A new report on the state of Swiss watchmaking has concluded that parts of the luxury market are on their way to becoming a “battlefield” for powerhouse brands such as Rolex.
According to RE Analytics, which has just published a study entitled ‘Rolex: An industry under threat’, the rise of high-end smartwatches now pose a “tangible” threat to Swiss watch brands.
Andrea Squatrito, the author of the report, believes that Rolex’s lower-end watches, which comprise close to half of its customer base, are likely to be increasingly challenged by premium wearables such as the Apple Watch Hermès.
He says that Apple has already proved from its ventures in the music and mobile phone industries that the disruption of technology can alter the existing equilibrium in virtually any market, irrespective of incumbent competition.
“Now, while the Apple Watch in this stage of evolution hasn’t (yet) reached its full potential in terms of sales, there are signals that the Swiss watch manufacturing industry is under threat,” he wrote.
“While the price range of the product offered spans from thousand to hundreds of thousands of euros in price, our analysis shows that 43% of actual revenues come from watches sold at under €12,000 (£10,400) and 25% [from watches] in the €3,500 to €8,000 (£3,031 to £6,929). This range is explicitly threatened by the Apple Watch, which enters with a renewed image of the wristwatch together with Hermés, and places the product at the door of this price point: €1,800 (£1,558).
The reason Mr Squatrito feels that Rolex could have most to lose from this competition is that almost half its business comes from watches at the lower end of the luxury market.
“The threat is tangible,” he wrote. “As you can see in this report, there are two main customer segments addressed by Rolex: the first is buying watches in a price range of €3,500 to €12,000 (£2,597 to £10,391), an entry-level luxury watch, which accounts for 45% of the business of Rolex watches. The second group of customers – approximately 38% of the consumer base – buys watches from €20,000 to €35,000 (£17,318 to £30,310). Compounded, these two clusters represent more than 80% of the business at Rolex.”
This research is ignoring two main factors – the positioning and the technology. While the smart watch has all the technology to offer, the Rolex’s of the world have all the status symbol positioning an Apple watch will never have, Hermes or not. The main question, IMHO, is who and how to combine the two. Smart watch sales are in sharp decline, a symptom that Apple never saw before in the technologies it disrupted (Music, Phones). Forbes reported that most smart watch users use it to merely tell time. Major players are pulling out of the smart watch world, and Richemont and Swatch are showing signs of recovery. (Disclaimer: owner of DeNovo Swiss watch brand)