Retailers warned that smartwatch margins are unlikely to improve

Smartwatches launched by Gc at Baselworld.Smartwatches launched by Gc at Baselworld.

There have been a number of false dawns, but retailers returning from Baselworld can have been left in little doubt that the fashion watch industry wants 2017 to be the breakthrough year for connected watches and the days of letting Apple and Samsung set the pace are over.

Fossil Group, and its portfolio of licensed fashion brands, are betting that the next big trend for men and women will be connected technology on the wrist, and has spent several years building up the technical and logistical expertise to deliver touchscreen and hybrid smartwatches across virtually every one of its brands.

The key to cracking the smartwatch market for traditional watch retailers is to start thinking less like a jeweller and more like a technology shop. That is a scary prospect for an industry used to working on an annual cycle from one Baselworld to another, with comparatively little product being launched in between.

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The fashion world is different, with its spring/summer and autumn/winter drops; while the technology world is driven by constant innovation and upgrades. Even more disconcerting for retailers is that the technology world works off considerably lower profit margins.

“There is an industry challenge, which is the retailer margin on smartwatches is too low. The price points that have been set are making margins too low to be sustainable. Every brand that is doing smartwatches is positioning them with a retailer margin that is well below a typical watch margin for any normal price point,” Brian Duffy, chief executive of Aurum Holdings, told WatchPro in December last year, as he described why 2016 had failed to see a major surge in sales of connected watches. “To the extent that they are being bought, I think the effect is incremental. I think it could just be people buying from us that might otherwise not have bought at all because we certainly cannot detect anywhere a negative impact on our business at any price point because of Apple Watch or any other smartwatches,” he added.

Halfway through 2017, there is no sign that the economics of smartwatches are about to change. Fashion leaders Guess and Gc, which both license their name for watches made by Sequel International, know that the speed of innovation and the hunger from customers for the next big thing in technology mean that development costs of smartwatches will remain high, while their shelf lives of those watches will be short. That, argues Brett Gibson, president & chief commercial officer at Sequel International, is a recipe for lower margins, but hopefully more frequent sales.

“Margins on smartwatches are still lower than for normal watches. They are in a space where technology and fashion are clashing, which means faster pace. Economics of smartwatches are different. They have a shorter shelf life, they have a use-by date, they have an upgrade path. Consumer electronics is high volume, low margin, short shelf life. The short shelf life can be a positive or a negative – it does mean repeat business for retailers,” suggests Mr Gibson.

Movado Group, which also produces a raft of fashion watches under license from the likes of Tommy Hilfiger, Hugo Boss and Coach along with its own Movado family of watches, agrees that the economics of wearable technology creates opportunities and challenges. “In the consumer electronics world, the pace of change is much faster and margins are lower. That is the way the world is. If you want to operate in that world, you have to accept that,” a spokesman for Movado Group told WatchPro at Baselworld.

Movado unveiled its first smartwatch at the March trade show. The new collection is based on the latest Google Android Wear 2.0 platform, and includes digital watch faces that feature iconic Movado styles including the golden moon at 12 o’clock. Other Movado group brands including Tommy Hilfiger and Hugo Boss are also partnering with Google in order to launch connected watches that will be in stores after the summer.

Retailers were shown the Movado smartwatch at the end of March, and it will be ready to go on sale in the autumn in a collection of five men’s styles with a starting price of £325. “The launch of Movado Connect marks another new milestone in Movado’s longstanding history of creativity and innovation in watch design,” says Efraim Grinberg, chairman & CEO, Movado Group.

“We are very proud of our collaboration with Google and for the opportunity to provide our customers with an incredibly designed timepiece, powered by the latest, cutting-edge technology platform. Movado Connect, with our proprietary edge-to-edge crystal design, is iconically Movado.”

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