The Apple iWatch: An industry upheaval?

Simply put, the smartwatch communicates with a cell phone via Bluetooth technology. The blockbuster concept was discovered in 2012 and, before the end of that year, global smartwatch sales totaled $70 million. In 2014, it should exceed $2.5 billion.

With all the iPads, iPods, iPhones, smartphones, tablets and who knows what else, it is no surprise that tech firms, including Apple, would clamber like a tech “jail break” into watches, which are considered the lowest hanging fruit of the wearable technology segment. Easy pickings, indeed.

The tumultuous history of watches
“During WW I, soldiers had to be alert to precise timing,” writes David Boettcher in Smithsonian Magazine. “Suddenly, wristwatches seemed manly. It was the iPhone of its day, (considered a) leading-edge technology.”

Like other innovative mechanical developments of those days, wristwatches spread virally. After the war, millions of soldiers developed a taste for the wristwatch-wearing habit. An industry was born and, over the years, developed with gorgeous designs and fine mechanical movements.

There were challenges, however.

In the early 1980s, for example, because of higher labor rates, the Swiss mechanical watch industry had lost over 60,000 jobs to the less expensive quartz watch movements made in Japan, an unanticipated and potentially dangerous mechanical competitor.

Switzerland, at that time, was the watch capital of the world. Nevertheless, the Swiss government was prepared to hand over a major portion of Swiss pride and history to the Japanese. In certain respects, the companies, the industry, and even Switzerland itself, were fiscal train wrecks. No one was smiling.

Nicolas Hayek, a successful Swiss management consultant, a leader and, some say, a business genius, was asked by the two major Swiss banks to prepare a plan for the sale of two of the country’s struggling watchmaking giants to Japan.

Hayek immediately designed a Swiss rescue plan. In summary, he created and executed strategies that resulted in one of the most spectacular industrial comebacks in the world. To quote William Taylor, a former associate editor of Harvard Business Review, “The dimensions of the turnaround are staggering.”

To be fair, one of the results of the Hayek’s strategy, of course, was the development of the legendary, and stunning, Swatch watch. In its first full year of global distribution, 1983, Swatch sales totaled 1.1 million units and ballooned to 12 million units only three years later. Switzerland was saved.

What impact will the iWatch have on the watch industry?
With Apple’s competitive reputation, their “take-no-prisoners” business strategy will be sure to affect watch brands with a retail price of $1,000 or less, claims Ming-Chi Kuo of KGI Securities.

Some financial and market analysts (Goldman Sachs and The Wall Street Journal, for example) speculate that the iWatch will be manufactured in Taiwan and launched in the second half of 2014. They estimate global iWatch sales of 10 to 15 million units in 2014. That number should increases to 50 to 75 million in 2015.

That computes to $100 million in estimated 2014 sales and will come at the expense of existing smartwatch players.

Even worse, some mechanical watch manufacturers with weak balance sheets, an unclear branding strategy or poor distribution may have to close their doors, consolidate or merge. In other words: chaos.

One thing is clear, there is no Nicolas Hayek around to save the day and make a difference on the looming watch industry turmoil. The industry could sure use him.