Over the past few months, the Swiss watches industry has been challenged by strong headwinds. In Euromonitor International’s latest research, the global luxury timepieces market saw a retail value decline of 4% in 2015, a far cry from the peaks of as recently as 2013 when growth of 20% was common in major markets such as China and Japan. Slowing demand from Chinese consumers amid instability in the Chinese economy and a surge in the value of the Swiss franc are only two major factors behind the fall. In response to the slump in sales of traditional luxury mechanic watches, TAG Heuer has introduced the first true luxury smartwatch that runs on the Android OS. Straddling the crossroads between the artisan-crafted-in-Switzerland exterior of a luxury timepiece and the internal cutting-edge technology of a smartwatch, luxury smartwatches could just be the key to breathing new life into a troubled industry.
The coming of luxury smartwatches
In previous analysis, we established that mass-market smartwatches are not direct competitors to luxury timepieces, at least not in like-for-like comparison. At an average entry price point of around US$300, mass-market smartwatches appeal to the many people who love new technology and people with basic and mid-priced timepieces who would be more than willing to make the switch to an Apple Watch. In contrast, luxury timepieces cater to a more limited pool of wealthy, status-conscious customers, who appreciate the best quality craftsmanship and intricate design money can buy, more than the efficiency or functionality of the technology within. The latest mass-market smartwatches are sleek and modern, but they pale in comparison to the beauty of a high-end Swiss watch.
However, it is not to say that luxury timepieces has not suffered in the wake of the sudden popularisation of smartwatches. Apple has taken smartwatches mainstream, and every other tech manufacturer appears to have hopped onto the wearables bandwagon since. There is only so much wrist space on a person’s arm, and in this competition for wrist domination, it is inevitable that, as Apple and its fellow tech giants look to sell upward of 21 million units of autonomous wearables in 2015, with worldwide sales expected to hit 197 million by 2020, disposable income and wrist space will certainly be funnelled away from spending on luxury timepieces. The decline in luxury timepieces will be exacerbated by the Apple craze in China, which will pave the way for mass-market smartwatch domination.
Global Retail Volume Sales of Luxury Timepieces and Autonomous Wearable Electronics: 2015-2020
Source: Euromonitor International
The luxury smartwatch is the luxury timepiece industry’s answer to smartwatches by combining the same luxurious style of its traditional mechanical timepieces with cutting-edge technology from the likes of Google and Intel. Luxury watchmakers have created luxury smartwatches to cater to today’s tech-hungry consumers, and it is this combination of the best of both worlds of Switzerland and Silicon Valley that will be its best attempt at wrangling back wrist space it may have lost to its biggest threat seen in years. Furthermore, the luxury smartwatch may even beat the mainstream competition at its own game; despite their popularity, mass-market smartwatches have struggled to become as indispensable to users as smartphones have. Luxury smartwatches can fulfil a purpose that mass-market smartwatches cannot by being aesthetically beautiful and a token representation of wealth and elevated social status. This is an important advantage that just may translate to users sticking to their luxury smartwatches over time beyond mere functional purpose.
Should other luxury watch manufacturers jump onto the smartwatch bandwagon?
TAG Heuer may have queues snaking out of its front doors in anticipation of its luxury smartwatch, but the question remains as to whether other luxury watch manufacturers should attempt to get in on the action. With the exception of few brands such as TAG Heuer, it is understandable why many other brands, including global market leaders such as Rolex and Cartier, have kept mum about any potential plans. For one, it made sense that TAG Heuer was one of the first major luxury watch brands to jump into smartwatches, and not just because its name, TAG, is an acronym for “Techniques d’Avant-Garde”. TAG Heuer’s models have a sleek, modern and sporty look that is already in alignment with the cutting-edge technology being put into them. At this early introductory stage for luxury smartwatches, the exterior of a vintage classic would seem too incongruous with a high-tech interior for consumers to accept. Furthermore, TAG Heuer is positioned as mid-priced luxury; the Carrera, for example, retails for US$1,500, which is more affordable than the likes of higher-end brands such as Patek Philippe and Audemars Piguet, which start at tens of thousands. By crossing over to the dynamic world of consumer electronics, where technology goes obsolete in a snap, the price range TAG Heuer is operating in is most likely the most realistic one in the realm of luxury watches. U$1,500 may be at the upper-end of smartwatches, but U$15,000 becomes quite a stretch for most consumers.
Furthermore, entering the luxury smartwatch realm may not be the smartest strategic move for many other luxury watchmakers. Consumers may perceive the move as abandoning its traditional watchmaking craft and attempting to be part of mainstream consumerism, which can hurt the luxury brand image that these watchmakers have painstakingly built up over decades. And as competition heats up among tech companies offering smartwatches, you can be sure that the race will include one-upping each other to release new models that offer better conveniences and functionalities that will be too much of the throwaway culture that goes against everything the luxury industry stands for. TAG Heuer seems to think that its high-tech smartwatch can be eternal, but the fact that it is letting TAG Heuer Connected owners trade it in for a traditional mechanical watch after the tech goes obsolete after two years, hints that perhaps TAG Heuer itself is not as confident in the permanency of the luxury smartwatch as it appears to be. At least for now, the luxury smartwatch is likely to revitalise the flagging luxury timepiece industry, but in the long run, even the traditional luxury watch industry has to constantly embrace change to stay timeless.