Counterattack against Apple: Can smart products save traditional Swiss watches?

"It is foreseeable that an ice age is taking shape that will sweep across the traditional watchmaking industry." When Apple released the Apple Watch this year, Elmar Mock, co-investor of the Swatch Group, the world's largest watchmaker, said that traditional Swiss watches "priced between 500 francs and 1,000 francs will face direct challenges from the Apple Watch, which is really very dangerous."

Historically, Switzerland's traditional mechanical watch industry has experienced a huge market impact from Japanese electronic watches and quartz watches, and finally managed to preserve the industry after experiencing ups and downs. Under the impact of smart watches launched by technology companies such as Apple Watch, can the traditional Swiss watch industry still sit back and relax?

It is worth noting that the counterattack of traditional Swiss watches has soon sounded the clarion call. TAG Heuer, a Swiss watch manufacturer under the world's largest luxury group LVMH, recently announced that it will launch the Android Wear smartwatch TAG Heuer Connected at the Louis Vuitton Building in New York on November 9 to respond to the challenge of technology companies such as Apple entering the smartwatch market.

However, given that traditional Swiss watches have been on a downward trend in recent years, can the launch of smart watches save the performance decline?

The counterattack of traditional Swiss watches

The design of this watch by Tag Heuer is based on its historical best-selling series Carrera watch. The price is about $1,800. It provides many functions similar to Apple Watch, such as positioning, walking distance and altitude. The biggest difference is that the appearance of the smart watch to be launched by Tag Heuer is completely imitated from the original black Carrera.

“People will feel like they are wearing a regular watch,” said Jean-Claude Biver, president of LVMH’s watch division and CEO of Tag Heuer, describing the upcoming smartwatch at the Baselworld trade show in March 2015. Tag Heuer will target style-conscious luxury watch buyers who would be interested in a gold Apple Watch but might find Apple’s design lacking in aesthetics.

Although users have mixed reactions to the Apple Watch, market research firm IDC estimates that Apple sold 3.6 million Apple Watches in the second quarter of 2015. This figure exceeds the level of iPad and iPhone in the first quarter of sales.

Biver said LVMH welcomes the launch of the Apple Watch because the market influence of the Apple brand will help create a customer base keen on luxury watches.

Apple's European online store shows that Apple Watch is divided into three models, with the low-end model priced at about 450 to 500 euros, the mid-range model priced at about 700 to 1,250 euros, and the high-end model priced at about 11,000 to 18,000 euros. In China, the prices of these three grades are 2,588 to 2,988 yuan, 4,188 to 8,288 yuan, and 74,800 to 126,800 yuan respectively.

Biver said: "We were a little worried about the price because our selling price reached $1,800. Now we are very confident because Apple told us that we can sell products priced at $1,500 or even more." In September 2015, Apple announced a partnership with Hermès to launch Apple Watch leather straps.

Not only Tag Heuer, but also the world's largest watch manufacturer Swatch Group has shown its ambition to enter the field of smart watches. Recently, Swatch CEO Nick Hayek revealed that by the end of 2015, Swatch will launch a smart watch that supports NFC and mobile payments, and the second generation Touch Zero Two will be launched during the 2016 Rio Olympics.

Biver admitted that since TAG Heuer has no experience in this field, it is working hard on it with a more modest attitude. "The launch of Apple Watch will have a huge impact on the men's and women's quartz watch market. In any case, the price of a Swiss quartz watch will not be five times higher than that of Apple Watch. The development of smart watches will take time, and different models will flourish, but only a few will remain when the dust settles."

However, Zhou Ting, director of the Fortune Quality Research Institute, told the reporter of China Business News: "Technology companies like Apple promote smart watches based on the business model of big data to intelligently manage people's lifestyles and work styles, such as food, clothing, housing, transportation, etc., while traditional Swiss watches promote smart watches only as a marketing point to add additional functions to consumers. There is a significant difference between the two."

Can smart products save Swiss watches from decline?

According to the Federation of the Swiss Watch Industry, about 1.2 billion watches are produced worldwide each year. China is the world's largest watch manufacturer, but 99% of its watches are low-priced quartz watches. In the high-end watch market, Swiss watches basically have a monopoly, and 95% of watches are exported to other countries.

The Swiss watch industry is dominated by several vertically integrated conglomerates: Swatch Group, whose brands include Swatch, Omega and luxury brand Breguet; Richemont Group, whose brands include Montblanc, Piaget, Cartier and Dunhill; LVMH, whose brands include TAG Heuer, Zenith and Hublot; and Rolex Group, whose brands include Rolex and Tudor.

With the growth of China's luxury goods market, Switzerland's watch exports to China have been growing steadily, from 16.8 million Swiss francs in 2000 to 1.6 billion Swiss francs in 2012. In ten years, the total trade volume of Swiss watch exports to China increased nearly 100 times. It was not until mid-2012 that the growth of Swiss watch exports began to slow down due to China's domestic anti-corruption efforts, related advertising restrictions and the slow growth of the Chinese economy.

In August 2015, sales in Hong Kong, the largest market for Swiss watch exports, plunged 18.2% to 225.2 million Swiss francs, while sales in the Chinese mainland market fell even more, by 38.5% to 81.2 million Swiss francs, the first time in recent years that sales fell below 100 million Swiss francs. The continued plunge in the two key markets of mainland China and Hong Kong has led to a sharp decline in Swiss watch exports. In August, total Swiss watch exports fell 1.6% year-on-year to only 1.47 billion Swiss francs, which may be the first decline in recent years.

TAG Heuer, the largest watch brand under the LVHM Group, has also performed poorly in the past two years. In October 2014, TAG Heuer cut 46 management and production positions and placed 49 employees on partial unemployment until the end of 2014. In August 2015, TAG Heuer closed its flagship store on Russell Street in Causeway Bay, a central shopping district in Hong Kong. Biver said at the time that the reason for closing the main flagship store in the Hong Kong market was the continued high rents in the market and the further deterioration of customer flow and sales.

Tag Heuer tried to boost weak sales by cutting prices. At the beginning of 2015, Tag Heuer cut prices by 8% in Switzerland, China, the United States, the Caribbean, Central America and South America, 7% in the UK market, and as much as 13% in the most important Hong Kong market. Tag Heuer said that this move hopes to balance international prices.

The Swatch Group, the world's largest watch manufacturer, reported in its first half 2015 financial results that its net profit (548 million Swiss francs) fell 19.4% compared with the same period in 2014.

Zhou Ting believes that it is still hard to say whether the marketing point of traditional Swiss watches by increasing functional demands through the introduction of smart watches can be accepted by consumers and whether it can improve the declining performance of traditional Swiss watches. On the one hand, professional watches showed two polar trends in 2015, one is the ultra-high-end niche top watches, and the other is the mass market trend. As for the mass market trend, the demand for decorative fashion functions and smart systems accounts for 75%, and the demand for timing functions accounts for only 15%.

"Professional watch manufacturers at home and abroad have not yet fully realized the impact of smart watches such as Apple." Zhou Ting believes that, especially as Apple is poaching various design, management and marketing talents from luxury brands, the future development of the industry may see greater changes.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.