The 3 Biggest Mistakes Swiss Watch Brands Make With Smartwatches

It was 5 years ago that I wrote an article about whether luxury watch brands could successfully sell a 1000+ USD smartwatch. The article can be seen here:

This surprised and saddened me. Surprise because, where did the last 5 years go! Saddened because the watch industry really does not appear to have changed much during that time and continues to make the same mistakes.

I take no pleasure from this - I love watches and the watch industry, I own a few luxury watches myself and it pains me to see its continued demise. By demise, I relate to the continued reduction of volume in the industry. As the Federation of The Swiss Watch Industry says in its own 2019 report:

"The downward trend seen for many years worsened during the summer of 2018 and had a marked impact on every month in 2019, without exception. Switzerland shipped 20.6 million watches to other countries, 3.1 million fewer than in the previous year. This historically low level, below even the crisis of 2009, is comparable to the volume exported during the dip in the early 1980s".

A reduction year on year of over 13%, while the value went up 2.6 %! Meaning that the sales of mid-priced Swiss Watches are falling through the floor, while some (but not all) of the more expensive brands continue to do well - Rolex is a clear winner here. I have not included sales from this year as the COVID situation is not a fair marker to industry performance, but we all know it is a disaster.

All watch brands, not just Swiss brands in that sub 3,000 USD range are hurting, so many of the suggestions below apply to them also.

When I asked in the past, can Swiss Brands sell Smart Watches over 1,000 USD - Its was mid-priced range of watches that were of particular interest. Their sales are falling in traditional watches, so one option open to them is to "Go Smart" the question is how?

Brands in this tier include TAG Heuer, Oris, Longines, Hamilton, Tissot, Alpina, Frederique Constant, Mido, Victorinox, Certina to name a few.

Therefore, as a follow on from my article 5 years ago, I would like to offer my thoughts on where I believe mistakes are being made and suggest ways for all brands to fix it. My focus here is on the Swiss brands, but many of the points below are relevant to any traditional watch brand regardless of their origin.

MISTAKE 1 - Thinking Your Brand Justifies A 5 X Increase In Price Over The Tech Competition

With traditional watches, there is a justification for the increased price points of a luxury watch. The main reason being the movement, fine mechanical parts, accurately assembled by artisans and regulated to offer accurate time. The greater the complication/complexity, the greater the time such a work of art takes to assemble, the greater the price increase. Combine this with some design flair for the case, dial, hands, chapter ring, bezel, and strap, add some nicer materials into the mix and you have a combination that many are willing to pay a premium for - Myself included.

The Swiss watch industry appears to think that this same formula works with smartwatches. I would suggest that it's not the case. TAG Heuer and Tissot, in particular, have or will in the near future release smartwatches. Their brands fall into that "Zombie Zone" of mid-tier pricing sub 3000 USD whos traditional sales are suffering, so they need to make up the volume in other ways, the Smart space being one of them. But consider this:

• Buying a "luxury item" that costs over 1,000 USD is expected to last. To still be of use in the future.
• If you buy an LV bag, with some care it will last years and retains some value if you were to ever sell it again in the future. Even luxury cars, which have dramatic reductions in value as soon as you drive them from the retailer retain some value.
• In other words, spend over 1,000 USD and you expect an asset of sorts. Perhaps not the best asset you can own, but an asset never-the-less.
• That is the problem with a Luxury Smartwatch, its worth next to nothing in 5 years from now due to the pace of technological improvement. How many of you would use the Smartphone in your draw from 5 years ago, or pay anything for it?
• You might say "what about the luxury experience?" Fair point, but with Wear OS dominating this sector (We will discuss Wear OS later!), there is no improvement regarding the tech over an equivalent Fossil watch, leaving only the case kit and strap to "improve the experience" beyond the norm. Some may think that is enough to justify the price, but I would suggest that number of people is limited.

THE SOLUTION - Don't Sell Smartwatches At The Same Price As Your Traditional Watches!

Why do the traditional brands feel that they have to sell Smartwatches at the same price as their traditional watches? It will continue to be a struggle to justify the price. The thing is YOU DON'T NEED TO JUSTIFY THE PRICE. Treat the two markets as exactly that - Two separate markets - Smart & Traditional.

If you accept that a Smart digital watch is not as costly as a traditional watch with a traditional watch movement etc. then there is no reason why you could not sell a branded product at the price points closer to that of the Smartwatch leaders (Apple and Garmin in particular)

Apple & Garmin are the kings of charging a premium for electronics they easily charge 20-50% more for their watches than equivalent brands. Now I know that Garmin is selling some Smartwatches for 1,500+ USD, but I would argue they are likely exploring opportunities at these higher prices, what's more important here is they also sell around 1 million of their other watches a month - most of which are Sub 500 USD. A volume any traditional watch brands would be envious of.

AIM FOR BETWEEN 600 - 1000 USD

Some in the watch business might argue that this is not "Premium Enough" but let me remind you of your competition and by competition, I mean the "premium competition" in the Smartwatch space:

• 350 USD apple watch is also LTE connected and has ECG.
• A Garmin Fenix at 999 USD, offers a tethered smartwatch with a bewildering array of features and functions, color maps, music on board, their extensive ecosystem of health and training options as well as a 10 ATM titanium case and bracelet with 10+ days of battery life. It looks pretty cool too.
• The Suunto 7 is a tethered Wear OS device with heavy customization for sports and activity from a brand with serious outdoor tech credentials. Listed at 500 USD.

By comparison, the Tag Heuer Connected Gen 3 is offering a tethered Smartwatch running Wear OS with the standard Qualcomm chip, it does offer some Golf and sport customization - its list price is 1800 - 2000 USD, I would suggest it will make little difference to the Smartwatch market and do little to make up for sales lost in its traditional space. It's just too expensive for what you get! In my opinion, the watch is 1,000 USD overpriced. At 800 - 999 USD it would make more of impact and could be forgiven for some of its shortcomings.

To give Mont Blanc some credit here. Their Summit 2 smartwatch comes in around the 1,000 USD mark, bearing in mind the price of a traditional watch from Mont Blanc is three to four times that it's quite a reduction for a Mont Blanc.

LET YOUR SMARTWATCH BE THE ENTRY LEVEL TO YOUR BRAND

I am assuming that's what Mont Blanc is doing here, allowing you to discover the luxury brand and impress upon you the quality, heritage, etc. The aim to encourage customers in the future to buy more of their products. For Mont Blanc that includes products other than watches.

The more premium the brand, the more the difference in price becomes apparent. Hublot had a go with their World Cup Smartwatch for 5,000 USD - about 25% of the price of a regular Hublot. But that's still a lot for a Smartwatch. The product simply does not justify the price. But perhaps Hublot was simply trying something new with the aim to sell more of their more traditional products, they certainly can't have made any money on that model after development and sponsorship fees were paid.

So why are the mid-tier Swiss Luxury brands not taking on such an approach and using the Smartwatch trend to act as an entry into their brands? Why are there not more brands trying? Why are they not going for lower price points that would still be one of the most expensive products in the Smartwatch market?

It might be pride, or an old school resistance to change, but I suspect a large part of it is also the challenge of the distribution channels traditional watchmakers have to contend with. This is the next mistake Swiss watch companies continue to make when considering Smartwatches.

MISTAKE 2 - Relying On Traditional Watch Channels To Sell Your Smartwatches

Ironically, traditional watch companies tend to not be very good at selling their own watches! Instead, they rely on a network of distributors around the world who in turn sell to the watch retailers. Firstly the brands have high expectations for their own margins, followed by distributors often wanting to make 40+ margin and the retailers looking to make a further 50+ margin. It is no wonder that we get to the prices we do at retail. Resulting in x6 to x10 times the cost of the product at retail.

The distributors, more often than not hold contracts for the brand by territory - meaning anything branded XX needs to be sold through them and only through them. Which in the past was fair enough, but in today's world, this is outdated approach only hampers the ability of the brands to compete in the smart space.

With consumer electronics, brands start with lower expectations of margin, distributors and retailers also have lower expectations of 20% margin for the distributor and 35% for the retailer, the result is the product is priced around X4 the cost of the device.

Another big difference between the markets is many of the watch brands don't sell directly to consumers themselves (I am referring again to the mid-tier swiss watch brands here).

Let me give you an example. At the time of writing I can buy:

• on Garmin.com the top of the line Fenix 6X Solar Pro on a bracelet for 1,200 USD
• on apple.com I can buy anything they make including the 16 inch MacBook Pro for 2,800 USD (so the argument that people don't spend that kind of money online, holds little water these days)
• But can I buy the new Tag Heuer Connected Gen 3? Or in fact any watch they make online? I can if I am in the US, but not from my desk here in Hong Kong - Why? I would suggest its due to the distributor. This is not only TAG, but many luxury watch companies. While the USA is, of course, a major market the rest of the world could easily bring in online sales as well.
• Again Kudos to Mont Blanc here - I can buy a Summit 2 from them directly online.

So Garmin and apple can and do sell online, taking more of the margin for themselves. You only need a small percentage of total sales for this to make a big difference to your bottom line. Apple takes it a level further by owning award-winning retail locations where they control all aspects of the experience. Some traditional watch brands have their own boutique stores, but they are either not controlled by themselves or must be supplied via the distributor, thus losing the benefit of shortening the distribution chain. However you look at it, the business model is a hindrance to evolving and meeting the challenges watch brands face today.

Its a problem they will continue to face without seriously reconsidering their business model and relationships.

THE SOLUTION - For Smartwatches Re-Assess Your Channels Of Distribution

If a traditional watch company wants to sell smartwatches then they need to sit down with their key distributors and retailers and look to change the business model.

The smartwatches can no longer command the margins they are taking on traditional watches. If they are going to make it work through those channels at the reduced price points I suggest above, then they need all in the chain to be on board. This is going to be a challenge because the watch distributors have grown complacent and geared their businesses towards those higher margins. As a result, the level of commitment from distributors and retailers to sell lower margin products will be an ongoing question and concern. Watch boutiques are also uncomfortable selling tech and sales staff are familiar with what they know. Simply put - you can not rely on traditional watch channels to sell your Smartwatches with the volumes you require to survive.

This brings me to my next point - To sell Smartwatches, the traditional watch companies need to become a lot better at selling their products direct to the electronics channels and online direct to consumer.

Direct To Electronic Channels - Around the world for brick and mortar electronics retail there are really only a few players in each market. In the USA you have Best Buy, for Europe Media Markt. If you are not in these retailers, then you are missing huge potential. If you are selling a Sports Watch then you also have the likes of REI, Decathlon, etc, but again a few large chains of outdoor retailers dominate the majority of the market wherever you are in the world. It's Garmin's control of the outdoor market that is one of its strengths here.

Online Direct To Consumer - Daniel Wellington and MVMT have shown the watch industry that you can successfully sell watches online. As a business over 60% of total sales can be online. While Daniel Wellington is hurting with the general trends in the watch market they are still profitable (at least before Covid-19), more than can be said for most watch brands today. I would argue that a large part of that is due to the high percentage of online sales and the fact that they keep the margin for themselves. They also have a relationship with their customers, whom they can tap into time and time again. This is a relationship, offering opinions, tips, inspirations - not a poorly crafted newsletter that tries to sell you a watch (there is a difference!).

The Swiss watch companies need to do the same, but this will require a new set of skills, building sales funnels, creating regular content, constant communication with your customer base, etc. You need to essentially become a media channel, churning out relevant and entertaining content, selling the lifestyle of your brand. This goes far beyond the Facebook page or PR releases that most watch companies execute today. You are going to need to hire new talent, people with ideally no history in the watch sector, this way you can ensure you don't fall back into the old ways of doing things. The alternative is a customer browses a watch retailer's glass cabinets, they may or may not buy and you have no idea who they are or what they like. Old school simply will no longer keep you alive.

Amazon may be a leading retailer for consumer electronics today, but they are also very good at showing a customer all the alternatives to your product before they buy. It's far better to have full control of the experience and bring customers into your own funnel. There you can introduce them to the brand, the product, nurture them and sow the seed in the consumers' mind. They may not buy that time, but that's OK, because over time with further communication, you can convert. If you send your customers to Amazon, you will not be able to build the kind of relationship a premium brand needs to convert.

It's important to note - This is not only for Smartwatches but for selling any watch at any price point moving forward.

MISTAKE 3 - Putting All Their Eggs In One "Wear OS" Basket

Ok, so who is really to blame here? Google or the Watch company? Arguably both.

Let's start with Google - it's not uncommon to read a review of the latest Wear OS-based Smartwatch that says something along the lines of "Nice Watch, Shame about the OS".

I could spend a lot more time on this but in the interest of keeping it short - Google has simply dropped the ball. My biggest concerns being:

• Limiting Wear OS licenses to a very limited number of manufacturers (2 at the moment) who hold the watch brands to ransom when developing new watches. This does not encourage watch brands to develop a range of watches because to do so is too expensive. But without a range, its make or break time with 1 model at a time. Fossil is the best example of doing its best to break out of this with multiple SKU and brands at its disposal.
• Not only are the watchmakers held to ransom but they are also forced to use Qualcomm chipsets and certain high-end screen technologies. The result is driving up the price of the watch before you even get started. Think you need the best screen on the market today to sell an expensive Smartwatch? It certainly helps, but Garmin has been getting away with lesser displays for years and charging twice the price of an apple watch for the privilege. Not only do Garmins Memory in pixel displays offer huge savings in battery power, extending the battery life of the device well past a week under normal use (something Wear OS devices can only dream of), but they are also more readable under direct sunlight, which comes in very handy for an outdoor orientated brand. In my previous roles, I have pleaded with the Google Team at Wear OS for years to allow such displays but to no avail. Screen technology continues to improve, but the time lost has cost the watch industry dearly. Perhaps now with FitBit onboard we can see a dual approach lower spec devices and higher-end devices all ultimately syncing with your Google Fit account, but who knows how long it will take for this to materialize in a way that Watchmakers can use and execute. Time is ticking (pun intended).
• Making all Wear Os Watches essentially Vanilla flavored by insisting on all Wear OS watches having to connect through the Wear OS app. No other Smartwatch or wearable makes you do this, apple, Garmin, Polar, Fitbit, Amazfit all have their own apps, apps that can be tailored to the brand and provide the customer with a fully branded experience. But not Wear OS, instead you connect your Fossil, LG, Tag, and your LV watches all through the same app. As if to drive home the message that all the above are essentially the same (which they are when on Wear OS and made by two approved vendors!). Thankfully Google appears to have realized this as well and we will see a change in the future, but when and what that means to existing users is not clear at this time.
• Google Fit continues to be "Unfit for purpose" - this is probably the most frustrating issue with Wear OS. Whether or not you use the features regularly a Smartwatch is there to offer two main things other than the time.

1. Convenience

• Notifications and Interactions that save you getting your phone out unlocking it etc - OK to be fair, Wear OS is pretty good at this. Syncing with mail, wiping notifications from phone once viewed on watch, Google maps, Google Assistant, Voice to Text responses for WhatsApp, etc. There are for sure advantages over the RTOS alternatives. I had to make this list myself as Google is not able to provide such a list of advantages...

2. Health / Fitness Metrics

• Convenience is one thing, but health also plays a very important part regardless of whether you use the tech on a regular basis. This started simply enough with step count, but today is far more sophisticated with sleep, stress, heart rate, heart rhythm, blood oxygenation, ECG the list goes on. Not only that but several of the smartwatch makers out there not using Wear OS help you make some sense of this data overload by providing a score or goals. But my latest Wear Os device which can be bought online today can not track sleep metrics as standard. While there have been improvements, it's just not up to par with even lower-priced competition when it comes to health. Again hopefully the introduction of Fitbit into the organization can begin to fix these concerns. But until they do, you open yourself up for criticism and expose the soft underbelly. Not a good situation when the Swiss Brand is 3 - 5 times the price of the competition...
• You need only look at what Amazfit has achieved with their original Stratos using a stripped-down version of android to see the possibilities. If Amzafit can do it with android, surely Google can do it with Wear OS!
• Suunto recently made a valiant effort to create a true sports watch with Wear OS, not without a lot of heavy customization I might add and I applaud them for the brave move. However, I fear they will not be moving the needle against Garmin any time soon. It is, however, a strong offering at 500 USD and yes I CAN BY IT ONLINE direct from Suunto!!

Now for the Watch Brands - You are equally to blame because they have put up with this for years. Partly because there are few other options and perhaps partly through a lack of understanding of the market and what a customer really wants. Either way, you still have to shoulder some of the responsibility.

The Solution - Don't rely solely on Wear OS!

Now that Wear OS will allow you to connect your watch through your own app, there is nothing stopping any watch company connecting any smartwatch with other OS to the same app. This is an advantage because you have the opportunity to sell not only 1 watch but potentially multiple watches to the same customer.

Play to your strengths and act like a watch company

As well as a Wear OS watch, I would also recommend developing RTOS options especially Analogue Hybrids. By analog hybrid, I do not mean a smartwatch with analog hands pointing to an index or an indicator. This has proven to be unsuccessful. Remember one of the major uses of a Smartwatch is to save you from pulling out your phone. So half a notification saying you have a message but not being able to read that message is just irritating. Instead, I refer to an analog watch that has the means to provide the details of a digital but with Analog hands over the display.

Withings and Garmin have had some success with such an approach with split displays. Fossil has used a full display E-Ink. LG launched a Wear OS analog, but let themselves down on inferior specs. Overall, the signs are good and a watch company has more to work with, making it feel more like a "Watch +" rather than "tech dressed as a watch". Real hands, chapter ring in addition to the case and strap make all the difference to how the watch looks.

There are still technical challenges and color displays would be beneficial, but overall this makes a lot more sense for a traditional watch brand to have as part of their Smart offering. Tissot will be launching the T-Touch Solar Connect later in the year with its own OS SwALPS - This is encouraging to see - but still falling far short of the mark. The Tissot watch offers solar at the cost of a small display (red flag) also no GPS or HRM in the specs (which are too power-hungry for a solar - another red flag), so this is more of a daily wear notification type of device. There is an audience for the daily wear, but for these specs, I would suggest the watch needs to be at the low end of my suggested scale.

But the RRP is 1,200 USD! Come on SWATCH GROUP! - you can get the Garmin VivoMove between 350 -500 USD (With color display and optical heart rate). The Fossil Hybrid is at 215 USD (With optical heart rate and full display). An apple watch is 350 USD with LTE. Again, it's just too expensive for what is on offer! At half the price - 600 USD it might, MIGHT have a chance to appeal and still be premium priced for the specs on offer. Not only that but you will get a younger generation at least considering your brand.

Swatch Group has plenty of brands at its disposal, so I hope to see more releases ideally with GPS and HRM at the expense of the solar.

Of course, when we consider analog and Solar - Casio and G-shock come to mind. The GBD-H1000-1A7 is the first G-Shock to truly be considered a smartwatch. Offering GPS and Optical Heart rate along with solar support for charging all for 450 USD.

If we consider that Casio has been making G-shock for years with advanced analog movements, I would be surprised if we do not see a similar watch with analog appearing soon. When it does and with the popularity of the brand, I would think G-shock will be the first "traditional" watch brand to offer a serious alternative to the Tech leaders, especially Garmin, G-shock has the potential - However, whether they can evolve to offer the level of sports ecosystem to rival Garmin remains to be seen. Its no longer just about the watch, but what goes behind it. This is where the likes of apple and Garmin are so strong. They have understood this for years and continue to develop, improve, and evolve. They deserve the success they have built.

Wear OS promised to offer the same opportunity to traditional watch brands, but they have not delivered. Instead, they have been arrogant in their attitude towards supporting the brands, indecisive in taking action and changed direction more than once (they are about to do it again). All at the expense of the watch brands who put their faith in them to offer a premium positioned OS. Fossil is probably the biggest loser because of this, which is a shame because they had the courage to embrace the Smartwatch market before most other watch brands even accepted it a reality.

So there you have it - My take on where the Swiss watch industry struggles to make an impact on the Smartwatch market today. In Summary:

• Their watches are too expensive for what they offer. The brand alone can not justify the expense in the tech space.
• Many are hampered by a traditional watch distribution model that does not work for tech products. Instead, they need to be much more direct to consumer-focused.
• An over-reliance on Wear OS, an operating system that has let them down and forced them to work with specific vendors, offering little differentiation.

Please feel free to let me know if you agree, or disagree. The next 5 years will continue to be an interesting place for the watch industry. Who will win and who will lose - Only time will tell.