendts, former chief executive of Burberry, and Marc Newson, the highly-regarded industrial designer. And yet, most of Apple's Swiss rivals dismiss the Apple Watch as substitutes for their watches which are considered high-end jewellery.
That's something that we noted in a recent report of ours where Jean-Claude Biver, president of LVMH's watch division struck back at Apple's new watch by saying that the Apple Watch was "too feminine" and suggested it wouldn't stand the test of time. Biver added that the Apple Watch had no sex appeal and that it looked too much like other smartwatches already on the market.
He even tried to take a swing at Apple's legendary industrial designer Jony Ive by stating that Apple made "some fundamental mistakes" in designing the Apple Watch. "To be totally honest, it looks like it was designed by a student in their first trimester."
Whether those remarks were coming from a position of confidence or fear is unknown at this time. However, with Jony Ive and Marc Newson, another highly-regarded industrial designer working on Apple projects, hobnobbing with "Fashion Royalty" like Karl Lagerfeld and Anna Wintour in Europe recently, I'd have to say that Biver was likely striking out in a defensive posture and from a place of deep fear.
That fear of course revealed that LVMH is now rushing to enter the smartwatch market. Biver estimated that "Maybe in nine months, we will have a smartwatch."
Biver waving his iPhone 6 added that "A smartwatch is very difficult for us because it is contradictory. Luxury is supposed to be eternal … How do you justify a $2,000 smartwatch whose technology will become obsolete in two years?"
Biver's combined statements definitely shows us that behind the scenes at LVMH, there's likely a lot panic over Apple's entry into their long standing territory. You know it's fear because he later admitted that "Others have done smartwatches before, but when Apple does it, it will sell."
Apple's range of smartwatches will reportedly start selling at $349. According to the Financial Times report, "Only 6 per cent of Swiss-made watches fall into the same price range as this entry-level version. By contrast, 65 per cent of the Swiss watch industry is made up of watches with an export value of more than US$3,200."
"Watchmakers at the lower end of the Swiss spectrum, which includes marques such as Tissot or Swatch, could well face disruption," according to John Cox, head of Swiss equities at Kepler Cheuvreux. Yes, sales could certainly go over a cliff.
In the end, the bottom line is that Apple is going to invade an entirely new market, and the analysts over at Forrester Research are already predicting that Apple will sell more of its device in its first year than the rest of the market has sold collectively.
And considering that Apple hasn't even entered the market yet, it's amazing to see how the news of the Apple Watch has truly rocked an entire established market to its very core. Just imagine what Apple will be able to do with a few years of experience under its belt and by further integrating more technology into every watch.
In recent years, Apple has sought out the higher end of the market for their devices. Though in this case, taking out the middle market, or the "mass market," is likely where Apple is heading to first. If they succeed in this segment, as most are predicting they will, then Apple's eye will slowly shift towards the upper tiers of the market, whether the Swiss like it or not.