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Apple Watch Is Hurting the Swiss Watch Industry

By Evan Niu, CFA – Sep 20, 2016 at 5:48PM

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There are many reasons Swiss watches are in decline, and the tech titan isn't helping.

Apple Watch Series 2. Image source: Apple.

Switzerland is as famous for its watches as it is for its bank accounts. The industry exports about $20 billion worth of Swiss watches per year, and beyond the economic implications, Swiss watches are a great source of national pride.

But the industry has been falling on hard times recently, with exports seemingly in free fall. Swiss watch exports totaled just 1.9 million in August, down 4.5%, according to the Federation of the Swiss Watch Industry. In financial terms, sales fell nearly 9% to 1.4 billion Swiss francs. Bloomberg notes that this is the 14th consecutive month of declines.

Well, it just so happens that that's just about how long Apple Watch has been on the market. Apple (AAPL 0.66%) is almost certainly a contributing factor.

If the shoe fits

The original Apple Watch launched at the end of April 2015. Like most Apple product launches, the device was severely supply constrained initially. It wasn't until June 2015 that Apple's production really ramped and started to catch up with demand. That was 15 months ago.

Data source: Federation of the Swiss Watch Industry. Chart compiled by Bloomberg. Annotations added by author.

Meanwhile, at the iPhone/Watch Series 2 product event earlier this month, Tim Cook noted that Apple quickly rose within the ranks of watch industry following the launch of Apple Watch. The company is now the No. 2 watchmaker in the world as measured by revenue.

Image source: Gfycat.

To be clear, there is a host of reasons why the Swiss watch export industry has been suffering. The Swiss franc has been relatively strong as a currency, which hurts exports. China and Hong Kong have historically been very important markets, but the weakening yuan is hurting import demand at a time when consumers are shifting purchases toward experiences instead of tangible products.

The industry is also realizing that it needs to target more affordable price points while also catering to a younger demographic that is more tech savvy. The values of traditional timepieces don't depreciate in the way that smartwatches do since the underlying technology hasn't changed for hundreds of years. Even Apple has realized that no one wants to buy a $10,000 smartwatch.

Swiss watchmakers are facing a wide range of headwinds, and Apple's entry isn't helping.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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