Andy and Felix, co-hosts of OT: The Podcast. Image: Supplied.

Rhys Prka

Rhys Prka

Can the Traditional Luxury Watch Survive the Smart Age?

In the world of luxury watches the 1970s changed everything, the so called ‘Quartz Crisis’.

Seiko fired the first warning shot in the last week of the 1960s, introducing their first quartz watch, an expensive limited-edition gold-case piece with battery powered movement featuring a quartz oscillator.

The new technology would wreak havoc on the industry in the coming years, between 1974 and 1983 Swiss watch production fell from 96 million units to 45 million.

Swiss banks injected SF550 million into the industry between 1981 and 1983, amidst job losses and bankruptcies.

Eventually, the Swiss watch makers adapted and started to release their own low-end quartz watches.

A new crisis is on the doorstep and the horse has already bolted, the smartwatch.

In sales estimates compiled by Strategy Analytics, the Apple Watch shipped nearly 31 million units in 2019, a 36 per cent increase.

The Swiss watchmakers, including brands like Swatch and TAG Heuer only shipped roughly 21.1 million units, 13 per cent slide.

Deloitte’s Swiss Watch Industry Study 2020 noted that over 60 per cent of watch executives surveyed admitted that the industry missed the boat when it came to smartwatches, with 34 per cent seeing smartwatches as a threat, up from 14 per cent in 2017.

“The sentiment with executives varies depending on their positioning,” Deloitte Director Financial Advisory and Watch Industry Lead Jules Boudrand said.

“Companies manufacturing primarily high-end mechanical watches see this less as a threat. The high-end mechanical segment, although it also suffered in 2020, has fuelled the growth of the industry over the recent years and should continue in the future.

“Swartwatches have mainly had an impact on the entry-level quartz watches, a segment suffering since 2012 and which lost more than 10 million units over the past eight years.”

Some Swiss players in the mid-range market have launched smartwatches Boudrand said, but these products only represent a small portion of their offering.

“We now see more and more Swiss brands entering the market even in the high-end segment but this is expected to remain a small part of their offering in the future,” he said.

Apple Watch Series 4.

The major impact from smartwatches will be on the entry-level quartz watches, a segment which has been struggling since 2012, according to Boudrand.

“The biggest threat it creates for the industry is more from a structural perspective,” he said.

“Over 60 per cent of respondents in our survey see this decline as a threat. After the quartz crisis in the early 1980s the Swiss watch industry rebuilt itself by producing large quantities of entry level to mid-range categories of quartz watches.

“This provided a strong foundation for developing the mechanical watch segment and moving into the luxury industry. Respondents fear that a continuing fall in sales of entry-level quartz watches and low to mid-range mechanical watches, which are not performing as well as in the past, could weaken the industry in Switzerland.

“This would inevitably have a knock-on effect on prices, job losses and a loss of know-how.”

Where do the customers sit?

In good news, 60 per cent of consumers surveyed in the Deloitte study would wear either a traditional watch or both a traditional and smartwatch, a positive sign for the industry that consumers are not completely digitalised when it comes to their timepieces.

“The evolution of results of our consumer survey between 2017 and 2020 show that smartwatches are increasingly attractive to consumers and even more so for younger generations, but they still tend to wear and be interested in both smartwatches and traditional watches and we see this continuing into the future,” Boudrand said.

“Baby Boomers have a clear preference for traditional watches whilst there is a stronger preference for smartwatches among millennials and Generation Z. Overall, our consumer survey also shows that one person in three wears a smartwatch at least some of the time and even more among the younger generations.”

Memories of the Quartz Crisis lingered in the minds of watch aficionados as they witnessed the rise of smartwatches, according to the hosts of OT: The Podcast, a weekly show about watches, time and how to spend it, hosted by watch experts Andy Green and Felix Scholz.

“While there is a bit of snobbishness on the consumer side still, the reality is that people were never going to throw away their Rolex and replace it with a Samsung, most watch aficionados I know that have a smart watch use it for a specific purpose, but it hasn’t replaced their Luxury watches,” Scholz said.  

Green can see the two industries existing in harmony.

“I can’t see anyone who loves mechanical watches seeing an Apple Watch, or any smart watch, as a complete replacement,” he said.

“An Apple Watch is a piece of wearable tech, that does so much more than tell the time. Watch enthusiasts know – you don’t wear a mechanical watch for precision timekeeping, it’s much more emotional than that – I don’t think it’s really even about telling the time at all.

“The result is two very different feelings and associations. An Apple Watch is an extension of your iPhone, which you’ll upgrade in time. A good mechanical watch will outlast any piece of modern technology 100 times over. I genuinely see these as two different categories entirely that can coexist together quite nicely.”

Scholz has witnessed that younger people who never wore a watch growing up got a smart watch, and perhaps stopped wearing it after the software became a bit outdated, and some are now buying traditional watches.

“Also worth noting, when asked what their watch buying preference would be if they were given CHF5’000 (or their local currency equivalent) to spend on a watch (between a new luxury watch and the latest release of a smartwatch each year for the next 10 years) a majority of respondents across all eleven countries surveyed would buy a luxury watch,” Boudrand said.

“Although the evolution of results between 2017 and 2020 show that smartwatches are increasingly attractive to consumers when money does not play a role, luxury mechanical watches remain favoured by a majority and therefore still have a bright future.”

Hard road ahead

The rise of smartwatches might be the least of the watchmaking industry problems however, as the impacts of the pandemic exacerbate the already tough market conditions.  

A grim future clouds the industry, with 85 per cent of watch industry executives in the Deloitte survey forecasting a grim outlook for the industry specifically which shows the seriousness of the current situation and the monumental challenge for the industry.

“The pandemic has had a strong impact on the industry which recorded one of the strongest drop in sales of its history although brands and suppliers are affected very differently depending on their product, market positioning and the price range they are in,” Boudrand said.

“Back in 2010, the industry recorded a 23 per cent increase after the 22 per cent decrease recorded in 2009 but we were operating in a different environment where boutiques were still open, international travel retail continued and China was a booming market.

“Although China did perform well in 2020 and is expected to remain strong in 2021, the pandemic has had an unprecedented impact with manufactures closing for several weeks and shops being closed around the globe for several weeks and even months.

“Globally, the pace of recovery will largely depend on the length and extent of the new lockdowns in place since January and the pace at which the global vaccination campaign advances. The growth of the industry should continue to rely on leading brands (independent or part of groups) and be driven mainly by high-end mechanical watches.”

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