Although smartwatches only started seeing increased retail activity in 2013, it has already become a crowded category as of September 2014. Pebble, Samsung, LG, Motorola and Apple are among the electronics players which have announced new smartwatches in 2014, while watch conglomerates Timex, Fossil and Swatch will join them in 2014 or 2015. However, current product avatars of any brand listed above are unlikely to challenge the global growth of traditional watches for the following reasons.
Consumer demographic and psyche
When mainstream smartphones and tablets were first introduced into the retail channel, they targeted young working adults and teenagers. This is also likely to be the target market for smartwatches in the category’s early years of 2014 to 2016. On the other hand, most high and even aspirational, mid watches are marketed towards middle-aged professionals or business owners who have a keen understanding of the watch’s heritage and strengths. The watch brand and model choice also relate to a consumer’s personality, and hence form part of an important decision for watch connoisseurs.
In May 2014, Euromonitor International conducted a survey with nearly 4,000 respondents across 16 markets revealing some key product features for watch purchases.
Source: Euromonitor International Survey
With smartwatches also competing for the consumer’s wrist, most of these product features concern them as well. Pricing and design will continue to be the most important factors in purchase decisions over 2015 and 2016.
Pricing of smartwatches indicates limited impact
Apple Watch’s standard range is priced at US$349, with prices expected to climb much higher depending on the watch strap and collection. However, most exclusive fitness trackers (e.g. Fitbit) are priced below US$150, while the majority of smartwatches are priced between US$150 and US$350. In terms of competing for the consumer’s wrist, exclusive fitness trackers and smartwatches compete with basic and mid watches, respectively.
The nature of global watch value sales dictates that the high segment is dominant, both in terms of absolute sales as well as growth. Richemont and Rolex are almost entirely dependent on high watches, while Swatch Group drew 60% of its value sales from this segment in 2013.
Global Watch Sales Breakdown, 2014
Source: Euromonitor International
Smartwatches are expected to become cheaper with lower production costs, and they could thus continue to compete with basic and mid watches. Even in the scenario where smartwatches incorporate precious metals and leathers in order to achieve premium prices, they are unlikely to compete with mechanical watches. All the same, the existing pricing of smartwatches might eventually present a challenge to basic and, to some extent, mid watches. In terms of company sales, this could affect the global growth of US-based Timex and Fossil, as well as Japan-based players, Seiko, Citizen and Casio.
Design needs refinement
Contemporary smartwatch manufacturers have focused their efforts on launching their first smartwatches as early as possible, with Samsung announcing the launch of its sixth smartwatch in September 2014. Although the design is expected to improve over the next year, current products are not close to challenging traditional fashion watches. Most smartwatches available in 2014 do not have many choices in terms of dial size, straps or even models aimed at female consumers. As such, they could be alienating consumers who might be willing to try a new product category.
As a pure consumer electronics device, smartwatches require new users to adjust to a very small display at a time when smartphones have seen revenue growth by offering bigger screens. In addition, most applications which require typing are difficult to operate on a smartwatch.
Making smartwatches mainstream
In another May 2014 survey of over 200 Euromonitor International analysts across nearly 50 markets, 83% opined that smartwatches are rarely or never used in their countries. In order to improve consumer acceptance of smartwatches, stakeholders must not only address concerns about design, but develop customised apps for everyday use and use new retail channels.
While Apple Watch has Apple Pay which could evolve into a major part of everyday lives, smartwatch app developers have yet to develop apps akin to WhatsApp or Instagram, which are widely accepted across platforms. Smart homes and health tracking are two fields which offer developers an opportunity to create apps relevant to everyday life. However, they require infrastructural support from industries such as public health and consumer appliances.
In terms of retail channels, jewellery and watch specialists and department stores offer smartwatches an avenue to grow consumer awareness outside the traditional space of electronics and appliance specialist retail. This could be achieved through two approaches – partnerships with key local jewellery and watch specialists and global department store chains, or manufacturers developing their own concept stores for wearables.
As they reduce the average consumer’s dependence on smartphones and incorporate more useful apps, smartwatches are bound to register appreciable growth over 2014-2019. However, the category will have a limited influence on traditional watch sales due to smartwatches’ existing shortcomings as well as only a partial overlap in terms of consumer base. Although they might have a slight negative effect on global sales of basic and mid watches in the short term, smartwatches may help to boost the traditional watch’s familiarity among teenagers and young adults who are accustomed to checking the time on their phone rather than on a watch.