The Battle Between Apple Watch & Luxury Watches
The luxury watch industry was threatened in the 1970's when a wave of cheap and accurate quartz watches from Asia hit the market. However, the industry bounced back and has since enjoyed up-trending sales year after year on the back of rising interest in luxury items. Forty years later, and luxury watches are again facing a major challenge as Apple Inc (NASDAQ: AAPL) debuts the Apple Watch. How will the Apple Watch affect the luxury watch industry? (Related reading For Consumer Discretionary Investors, Luxury Is Where It's At)
All About the Apple Watch
Apple offers its watch in three classes: Apple Watch Sport, Apple Watch, and Apple Watch Edition, with each class containing many models. The first class of watch, the Apple Watch Sport, is the least expensive. It offers 10 models ranging from $349 to $399. The second class is the Apple Watch. It offers 20 models starting from $549 and moving up to $1,099. In the latest World Watch Report, the Digital Luxury Group thinks that 80 percent of Apple Watch sales will come from these first two classes of Apple watches, with most sales priced below $700. If true, this would place 80 percent of Apple Watch sales well below the luxury watch entry point. (Related reading Who Are The Brains Behind Apple?)
However, Apple enters as a direct competitor to luxury watches with its third class of watch, the Watch Edition which is a jaw-dropping, beautiful 18-karat gold as described by Tim Cook, CEO of Apple. Apple's Watch Edition comes in six different variants with an 18-karat gold case, sapphire crystal protected display and is loaded with features like digital crown, retina display with force touch, heart rate sensor, accelerometer and gyroscope, ambient light sensor, microphone and speaker, and water resistance. Watch Edition by Apple could be the biggest disruption that the luxury watch industry has faced in years.
But How Much Does it Cost?
Prices for the Watch Edition start at $10,000 and rise to $17,000. Those are certainly luxury prices, but can the Apple Watch Edition truly compete with luxury brands like Rolex, Omega, RADO, Dior, Longines, or Cartier? According to a survey by Albatross Global Solutions, Worldwide, only 27 percent of our luxury consumers preferred the Apple Watch to a luxury watch, and only 15 percent considered the Apple Watch as a potential substitute for a luxury watch—something legitimately competing for the same space on their wrist.
Consumers of these high-end watches are looking for something beyond simple time telling (or even a heart rate sensor and gyroscope). They are searching for the status and statement attached to wearing a luxury watch. In addition, consumers cite timelessness, design, and craftsmanship. Luxury watch buyers also consider their watches collectible.
How many current luxury watch consumers will make a definitive switch to the Apple Watch? Yes, there will be a percentage, but there is a higher chance that those people keep both rather than banishing one for the other. So, for these consumers, it may be an Apple Watch Edition to work and another luxury brand for social events. (Related reading, see: What Makes Apple (AAPL) the Most Valuable Company?)
Instead, of stealing from the luxury watch market, the Apple Watch may simply add to it. Apple Watch buyers may be people who have never bothered to wear a wrist watch, especially the younger generations. The Apple Watch also appeals to a slightly older demographic who gave up wearing a watch when they got their first cell phone. Among watch wearers, the Apple Watch could also appeal to those who love technical gadgets and being the first to own a new technology. Apple loyalists will be another reliable consumer.
The Bottom Line
It will be interesting to see how consumers respond to the Apple Watch's combination of technology, utility, and luxury. These spaces have different parameters and Apple, especially with its Watch Edition series, tries to combine them. While the luxury watch industry is nervous, it is also possible that Apple finds a place in the industry which is complementary rather than competitive.