LONDON, United Kingdom — This March, a few weeks before the much buzzed about Apple Watch arrived in stores, more than 1,500 brands from the watch and jewellery industry descended on the Swiss city of Basel to unveil their latest innovations at this year’s Baselworld tradeshow. One subject dominated the conversations: the smartwatch.
Smartwatches have been trickling onto the market for years, but, in 2014, only 4.6 million smartwatch units were shipped globally, according to research consultancy Strategy Analytics. This is significantly less than the 8 million that Canalys, a technology analytics firm, predicted would sell that year.
Yet, at Baselworld, the anticipation around the new category was so high that “the traditional watchmaking companies were getting fed up with fielding questions about the smartwatch industry,” said George Jijiashvili, a wearables analyst at CCS Insight, a technology-focused market research company.
A number of major luxury watchmakers used the event to announce their first forays into the smartwatch market. Tag Heuer announced the Tag Heuer Carrera Wearable 01, a smartwatch powered by Intel technology and Google’s Android Wear. Tag Heuer's chief executive Jean-Cleude Biver described the device — which will go on sale in October — as a marriage between “Swiss watchmaking and Silicon Valley.”
Bulgari unveiled the Diagono Magnesium, described by the brand as “the first intelligent luxury watch.” The device does not have a digital screen or a battery that needs recharging, but a cryptographic chip located outside of the watch’s internal mechanics uses Near Field Communication (NFC) technology to perform 'smart' functions, from unlocking hotel doors to making payments. Gucci Timepieces also jumped on the wearable tech bandwagon at Baselworld, where chief executive Marco Bizzarri announced that the brand would collaborate with singer Will.i.am on a “smartband.”
Meanwhile, Swiss watchmakers Mondaine, Frédérique Constant and Alpina announced their own smartwatches which have the appearances of a traditional luxury watch. Indeed, the only visual indication of the internal technology in these devices is a small sub-dial on the watch face that communicates data from internal activity trackers, powered by Motion X, a smartwatch platform created by Silicon Valley-based Fullpower Technologies.
The flurry of announcements came on the heels of similar moves from luxury companies like Montblanc, which revealed in January that it was developing 'e-straps' which connect to its watch faces, making the company's traditional, mechanical devices 'smart' by adding activity tracking and smartphone-like communications functions.
For some time, luxury watchmakers “weren’t sure if this was just a gimmick or if this was something that was going to stick around,” said Jijiashvili of smartwatch devices. But the impending arrival of the Apple Watch raised consumer awareness to a point where “traditional watch manufacturers could no longer ignore this emerging opportunity.” In 2014, a study of the Swiss watch industry by Deloitte revealed that 44 percent of watch company executives agreed that smartwatches were “the next big thing.”
By the time Baselworld came around, luxury watch brands were feeling the pressure to keep up — and be ready to tap consumer demand if the smartwatch category took off. “If there would be a huge explosion — a huge demand for Apple Watches and for smartwatches — then they would be there to provide their own smartwatch,” said Jijiashvili.
"You know there has been a lot of buzz since Apple announced their smart watch — but more interesting, there’s also been a lot of buzz relating to luxury brands, traditional watch makers, which have decided as a kind of reaction to the watch to also to jump into the bandwagon and to create their smart watch," said Jean-Christophe Babin, chief executive of Bulgari. "
Apple's long anticipated Watch finally launched in April. But early sales momentum for the device has been less than expected. Indeed, after the company’s latest earnings call, analysts lowered their estimates of devices sold in Watch’s first quarter from a range of 2.85 million to 5.7 million units to a consensus of between 2.2 and 3 million units. In a recent report based on electronic receipts sent to email addresses following purchases, consumer intelligence agency Slice Intelligence estimates that Watch sales have fallen 90 percent since the week of launch.
So, will the luxury smartwatch category ever take off?
Higher-end luxury watch brands, such as Patek Philippe and Jaeger-LeCoultre, have stayed out of the market. The most expensive version of the Apple Watch — which features an 18-carat gold case and a leather strap — retails for $17,000, but prices for the device start at $349 and the majority of devices cost under $1000. Montblanc’s e-strap costs $418, the Tag Heuer Carrera Wearable 01 will be priced at $1,400, and the Frédérique Constant, Mondain and Alpina devices are all priced around $1,000. By contrast, Patek Philippe watches can retail for up to $200,000. “If you’re going to spend $20,000, $30,000, $60,000 for a watch, or buy a watch of £300 or £400… It is a different product category,” said Mario Ortelli, senior luxury goods analyst at Sanford C. Bernstein.
Consumers are not going to spend tens of thousands of euros or pounds on products that are transient.
In many ways, traditional luxury watches and wearable technology are not a natural fit. Smart technology is incompatible with “the idea of heritage, investment, showing your status and your sophistication,” said Ortelli. If the technology inside a watch has been made in another country, the watch cannot be branded “Swiss made” — a stamp of quality craftsmanship that is intrinsic to the appeal of luxury watches. Tag Heuer’s wearable is inscribed with “Intel inside,” rather than “Swiss made.”
What's more luxury watches are frequently marketed as timeless heirlooms, often claimed to increase in value as they are handed down through generations. By contrast, “technology moves so quickly,” said Jijiashvili. “You use it for two or three years and it gets to a point that you can’t use it anymore because the software is way too advanced for its hardware.”
“Consumers are not going to spend tens of thousands of euros or pounds on products that are transient,” said Luca Solca, head of luxury goods at Exane BNP Paribas. “I don’t think this is going to be any worry for the high-end brands.”
What’s more, if the internal technology is the defining feature of a watch, “it becomes really hard to differentiate from one another,” said Jijiashvili. An Android Wear watch from a luxury brand can have the same 'smart' functionality as one from a mid-range brand. “It will just come down to the materials that surround the screen and the strap, but as far as functionality goes, they will find it difficult to differentiate themselves from other smartwatches.”
Given these challenges — and without a reliable gauge for future consumer demand for wearable devices — many fashion and luxury companies are hedging their bets, choosing “a safe way of entering the smartwatch segment without kind of diving head in,” added Jijiashvili. Indeed, Bulgari and Montblanc’s e-straps leave the appearance and mechanics of their watches largely untouched. “NFC is a very easy and cheap way of making any wearable smart,” said Jijiashvili of the technology in Bulgari’s device. “It’s not anywhere near as smart as the Apple Watch or any of the other smartwatches. It’s kind of a very basic way of approaching it.”
But even if the smartwatch category does take off, “it’s very hard to compete with the Apples and the Samsungs of the world,” added Ortelli. “Apple is much faster with technology than a Swiss watchmaker. The best that they can do is to try and combine the best of the two worlds: a mechanical watch, with traditional features and the mechanical precision of being Swiss made as an endorsement, with electronic features that fit between the watch and the life of the user."
But where is the real added value for consumers in all this? “In terms of making a smartwatch a must-have device that everyone needs, that hasn’t really happened yet,” said Jijiashvili. “But they are experimenting and they are bringing out more and more features to make that reality.”
“We are still at the dawn of wearable technology,” added Luca Solca, who described the smartwatch category as in an "embryonic stage.” According to Solca, those companies already competing in the smartwatch race are spurred on by the hope that “wearable technology may give birth to a new sub-category within watches." But at this point, there is no clear path to success.