Watches Insights: How Apple is Influencing the Luxury Watch Industry
And no, it's not an Apple Watch.
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In January 2016, HEC Paris and Pluris Medias conducted a global survey to better understand millennials – their digital habits, attitudes towards luxury, and openness to innovation in watches. The survey was limited to MBA students from top-tier business schools, where the average salaries on graduation were between US$ 100,000 and $200,000. This article is based on the findings from the study.
It is common knowledge that the luxury watch industry is not as sturdy as it once was. Sales and export numbers have been dropping rapidly, and powerhouses such as Richemont have been forced to slash 350 jobs from its Swiss operations as a consequence. When you take into account the rise of smartwatches, and specifically Apple’s foray into the sector, it’s quite likely that you ask yourself, “Did the Apple Watch kill the luxury watch?”
The answer to that, though, is not quite so clear. What most people do agree on, however, is that it is likely to have something to do with Generation Z, or the oft-spoken “millennials”. This powerful generation recently overtook the ‘baby boomers’ in numbers, and are definitely more diverse. Most of them are digital natives, who don’t (or maybe just barely) remember a time before the internet and cellphones.
This generation has been analyzed over and over again, and most reports agree: they are different. They are more successful and have more disposable income than previous generations at the same age, and value things differently –millennials value accessibility over ownership, experiences over objects, and they are increasingly mobile, both in geography and their device of choice. Their increased spending power make them an extremely desirable potential customer base for luxury brands.
Most luxury companies agree that millennials are key to their future growth, with most if not all brands trying to capture as much market share as they can… which is what makes it so interesting that when we asked millennials about their favorite luxury brand, Apple – a distinctly non-luxury brand – was one of the top brands mentioned. This seems to imply that an Apple Watch would eat into the luxury watch market. Right?
However, when asked specifically what they would rather pick – a luxury watch or the Apple Watch – 75% of the millennials surveyed chose the luxury watch. While it’s true that the Apple Watch has certainly developed, if not created, a market for smartwatches, the Watch itself has not been a roaring success. Sales numbers have dropped rapidly, and are now at a level comparable to iPod sales, falling far short of its annual targets. It seems likely that the Apple Watch has had some impact on the luxury watch industry, but it doesn’t seem to be the “disruptor” some expected it to be.
The democratization of luxury by AppleThe luxury watch slowdown may be symptomatic of something that has been affecting the luxury sector in general. With the rise of digital media, and an increasingly more democratic retail system that works across channels, luxury brands have found it difficult to bridge the gap between being accessible and being exclusive. They have found themselves limited by the box they built; by creating an exclusivity around the experience, they shut themselves off from new generations, leaving a gap for companies like Apple to fill.
Apple has arguably democratized the luxury experience, providing incredible in-store experience and top-of-the-line customer service, at a much more attainable price. They created a brand that is both accessible and aspirational. As a result, millennials are not as impressed by traditional luxury, and luxury brands have to find new and innovative ways to engage them.
The new values of millennial watch consumersWatchmakers have long prided their Swiss heritage, and “Swiss-made” used to be synonymous with the craftsmanship of the watchmaker; for millennials though, the two are not correlated. Millennials see things differently, and they are not as quick to associate value with tradition. While 76% of the respondents felt that craftsmanship is still what makes a “luxury watch”, almost 70% of those surveyed did not feel that a luxury watch has to be made in Switzerland.
Price is also not a defining factor, with 53% stating that luxury watches are not defined by a specific price point. As a result, there is a noticeable widening of the playing field. Without price or Swiss-heritage being involved in defining luxury when it comes to watches, it leaves a vacuum for other high-quality watch-like products. As an indicator of that fact, when asked if a smartwatch could be considered a luxury watch, our audience was split evenly in the middle.
At what price does a watch become “luxury”?Luxury watches have traditionally kept their cards close to their chest, with prices being rarely advertised or displayed. This was done to maintain an aura of mystery and also allow for customers to be engaged by sales staff, giving them an opportunity to extol the many virtues of the watch in question. Unfortunately, with the rise of the internet, information is constantly accessible, and millennial consumers don’t have the patience to be lured in. They look to online sources to answer their questions, and are inevitably influenced by the premium pricing of smartwatches.
As a result, when we asked them what they thought the ideal price for an entry-level luxury watch was, the majority of answers ranged between $1,000 and $2,000, with the optimal price point actually being at the lower end of that spectrum. This is a far cry from the starting price $8,000-$10,000 that most luxury watches have for their entry-level products. The fact that the Apple Watch, and most other smartwatches, fit neatly into that range, should not be treated as a mere coincidence; it’s more than likely that those prices are what millennials are using as a benchmark.
Does this mean that millennials think the Apple Watch is a luxury watch? Not necessarily. But it does imply that Apple is definitely influencing how they perceive luxury watches. Apple, for all intents and purposes, does not seem to have any interest in being a luxury brand, and especially not a luxury watch one. But by being the loudest voice in the crowd, and the most influential one at that, they are able to steer the conversation.
Today’s millennials have been largely ignored by luxury brands for too long, and as a result, they have listened to those companies that have been speaking to them. Apple, and others like them, have got the attention of millennials, and are able to inadvertently influence their luxury decisions. Therefore, if traditional luxury watch brands are to survive, they need to realize that millennials need to be educated and involved with their brands.
How can they do this? For starters, it’s important to realize that they have never spoken to millennial audiences before this; as a result, they are completely clueless about the brands’ values. Education would be key to involve and engage these audiences. But in order to educate them, brands need to give them a reason to engage with them in the first place. One good way to do this would be to look at creating a truly entry-level product that appeals to their budgets and their values. Providing a luxury smartwatch for $1,000-$2,000 could act as a good gateway for the constantly-connected millennial to engage with the luxury brand, and eventually develop into a true luxury watch consumer.
If luxury watch brands want to survive, they need to understand that when it comes to millennials, they are no longer in charge of defining luxury. That privilege rests with the Apples of the world, who have managed to develop an extremely influential position in the mind of the millennial. If luxury brands want to be able to influence millennials, they need to learn to speak their language first, before thrusting their values on to them.
HEC Paris MBA Candidate, Class of 2016
Navin Mangalat is a marketing and communications professional who has spent 7 years successfully building and managing brands in India and Dubai. He is passionate about all things digital and luxury, and after his MBA from HEC Paris, will continue delivering great customer experiences and developing quality content for brands.