It\'s Not Technology That Will Take the Swiss Watch Down

 Sintia Radu
  4th-Jun-2018

Earlier this year Apple reported that the Apple Watch sold more in the last quarter of 2017 than the entire Swiss watch industry combined, surpassing legacy giants such as Rolex and Swatch. This came as a pleasant surprise for the makers of a gadget heavily criticized in the beginning for not performing well in sales or not being that useful.

In Switzerland, news of the shifting trends in timepiece sales is stirring a wide range of opinions. The watch has over the centuries become an icon of the Alpine country, and experts say the European country can either capitalize on the smartwatch hype and overcome yet another period of industry disruption or simply see a staple industry fade from within.

The Apple Watch, an Apple product released in 2015, sold 8 million units in the last quarter of 2017, while sales of Swiss watches overall barely reached 6.8 million units in the same time period. This seemed to strike hard in the reputation of an industry that had been around for centuries and is in many ways synonymous with Switzerland itself.

"Obviously the Apple Watch is quite successful and they are selling quite a bit," says Scilla Huang Sun, head of equity and portfolio manager at GAM Investments, a global asset management firm with offices in Zurich.

Yet it's difficult to tell if Apple and Swiss-made watches are competitors, since they don't entirely target the same customers, experts say. A big portion of the Swiss watch industry aims for a high-end customer who values the technology behind the product and the aesthetics and sentimental value of the watch, say experts. Ultimately, customers are willing to pay more to make a status statement. Smart watches have a lower price range and they are mainly considered a utility or a gadget that do collide with the lower price time pieces

More so, Switzerland is mainly making money off of wristwatches, and the majority of profits come from their most expensive timepieces, which sell fewer units.

"The Swiss watch industry, in value term, is quite big but if you look at the number of watches that are produced in Switzerland it's quite a small amount and that's due to the fact that Swiss watches are mainly known in the luxury area," Huang Sun says.

Yet rather than being threatened by the smartwatch technology, experts say Swiss watchmakers should be happy that technology is making it "cool" to wear something around the wrist again, a habit that the younger generation has lost after smartphones came about.

"So it's more helping the watch industry than killing it," Huang Sun says.

Switzerland, the Watchmakers and Disruptions

The Swiss watch industry has been around since the 1700s and is known for its legacy and family tradition. Yet the fact that a technological advancement could be threatening Switzerland's staple industry is nothing new for the small European country.

"It's important to remember that this is not the first time that the Swiss have come under a technological shock," says Ryan Raffaelli, assistant professor in the Organizational Behavior Unit at Harvard Business School, who studied the Swiss watch market and the impact the introduction of the battery-powered quartz watch made in the 1970s. The Swiss invented the device, but the Japanese were the first to develop it into a consumer product. The Swiss managed to survive, Raffaelli says, because they created a better mix of technology and design compared to what the Japanese were offering and this turned the quartz threat into a business opportunity.

"In 1983, the Swiss launched the Swatch watch, which was a quartz battery-powered watch that infused this notion of art and emotion and fashion into these quartz watches that the Japanese were creating but that for many consumers were aesthetically unpleasing," Raffaelli says. In 2008, the Swiss were again dominating the global watch market, with their mechanical pieces being the world’s leading exporter in value.

Yet as good as the Swiss have been at incorporating technology or reinterpreting tradition to maintain their customers, the advent of the Apple Watch is causing some waves. Behind closed doors, watchmakers went from laughing about the possibility of a time gadget, to admiring the efforts of the tech industry, Adams says. Others pointed at the traditional assets of a Swiss time piece that a smartwatch is yet to have.

"When the Apple Watch came out the CEO of Tag Heuer (a luxury Swiss watch brand) said he didn't like the product and he was trying to make a point that this technology product, no matter how attractive it is, doesn't have the same artistic or expresses value as a luxury watch and he's absolutely correct," Adams says.

Tech companies seem to be taking a more global approach in both selling their products and the management of their companies, experts say, while the Swiss watch industry has very much inherited its citizens' preference for traditional crafts in isolation from the rest of the world, not keeping up with the new nor retaining talent.

"The Swiss watch industry is a vestige of another time and its biggest enemy is itself," Adams says. "They don't trust anyone else, so when it comes to things like communication and making crazy decisions, they don't allow other people to assist them. The Swiss make excellent watches but they don't do too much else."

Yet the Swiss do value their country brand and this is why in the next decade watchmakers might step up their technological game in order to ensure the survival of the Swiss made label, experts say.

"The watch industry for the Swiss is just as important symbolically as it is substantively in terms of their economic model," Raffaelli says. "For many the Swiss watch represents so many of the characteristics of the Swiss industry itself – precision, accuracy, careful attention to detail. Those are characteristics of Swiss commerce in general that are very symbolic to Switzerland."

If anything will get disrupted it will mainly concern less expensive Swiss time brands in the same price range of a smart watch. These are also the main producers that have started incorporating smart watch features into their products, experts say, fearing their businesses will soon be compromised, but the trend has yet to scale as the global industry is not yet stable and the Swiss don't like working in a space with no clear standards, say experts.

Yet one thing is for sure: The Swiss watch market can still capitalize on wealth and status and it still has a story to tell.

"The Swiss mechanical watch industry is here to stay because the Swiss watch is largely associated with status and luxury today and those are dimensions that far exceed what we think of utility for keeping time," Raffaelli says.

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Domain: Afterhours
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