In the 1970s, Switzerland’s watchmakers were almost put out of business when they underestimated the importance of the quartz watch. Although the industry recovered and is prospering, today it faces a new technological challenge from “smartwatches” such as Samsung Electronics Co’s US$299 Galaxy Gear.
As with quartz four decades ago, the devices are being met with a shrug. According to a survey by consultants Deloitte Touche Tohmatsu Ltd, two-thirds of executives in the Swiss industry say smartwatches pose no threat.
“How would you like it if your boyfriend brings you a smartwatch instead of a nice pave diamond watch?” said Johann Rupert, the billionaire controlling shareholder of Cie. Financiere Richemont SA, which sells watches under 13 brands, including Cartier and Vacheron Constantin.
Photo: Reuters
“I’m not sure it’s going to have a huge impact on classic watches,” Rupert said.
However, Adrian Hofer, a partner at Boston Consulting Group in Zurich, said the industry should brace for the arrival of smartwatches.
Researcher Strategy Analytics predicts that 1 million smartwatches will be sold worldwide this year and 7 million next year, while Sanford C. Bernstein forecasts that Apple Inc’s iWatch could generate revenue of US$2.3 billion to US$5.7 billion in its first year on the market.
Swiss watchmakers “shouldn’t say too quickly it’s a trend that won’t affect them,” Hofer said. “There should be some modesty.”
The high-end Swiss watch is so low-tech that from a practical standpoint, it should no longer exist. When battery-powered quartz watches arrived on the scene in the 1970s, many consumers abandoned older mechanical ones — both those that require winding and self-winders, which tap energy from the motion of the wearer’s wrist.
The number of Swiss employed in the industry fell from about 90,000 in 1970 to just more than 30,000 in 1984, and the number of companies decreased from 1,600 in 1970 to 600 today, according to the Federation of the Swiss Watch Industry.
A big reason for that decline is that quartz watches were cheaper and more reliable. Even the most expensive mechanical watches lose several seconds a week and require maintenance every few years that can cost more than two new iPhones. Timezone, a watch-enthusiast Web site, calls them “an anachronism.”
Despite its continued reliance on centuries-old technology, the industry has fortified itself since the 1980s. Switzerland’s exports of timepieces rose 11 percent last year to a record 21.4 billion Swiss francs (US$23.7 billion), based on wholesale prices, the federation said. Exports climbed 8.5 percent last month from a year ago, data from the federation show.
Mechanical watches made up one-third of revenue in the US$58 billion watch market last year and the segment will expand 33 percent by 2016, researcher Euromonitor International forecasts.
High-end Swiss watches can fetch stratospheric prices: Patek Philippe’s Sky Moon Tourbillon sells for US$1.3 million and Franck Muller’s Aeternitas Mega 4 for US$2.9 million.
“The more you learn about watches, the more you realize there is real know-how behind them,” said Gabriel Vachette, 30, who runs a Web site about watches and owns 20 of them.
Vachette got the bug from his father, who has 100 watches.
“You can tell a story with a beautiful watch,” Vachette said. “People who buy a Galaxy Gear will get rid of it in a year or two.”
Many Swiss watchmakers will likely continue to do well because a smartwatch may often be an addition to a collection rather than a replacement for a US$5,000 Rolex, Kepler Cheuvreux analyst Jon Cox said.
“If you’re a successful, young investment banker you can probably afford to own both a luxury watch and a smartwatch,” Cox said. “A Swiss watch really is a statement about yourself so other people can clearly see you’re wealthy. You don’t get the same ‘wow’ factor with a smartwatch.”
At greatest risk are low and mid-range brands such as Swatch and Tissot, Cox said. With many timepieces in the US$200 to US$400 price range, they will often be in direct competition with smartwatches.
Samsung’s watch “shows nothing new,” Swatch chief executive Nick Hayek said.
Swatch has made interactive watches for 20 years, “and has gained precious experience,” he added.
Tissot, a Swatch unit whose watches have had electronic touchscreens since 1999, has said it will continue adding technology.
Investors are backing the Swiss watchmakers. Swatch and Richemont shares have both outpaced Switzerland’s benchmark SMI Index this year and 20 analysts recommend buying Swatch stock while none recommend selling it.
“So far, the concept of the smartwatch is questionable,” said Michel Keusch, a portfolio manager at Bellevue Asset Management AG in Kuesnacht, Switzerland, which holds Richemont and Swatch shares among its 2.2 billion of assets.
“You need to charge it every day. It’s a miniature screen. Everybody has a smartphone anyway,” he added.
Keusch said consumers may initially snap up smartwatches amid media hype, but that the product may fade like calculator watches did in the 1980s.
He said that sales may start at about 2 million units a year — a fraction of the 1 billion timepieces sold annually.
HTC Corp (宏達電) is developing a smartwatch that runs Google Inc’s Android software and can take pictures, a person familiar with the matter said. HTC’s smartwatch will join a growing segment of wearable technology that already includes devices from Samsung and Sony Corp.
History is littered with high-tech watches that are no longer on store shelves.
Microsoft Corp formed alliances in 2003 with Fossil and Citizen for watches that could receive information such as news, sports, weather, and stocks. Swatch and Tissot joined the software maker with similar products the following year. By 2008, they had all been pulled from the market.
One Swiss watchmaker embracing new technology is Arny Kapshitzer. His startup, Hyetis, said its US$1,200 Crossbow — a self-winder with a camera and GPS that can pair with phones — is the first Swiss smartwatch. Kapshitzer presented his idea to several Swiss brands, but the few that met him said smartwatches are just a fad that will quickly die out.
“I don’t believe it. I think it’s a real market and the future of the watch industry,” Kapshitzer said.
Swiss watchmakers “are still in a comfortable situation. We’re in a situation of resistance to innovation. It’s a big mistake,” he added.
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