The Swiss Watch Industry Is Being Given A Painful Lesson In Rationality

The start of the smartwatch era is usually set at the time that a tiny startup, Pebble, managed to raise more than $10 million in pre-sales, establishing an record at Kickstarter, and that opened the eyes of other manufacturers to see the potential of the category.

The small company’s feat was repeated almost three years later by doubling its collection with a new model and again establishing a Kickstarter funding record, before its lack of economic viability became evident. They ended up being acquired by Fitbit, but not without giving way to a pandemonium of brands of all types competing to launch all kinds of smartwatch models, until Apple launched its own, as ever with the idea of redefining the category and becoming the absolute leader in it.

There is no doubt that the success of the Apple Watch, still discussed by those interested in superficial analyses, coupled with the noise created by many brands around the performance of their smartwatches, has completely revolutionized market preferences and greatly modified the decisions we make around what we wear on our wrists.

The figures speak volumes: exports of Swiss watches are in their third year of consecutive decline, something that had only occurred previously in the early 1930s, in the midst of the Great Depression, and the industry is shrinking at an alarming rate. Quite simply, the concept of the watch has changed, and now, a complex machine, once prized for its own sophistication, based on astonishing engineering, but that is limited to simply telling the time and a few more things, cannot compete with a computer filled with a vast showcase of apps.

When smartwatches first appeared, many people claimed that such devices could never replace the wristwatch, which is about style and a host of other intangibles and based on a tradition of advanced engineering that makes up a significant part of the economies of countries like Switzerland, and that the industry wouldn’t go down without a fight.

Now, just five years after the first Pebble appeared, and two years after the launch of the Apple Watch, we are witnessing the debacle of a major industry whose sales are falling for the third consecutive year and without much hope of recovery.

Can anything be done to correct this rapid decline? Should watchmakers turn to the smartwatch, a niche they have no competitive advantage in and that requires different technologies and where they are unlikely to set the trend? This would be a difficult and risky strategy, and it seems very unlikely many will do so successfully, aside perhaps from well established players like Swatch. Swiss watchmakers have completely lost market leadership of “things we wear on our wrists,” and trends suggest that the supposed advantage based on intangibles such as style or tradition will not be enough to guarantee their survival.

At the end of the day, most industries are subject to rationality. Sometimes this is due to competitive dynamics and their being unequally exploited by their participants; at other times it is due to the pressure of new entrants, and sometimes, it is simply because the public makes rational decisions rather than romantic ones.

A large section of the public still has many doubts about the need to wear a smartwatch, and those doubts are completely justified and justifiable. But there is another part, and one that is apparently increasingly significant, that has less and less doubts, and once they have tried one and see the benefits, inclined toward wearing a computer on their wrist. For some people it’s about notifications, for others monitoring physical activity, for others fashion … each finds its value proposition in a category that is still defining itself, but in the end, the result of which will be the lingering death of the Swiss watch industry.

Everything indicates that hoping tradition, style and other intangibles will save an industry is a dream. Eventually, rationality wins out. For many other industries, some of which are still blissfully unaware of what awaits them, the experience of Switzerland’s watchmakers should be noted. Then, when their sales start to fall, year after year, they cannot say they weren’t warned.