Platform Innovation // Blog

The Apple Watch is Bad News for the Luxury-Watch Industry

The luxury-watch industry is about to undergo another wave of disruption, and the first step to solving a problem is to recognize that there’s a problem in the first place.

With the next wave of high-end wearables on the way, the problem is about to become very apparent. The luxury-watch industry is already feeling the pressure. Many of the major luxury-watch makers have been sending cease-and-desist letters to websites that allow you to download imitations of their watch faces that can be used on smartwatches.

The next domino will fall in 2015.

The Apple Watch will be that domino. What Apple has been able to do so eloquently is balance consumer utility with design. This has long been the calling card of the luxury-watch industry, which matches beautiful design with mechanical precision. While estimates vary, but most analysts suggest that Apple will sell about 24 million watches in 2015. This means that Apple’s new watch will pose a significant challenge to the industry’s long-standing business model.

This won’t be the first time the luxury-watch industry has dealt with disruption from a serious competitor. It happened in the 1980s, when quartz watches flooded the market. Mechanical watches’ hallmark was their accuracy, but quartz watch movements were much more accurate than mechanical movements. By the 1980’s, Quartz watches were also much cheaper, so they had mechanical watches beat both on function and price.

As a result, the luxury-watch industry was almost destroyed. It survived only after it underwent significant retrenchment and consolidation. The remaining luxury watch companies refocused on a more limited pool of wealthy customers and the industry hasn’t changed much since. But their business model is about to undergo another wave of disruption, as Apple takes aim at the high-end watch market.

Apple is betting big on the Apple Watch. Just take a look at the Apple website. They have six product categories with the watch as one of them.

That combination will attract many consumers at the sub-$1000 price point with the stainless steel and sport editions.

Now, look at the Watch Edition section of the site. You’ll see that it says, “The Edition collection features six uniquely elegant expressions of Apple Watch.” Well, there are only five watches displayed on the page. What’s the sixth? I would assume it’s an Apple watch with an all-gold band. And that watch will be priced north of the $1,000 price point. If I were Apple, I would price it above $5,000.

So, what does an all gold Apple Watch between $5,000-$10,000 do to the existing luxury-watch players with products at the sub $15,000 level? In a word, disruption. The high-end Apple Watch will be aimed squarely at the lower end of the luxury-watch market.

The Apple Watch won’t disrupt the market for people interested in spending $25,000 or more on a watch – not yet anyway. There are very different motivations and target market for that kind of purchase. But a large and highly lucrative portion of the luxury-watch industry is in for a change.

The key demographic that’s buying watches between $5,000-15,000 is up-and-coming young professionals and entrepreneurs. Unfortunately for the luxury watch industry, this target market is also a key demographic for Apple.

Its core customer is a person with disposable income who can appreciate the latest technological and design advancements. Pair that with a company known for elegant design and masterful marketing, and it spells trouble for the traditional watch makers.

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