Watch Out for Smart Timepieces

As Baselworld Begins Many Watchmakers Can No Longer Ignore Smartwatches

Over the next few days over 100,000 people are expected to attend Baselworld. During this time the annual trade show for the international watch and jewellery business will be the capital of bling as some of the most recognised fashion brands in the world showcase their latest offerings. This year we expect smartwatches to feature more prominently than ever before.

When I first attended the show three years ago, the notion of a smartwatch was almost universally dismissed by exhibitors. In some cases, employees on the lavish stands were not even able to rationalise the term. Given their focus on highly complex, high-precision mechanical watches, the ideal of a battery-powered smartwatch with a touch screen was an anathema.

However, sentiment has gradually changed in the past couple of years. The watchmakers at Baselworld have shifted from complete dismissal to grudging — and occasionally whole-hearted — acceptance that smartwatches can no longer be ignored.

The past few days have seen several announcements by Guess, Montblanc and Movodo, all of which revealed plans for new Android Wear smartwatches. They join companies such as TAG Heuer and Fossil, which operates a portfolio of watch brands including Michael Kors, Skagen and Armani Exchange. These pioneers have already created smartwatches and are adding new models in 2017. There appears to be some momentum building in this area. Below are the Android Wear 2.0 watches announced so far this year.

CCS Insight forecasts there’ll be about 43 million smartwatches sold this year, of which 17 million will be have full-touch faces (see CCS Insight Forecast Reveals Steady Growth in Smartwatch Market). The Apple Watch will account for the lion’s share of these sales, but there’s still a sizeable opportunity for other names. We predict that by 2021 total sales will have doubled to 86 million smartwatches.

Such numbers might seem small compared with the 1.5 billion smartphones set to be sold in 2017, but for some watch brands a successful smartwatch could deliver a meaningful contribution to revenue. A good example is TAG Heuer. Its CEO, Jean-Claude Biver, claims the company sold 56,000 of its first smartwatch, which typically retails for $1,500. Total sales would therefore equate to a retail value of about $84 million. TAG Heuer is aiming to sell 150,000 of its recently announced model (see TAG Heuer’s Second Round). At the same price, the new version would generate $225 million in retail sales. Montblanc’s new Summit watch will retail at a starting price of $890.

Fashion brands are not alone in targeting the smartwatch market. Consumer electronics firms like Huawei, LG, Motorola and Samsung have been offering smartwatches for several years. Samsung has been the most committed, creating at least seven smartwatches since 2013. In 2016 its Gear S2 watch featured at Baselworld through a partnership with Swiss luxury jeweller, de Grisogono. This year, Samsung has its own stand at Baselworld to showcase its latest Gear S3 devices.

We remain realistic that success with smartwatches is far from guaranteed. There are fundamental challenges such as battery life, size and weight that need to be overcome. Physical design already remains a challenge and it’s notable that many of the recently announced smartwatches appear very similar. We believe most come from the same original design manufacturer.

Perhaps of even more concern is a feeling that smartwatches are still a solution looking for a problem. However, the combined might of large consumer electronics suppliers and a flurry of devices from recognised fashion brands is certain to raise awareness. If there’s an appetite for smartwatches, we’re about to find out.

A team of CCS Insight analysts is attending Baselworld, and we’ll publish a full report shortly after the event.