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Should Watch Makers Venture into Smartwatches?

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The past month has seen a flood of reviews of the Samsung Galaxy Gear smartwatch following its launch in early September. Smartwatches have been one of the hottest topics of late alongside mobile technology and have thus far attracted a great deal of both consumer and media attention. However, the smartwatch is still at an early stage of the product lifecycle, and, although accepted by early adopters (mainly tech enthusiasts), has yet to gain acceptance among mainstream consumers. The recent hype surrounding smartwatches has also kept traditional watch companies on their toes, with many wondering how this product will impact the watch industry and whether they themselves should venture into this unknown territory.

Tough to Sway the Ardent Collectors

The global retail watch industry is estimated to be worth some US$61 billion in 2013, with the leading Swiss companies accounting for more than a 25% share of sales. The Swatch Group, Richemont SA and Rolex SA all rank among the top five. Swiss companies are best known for their mechanical watches, which are set to account for 35% of global value sales in 2013 but only 7% of volume sales. Over the 2008-2013 periods mechanical watches were also the industry’s growth driver, posting a 7% CAGR in current terms, while quartz digital watches, on the other hand, mustered a flat 1% CAGR. Swiss watches are valued for their engineering heritage and prestige and are unlikely to be replaced by technological products such as smartwatches. Ardent collectors of traditional Swiss mechanical watches are interested in their intricate engineering, something which cannot be replicated or replaced by the apps on a smartwatch. Hence, smartwatches are unlikely to pose any threat to the sales of mechanical watches over the forecast period.

Problems of the Smartwatch

Smartwatch batteries need to be charged frequently, with the best offerings currently claiming to last for a full week. This is in comparison with quartz analogue watches, whose batteries last easily for more than a year before requiring a replacement. The screen size on smartwatches is another area of debate because it directly impacts functionality. A large, sharp coloured 1.64 inch diagonal display like that on the Galaxy Gear may be “easier” on the eye and “more” functional but on the downside it will only appeal to a limited number of consumers. For instance, online reviews of the Galaxy Gear saw many women commenting that this wearable device is ugly and too bulky for their smaller wrists. That said, reducing screen size is unlikely as it would then be too small for navigation and the viewing of information. Current manufacturers are still trying to balance the functionality and aesthetics of the smartwatch. In addition, smartwatches are currently priced at between US$200-300, which can be considered a hefty price tag for something seen as an accessory rather than a key device. Due to such drawbacks, current generation smartwatches are thus unlikely to pose any major threat to the watch industry in the short term.

A Breakthrough is Needed

Smartwatches are nothing new and have in fact been struggling to garner wider acceptance since the 1970s. Even companies such as Sony, LG and Samsung, which have a strong background in consumer electronics, have failed to deliver captivating products. The smartwatches launched by these consumer electronics companies are still designed to be complementary devices to smartphones, offering limited functionality. Therefore, they are seen as pure accessories rather than devices in their own right. Even Samsung, the newly crowned leader in smartphones and a company which is known for its innovative smartphone features, has not made any great breakthrough in its latest attempt in smartwatches. Research and development to produce a smartwatch with innovative features to wow consumers will be the key to success. Watchmakers lack the required know-how and resources to be able to compete directly with well-established consumer electronics companies such as Apple and Samsung.

Obstacles to Consider Before Plunging In

Watch manufacturers will need to consider the above-mentioned obstacles before entering the smartwatch arena. Firstly, it will be very difficult to sway those consumers who are ardent collectors of mechanical watches or women into replacing their watches with a smartwatch. Secondly, to compete in this arena, watch companies will be up against established consumer electronics companies which have the necessary infrastructure to support the development of this product. Theoretically, these companies are marketing their smartwatches as “wearable gadgets” rather than watches.

Nonetheless, watch manufacturers such as Fossil Inc and Casio Computer Ltd have also launched their own smartwatch versions. However, they have sought to market their smartwatches simply as watches which convey one’s smartphone’s notifications. Similarly, consumer response to these hybrid watches has been lukewarm. It is thus crucial for watch manufacturers to consider if it is worth the effort and investment to venture into this unfamiliar arena.

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