Apple's smartwatch considered a threat to timepiece makers

Just how scared is the watch industry of Apple's new smartwatch?

Last week, when the tech giant unveiled the Apple Watch, its sleek, futuristic timepiece selling for $349 early next year, it roared into a sleepy smartwatch industry dominated by niche devices, most of which had underwhelmed.

Although late to the party, Apple has already proven it can upend entire industries: Look what its iPhones and iPads did for cellphones and tablets. Now watchers of the big watchmakers are beginning to worry that the good times for "dumb" watches are running out.

Shares of major watchmakers Fossil, Movado and Swatch tumbled after Apple's debut. Since January, Swatch has lost nearly 17 percent of its value, or about $5.9 billion, as investors worried over its once-legendary Swiss brand. And analysts for Fossil, which owns brands such as Burberry, DKNY and Michael Kors, said they've grown "increasingly concerned" over the avalanche of Apple's gadget hype.

"We cannot overlook what is increasingly becoming a major disruption to the entire watch industry," Barclays analysts wrote in a Wednesday note titled "Fossil, Inc.: Watch Out." "Future innovation at Fossil ... will largely be challenged by hype and innovative offerings from deep pocket technology-credible competitors such as Apple, Samsung and Motorola."

Market analysts believe Apple could sell anywhere from 10 million to 60 million smartwatches, which, according to estimates from Piper Jaffray analyst Gene Munster, would virtually steamroll the 3 million smartwatches companies such as Google and Pebble have sold so far. Forrester Research analyst James McQuivey predicted it would be one of Apple's "most important and brand-reinforcing launches in years."

Apple has already begun to take a bit of a victory lap, believing itself firmly ahead of the competition: In a subtle Easter egg, promotional photos show the Apple Watch set to one minute before 10:10, the industry standard time watchmakers set their device to in ads. (The hour and minute hands frame the logo, and look a bit like a smiley face.)

Watchmakers have so far waved off the threat, saying buyers will continue to turn to their timepieces as jewelry, accessories or status symbols. Speaking in Zurich on Wednesday, Swatch chief executive Nick Hayek said he was "not nervous," according to Tages Anzeiger, a Swiss newspaper. Bulova president Gregory Thumm told MarketWatch, "Wearing a wristwatch is much less about timekeeping than it is a cultural phenomenon."

The death of the wristwatch has been predicted before, when cellphones first became ubiquitous, but the industry has proven surprisingly hard to quash. Watches are selling better in the United States than they have in years, having climbed back from the recession with several years of rapid growth, research firm Euromonitor International said. And mechanical watches, which are often less accurate but more stylish than their quartz counterparts, accounted for a growing chunk of the $8.2 billion in watches sold in the United States last year.

Luxury watch makers have enjoyed decades as a mostly unchecked status symbol for the affluent, allowing them the ability to charge ever-increasing prices for pretty much the same watch. Rolex's emblematic Submariner, a diving watch that sold in the 1950s for $150, now sells for $7,500 -- six times more than it would have if it had followed inflation trends.

Yet those steady results haven't proven strong enough to keep investors from jumping ship. Fossil logged $3.2 billion in global sales last year, more than double what it sold in 2009, and booms in Europe and Asia have helped sales grow 11 percent through the first half of the year. But investors have responded mostly by fleeing, sending Fossil shares sliding 13 percent since the year began.

Fossil tried to stem the tide last week by announcing, ahead of Apple's unveiling, that it would launch a partnership with Intel to "develop the next innovation in the emerging wearable technology space."

But others have argued Apple's push will draw in more new-tech adopters than the upper crust. Analysts at Euromonitor said smartwatches would compete less with the established fashion brands and more with cheap digital watches, already one of the "smallest and slowest-growing" type of watches on the market.

SundayMonday Business on 09/12/2014

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