Switzerland is well known for its watchmaking industry. Swiss watches are renowned for their quality watches and across the globe people are willing to pay thousands of dollars for clockworks with so-called ‘complications’ such as tourbillion or moon-phase displays. Although the most expensive watches hardly see competition, the ‘lower end’ of Swiss watchmaking may see Apple and other electronics firms eat their market share. Now, the trendy watchmaker Swatch Group has formed a partnership with credit card company Visa to create a watch that can be used to make payments. Also TAG Heuer recently matched up with Google and Intel to make a smartwatch.
The Swiss watchmakers may have little choice. The Federation of the Switch Watch Industry reported that value and volumes are in significant decline. During the traditionally strong October month, Swiss watch exports declined with 12.3% compared to October 2014. Total value reached CHF 1.88 billion (currently the USDCHF exchange rate stands at 1:1). 2.6 million wrist watches were exported, which was an 8.7% drop in volume. Most exports go to Hong Kong which has a market share of 13.1%. But compared to last year, the value dropped 38.5% to CHF 262.1 million. Also exports to the United States (11.8% share) declined strongly: -12.2% to CHF 236.0 million. It is difficult to attribute the drop to competition from smartwatches. However, the decline in volume and value was particular strong in the price category CHF 200-500. With a starting price of around USD 349 for an Apple Watch or Samsung Gear, this is exactly the category which should take a hit from smartwatches. To be fair: the strongest drop was seen in the price category USD 3000+ (see chart below).
So it might be time for action from Switzerland. The Swatch Group, with its trendy Swatch Watches, holds a strong position at the lower end of luxury watches. One of the key features of Apple Watch and its main rival Samsung Gear is the ability to make quick electronic payments. So a partnership with a payment provider seems a logical choice to be able to compete. Swatch already sells a ‘smartwatch’ in China together with UnionPay. This watch is at the bottom end of the market with a price of Yuan 580 (USD 91) according to Pymnts.com. The site also reports that Alibaba is looking for deals with watchmakers for its Alipay application. Here we so two intense battles coming together. As we previously reported, the market for smartwatches and electronic payments is stiffed with competition.
TAG Heuer is seeking for customers at a higher end. Its smartwatch made together with Google (Android) and Intel is priced at USD 1500. Here we’re talking about a real luxury watch. However, the question is if keen watch-fans are willing to trade their traditional luxury watch for a gadget. Many luxury watches are worn as some form of bracelet, not to check time (!) or email etc. Nevertheless, the unique market position may give TAG Heuer an advantage, although Apple also offers a golden version of its Watch in this pricing category.
Will Swiss watchmakers be successful in the smartwatch industry as well? Time will tell!