The Swiss watch market is dominated by two brands: Richemont — home to luxury brands such as Piaget, Alfred Dunhill, Montblanc and Jaeger-LeCoultre — and Swatch — which also makes timepieces under the Breuget, Tissott and Rado labels. Because Swatch’s lower end brand portfolio generates 23 percent of watch revenue for the group, an Apple smartwatch launch could hit Swatch sales, senior luxury analyst at Bernstein Research, Mario Ortelli said.
Richemont, which caters to the higher end of the market, is more defensively positioned, Ortelli said as “virtually zero” of its earnings overlap with the iWatch target market.
“Swatch management has classed the iWatch as an opportunity, not a threat…in reality we think the opposite,” said Ortelli.
“Swatch could be exposed to revenue and EBIT (earnings before interest and tax) losses of around 3 percent if 20 percent of the addressable market is taken by smartwatches, but Richemont’s high-end brands look immune from any negative impact,” he added.
Managing director at consumer consulting firm Neev Capital, Rahul Sharma agreed that Swatch is the most vulnerable brand, because it uses “pretty much no technology”.
“It (a regular watch) is the kind of thing that people have already started to forgo. It is now much more a fashion item and has been in decline for a while. Something like an iWatch is kind of the final blow, but also in some ways the iWatch is creating its own market,” said Sharma.
However in the long term, the outlook for high end watches sales from the likes of both Swatch and Richemont is strong, as young consumers may have a greater propensity to wear and buy watches as the smartwatch market grows, Ortelli said.
The Apple iWatch is rumoured to have a September/October release date, with analysts estimating Apple could sell 50 million or more such devices in its first year, according to Bernstein Research.
“Apple’s stock price is clearly reflecting expectations of a strong second half as a new iPhone 6 is released and also the launch of the iWatch,” said Peter Garnry, head of equity strategy at Saxo Bank.
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Ganry said Saxo Bank’s quantitative investing and stock-picking model has recently added Apple to its top equity picks list, with a 12-month return forecast of 14 percent.
Bernstein Research have an “outperform” rating on Apple, with a price target of $100.