Disrupting Time: How The Ultra-Lux Watch Market Got Smart

Data from the Federation of the Swiss Watch Industry shows that after a two-year decline in global watch sales,the industry is now recovering.

By Anna Codrea-Rado, Contributor

In 2015 at Baselworld, the world’s most important watch fair, all talk was about a watch that wasn’t on exhibit. A highly anticipated smartwatch had launched a few weeks prior, and Swiss watchmakers were divided on how mass market wearable technology would impact its centuries-old industry.

“Everyone at Baselworld that year felt there was a thunderstorm coming,” Dr. Benjamin Berghaus, luxury industry expert and author of “The Management of Luxury,” recounted. “But they didn’t know how hard it would hit.”

Since that landmark year at Baselworld, initial fears that smartwatches would damage the industry seem to have been unfounded. Data from the Federation of the Swiss Watch Industry shows that after a two-year decline in global watch sales,the industry is now recovering.

Yet, there is no doubt that wearables have left their mark. Today, the luxury watch market is grappling with what business innovation looks like for an already-niche market. The digital disruption of high-end watches raises some challenging questions for legacy manufacturers around what it means to make a traditional watch in the digital age.

A History of Disruption

The Swiss watch industry is no stranger to crisis. In the 1970s, cheaper quartz versions of the mechanical watch, made by Japanese manufacturers, threatened the traditional model.

Back then, it took a bold move by TAG Heuer boss Jean-Claude Biver to bounce the industry back. Biver relaunched Blancpain, an ailing watch brand with the punchy slogan: “Since 1735 there has never been a quartz Blancpain watch. And there never will be.”

At the time, Biver ruffled feathers with his aggressive advertising tactics, but the move paid off. Biver turned the company around and in 1992 — with sales picked up — he sold Blancpain to Swatch Group for today’s equivalent of $80 million.

“This is about the luxury market’s management philosophy. Everybody is looking for a narrative on how to position themselves.”

-Dr. Benjamin Berghaus, author of “The Management of Luxury”

Although deploying a brash advertising campaign was outlandish by the Swiss watch industry’s standard, it nonetheless relied on history and status over substantive innovation. If Biver’s advertisement campaign tells us anything, it’s that the luxury watch industry has been stalwart in ticking along at its own pace.

“The luxury market is stubborn and doesn’t want to innovate,” Berghaus said. Then, smartwatches came along.

Changing Times

Whereas the quartz invention directly competed with the core manufacturing process of Swiss watches, today’s technological threat is more amorphous. Deloitte’s 2017 survey of the Swiss watch industry found that 72 percent of executives do not see smartwatches as a threat to their business. One reason is that smartwatches and luxury watches represent different value propositions.

“If you consider a smartwatch as an entertainment device, then it’s not going to make any dent on the luxury market,” Berghaus said. “This is not the replacement of mechanical for digital.”

The real crisis wearable technology brings is an existential one. “This is about the luxury market’s management philosophy,” Berghaus said. “Everybody is looking for a narrative on how to position themselves.”

In 2015, it was Biver who once again steered the conversation. Yet this time, he embraced innovation. At that fateful Baselworld, TAG Heuer unveiled its first smartwatch, the TAG Heuer Connected. At $1,500, the Android device was the first Swiss watch powered by a shared operating system.

Yet, it wasn’t the only high-end smartwatch unveiled at Baselworld in 2015. Three Swiss companies — Frederique Constant, Mondaine, and Alphina — also displayed wearables models that included fitness trackers after partnering with various Silicon Valley companies.

Breitling, too, the manufacturer best known for its timepieces designed for pilots, announced the B55 Connected model at BaselWorld 2015 that paired with a smartphone so the wearer could adjust settings like time zones, reminders, and alarms via a specialized app. And Bulgari’s first smartwatch, the Diagono Magnesium, stated it would allow payments to be made from the wrist.

Since that first generation of luxury smartwatches came on the market in 2015, the offering has continued to become more high-end. TAG Heuer’s Connected line has expanded to include “modular” models that feature interchangeable heads that can be swapped out for traditional ones. It also includes a model paved with white gold and 589 diamonds — going for mere $180,000.

Notably, Louis Vuitton, which is part of the LVMH fashion conglomerate that also owns TAG Heuer, announced its first smartwatch last year, the Tambour Horizon. As a French brand known for its elite accessories, releasing a smartwatch sent a signal that the luxury market was taking wearables seriously.

“Having something digital in a mechanical world needs some justification from the powers that be, and Louis Vuitton is one of those powers,” Berghaus said.

A Timeless Opportunity

Historically, buying a luxury watch was restricted not only by the customer’s finances but also access to specialist vendors. With the smartwatch boom, traditional manufacturers were pushed to give pause to their distribution methods.

By the very nature of the technology, connected devices represent an opportunity for companies to have a direct line of communication with their customers. “We’re talking about a strict and distant sales model,” Berghaus said. “That’s now slowly changing as companies get more direct contact with their customers.”

As the luxury smartwatch market continues to find its footing, the real innovation is likely to come not from the technology, but how it’s presented to a customer base that expects status infused in their timepieces.

“You don’t make it about the watch anymore,” Berghaus said. “The idea of wearing something helpful on your wrist isn’t about telling the time anymore, but about making something happen.”

Berghaus sees a future whereby smartwatches become their own status symbol through the integrated connectivity they can offer the wearer. One scenario he imagined is a smartwatch that connects to a personal assistant or business service account. “You shift what status means with the next generation of these watches,” Berghaus said. “It becomes a more visible sign that an executive has access to power.”

Back when the storm blew through the Swiss watch industry in 2015, it didn’t seem like wearable technology and traditional watch craftsmanship would go hand-in-hand. But today, the industry is readying itself for a future where the two chime together.

“The real question over the next three years is going to be how luxury brands are going to re-interpret themselves,” Berghaus said.