New smartwatches could prop up niche luxury brands

Did you hear?! It’s selling! That announcement may be something you’ve heard before—“consumer technology is selling!” from Apple, and through the always-optimistic eyes of CES, the “mega tech trade show,” but it also feels true in the local electronics store.

Pricing indicates that the market has shifted, both to premium design and value. In the era of ubiquitous “wearables,” watches that notify you of incoming emails and text messages have become so commoditized that even Apple has scrapped its attempt to go the smartwatch route. Analyst firms are citing a boom in demand for “A.I.-powered smart speakers and smartwatches—both variants of which demonstrate good initial market acceptance,” which also raises the question—do tech companies see this changing market and its impact on their business cycle, or are they just investors?

Luxury tech companies like Louis Vuitton and TAG Heuer are the latest to move into the sub-$1,000 segment of the smartwatch market, where they will compete with traditional time pieces from Apple and Motorola. Most retailers will argue that both the Louis Vuitton and TAG Heuer smartwatches have design issues (overall functionality is excellent and durable), and that their prices will push even the most optimistic consumers toward premium-price watches.

However, you can look at this move by luxury tech companies as a positive indication of the future of smart watches. E-commerce research firm eMarketer predicts that the U.S. smartwatch market will grow 94 percent to 16.5 million units in 2017—an increase of more than 2.4 million from the 17.2 million units it predicted would ship in 2016. That’s a 541 percent increase from 2015.

How this can move consumers toward increased wearable and smartwatch ownership is unclear to me, but I’m hopeful that it might push luxury consumers to consider smartwatches that enable greater digital interactivity and enhanced design features, rather than those that directly compete with classic time pieces. That would be a positive for the overall marketplace, and also for premium-price watchmakers (Louis Vuitton and TAG Heuer).

It will be interesting to see how these designers compete. The Apple Watch, with an operating system centered around apps that you buy on iTunes, sets a higher barrier of entry for both tech and luxury brands, and puts both in a head-to-head battle. It will be very interesting to see whether the price points for these labels can be as high as they are for Apple and Google.

I also wonder how the current price point of higher-end watches and Apple Watch sales will continue. Apple’s watch primarily appeals to a younger demographic, and the luxury market, as a whole, has a skewed age range of about 45. More toward the upper-20s could mean that the Apple Watch, while still popular, will be going through a rough spot in terms of sales.

Last quarter, Piper Jaffray analyst Gene Munster released a study showing that 24.6 percent of Smart Watch buyers were between 25 and 34, while only 20.6 percent were the over-40 set. That’s a definite shift, and it means that for luxury fashion companies, it’s imperative that they design watches for this demographic, while at the same time offering a lower-priced brand with technology and functionality that is attainable for many people.

If Apple manages to create a massive market for its high-end smartwatch—and given the 15-year stay of Apple Watch sales, it may well do so—that would be a major challenge for both Apple and luxury brands like Louis Vuitton and TAG Heuer. But with growing demand for smartwatches overall, this must be great news for the industry, and hopefully Louis Vuitton and TAG Heuer’s new smartwatches will be able to fill that void and generate a steady income stream for them.

The journey into wearable technology is certainly not over, and watch sales could go up or down depending on price points. However, more tech advancements like this A.I. smart speaker market research provided at CES and the watch market will continue to push consumers into new explorations, which in turn will force the industry to continue to evolve.

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