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How Luxury Watchmakers Can Compete With Apple

By
Aaron Pressman
Aaron Pressman
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By
Aaron Pressman
Aaron Pressman
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March 10, 2017, 11:58 AM ET

Traditional luxury watchmakers have reacted to the incursion of the Apple Watch in different ways. Some, like Movado (MOV) and TAG Heuer, have thrown in with Google’s Android Wear software to create full blown smartwatch competitors. Other, like Fossil and Citizen, have opted for a hybrid approach, adding a few smart features to otherwise entirely traditional-looking watches.

So far, neither approach has taken the consumer gadget market by storm. For that matter, even Apple has sold only an estimated 22 million of its smartwatches in the first two years, less than half what Wall Street once predicted. Still, that’s a serious chunk of the luxury watch market. In January, Jean-Claude Biver—who runs LVMH’s (LVMUY) watch brands like Hublot and TAG Heuer—estimated that Apple had a 50% share by number of high end watches sold.

Slowly and steadily, smartwatches are gaining momentum and will make further gains this year, according to report on Friday from market tracker Counterpoint Research. Hybrid watches especially are gaining traction and U.S. sales could nearly double to $1.1 billion this year as more brands and more models arrive. Among all kinds of smart wearables, hybrid watches could take 12% of the market, up from 7% last year, Counterpoint says.

Hybrids have a single, fixed watch face instead of a digital screen that can switch to display different faces or other information. That limits the functionality and increases dependence on a linked smartphone. But it also means battery life can be as long as several weeks to a month compared with just a day or two that full blown smartwatches last before needing a recharge.

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One successful hybrid strategy is to embed the same basic smart functionality–which is generally limited to tasks like counting steps, relaying phone alerts, and making mobile payments–across many different watch form factors and watch faces. For example, Fossil Group (FOSL) is expected to offer 300 different watches all with the same smart functions, Peter Richardson, Counterpoint’s director of research, says.

“Though the number of SKUs seems high, Fossil Group is able to hit multiple market segments with finely gradated offerings,” Richardson noted in the report. “This form of product marketing is something Fossil does well, much better than technology companies.”

That’s quite different than Apple’s three basic smartwatch designs or the Android-based smartwatch line up of five models that Movado previewed this week.

But it may be the best way for some more traditional brands to compete while keeping the emphasis on style and fashion–their strengths–as opposed to fast-evolving tech features and apps, the areas where Google (GOOGL) and Apple (AAPL) dominate.

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