These days nobody needs a watch to tell the time. We live in an age where the devices around us constantly remind us of the time, and millennials are beginning to wonder – why own a wrist watch? Consumers are becoming more tech savvy and demand more functionality than ever. New technology is enabling breakthroughs in products to become more innovative. Smartwatches, led by Apple, are flooding the market and offer an entirely new value proposition to consumers. Watches have now become digitized and yet Swiss watchmakers have been slow to adapt, and may not be able to hold on to the valuable real estate on a consumer’s wrist for much longer . Traditional watchmakers should be concerned as consumer preferences are shifting, and they are in an industry that has proven susceptible to disruption once before. Although the industry has been complacent in its response to the rise of the smartwatch, TAG Heuer (“TAG”), a Swiss watch brand owned by LVMH, is taking action.
The Quartz Crisis
In the early 1970’s, the Swiss watchmaking industry, which had dominated the trade for centuries, was completely turned on its head in a matter of years. The new quartz watch technology offered a more accurate and cheaper product than the traditional mechanical watches, and companies like Seiko and Casio came in and dominated the market. The “quartz crisis” killed off so many Swiss watchmakers that two thirds of the watch industry jobs in Switzerland disappeared . Swiss companies eventually made a comeback by marketing expensive mechanical watches as traditional luxury items . However, through decades defined by innovation, it was only a matter of time before the traditional mechanical watch was challenged again.
When Apple first introduced its $400 smartwatch in 2015, Jean Claude Biver, watch legend and CEO of TAG, dismissed it, saying that the watch looked “like it was designed by a student in their first trimester” . Two years later, at its September 2017 keynote, Apple announced that it had become the largest watch manufacturer in the world, uprooting hundreds of years of watchmaking tradition in less than three years of production . Apple isn’t the only large player in the smartwatch industry, and this year smartwatches overtook Swiss wristwatches in terms of total units sold globally. Even though Apple continues to grow its offering to gain market share, 72% of Swiss watch executives do not see smartwatches as a threat to their business – a sign that the industry is not reacting .
TAG Heuer has been the first Swiss watchmaker to adapt. In 2015, TAG partnered with Google and Intel to launch its first smartwatch, the TAG Connected, a watch that fuses tradition and technology. At a price point of $1,400, the watch was the first luxury smartwatch of its kind . Although a great success, the product was only seen as a short-term solution for TAG, as it was not considered “Swiss Made”. For a watch to be considered Swiss, laws require that 60% of manufacturing must be done in Switzerland, and TAG simply did not have the manufacturing capabilities to pull it off . Through substantial investments in their La Chaux-de-Fonds workshop, TAG was able to unveil their second smartwatch earlier this year, the TAG Heuer Connected Modular 45, introducing the first “Swiss Made” smartwatch. The watch is again powered by Intel and operates Android 2.0, allowing the watch to support apps, connect to wifi and cellular networks, and even use Android Pay . It is offered for $1,650 and introduces TAG’s long-term strategy – modularity. The base of the watch will be able to host both digital and mechanical modules, allowing customers, to switch between a smartwatch and a mechanical piece. This is the next step in TAG Heuer trying to bring tradition to the smartwatch industry by solving the problem of smartwatch model-specific technologies becoming obsolete after a time. So much of the value proposition for a mechanical watch lies in its ability to last forever and TAG has created a smart piece that can.
TAG is heading in the right direction. With high demand for their smartwatches, TAG should consider entering the price range for one of their typical watches at around ~$3,000, or even higher. Although some luxury brands have introduced inferior smartwatches at higher price points, TAG can make an early move to dominate the higher end smartwatch market, as it is ahead of the Swiss watchmaking competition in both technological and manufacturing capabilities.
- Are smartwatches the future or a “Quartz Crisis 2.0”?
- Is it wise for TAG to change more of its manufacturing capabilities to support smartwatches?
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