Smartwatches don't make the grade for luxury brands

By Silke Koltrowitz

ZURICH (Reuters) - Don't expect your $10,000 wristwatch to be surfing the Web or calling your broker any time soon.

High-end Swiss watchmakers seem agreed that their concept of timeless luxury does not sit well with the "gadget" appeal of smartwatches.

"A smartwatch is programmed to become obsolete," Jean-Claude Biver, chairman of luxury watchmaker Hublot , told Reuters.

"How could I mix Hublot with something made for obsolescence? It's impossible," said Biver, who added he had rebuffed a big technology group which wanted to explore future projects.

Technology firms like Sony, Samsung <005930.KS> and Qualcomm have already launched smartwatches which can replicate smartphones in making calls, accessing the web and running apps.

Technology heavyweights Apple Inc and Google Inc have also shown tentative signs of interest in developing the devices, with Apple launching an iWatch trademark in Japan this year.

Smartwatch shipments are expected to reach 36 million by 2018, compared with just 1 million this year, according to Juniper Research, and Credit Suisse analysts see the market for wearable technology, including smartwatches, interactive glasses and monitors, growing to over $42 billion in the next three to five years.

But luxury watchmakers, whose time pieces sell for anything from 3,000 to 50,000 Swiss francs and often much more, are lukewarm about launching crossover products which could dilute their brand appeal.

"I'm not discounting it," said Johann Rupert, controlling shareholder of luxury goods group Richemont .

"But I don't think it's going to have a big impact on classical watches. Especially for men, it's the only jewellery they can wear."

UPHILL BATTLE

Analysts said smartwatches face an uphill battle to become mainstream devices and point to the fact that many can only be used as an accessory in conjunction with a smartphone.

"We do not believe smartwatches will become a substitute to luxury watches and early models do not appear to have breakthrough innovations," Citi analysts said in a note.

They estimate the market for smartwatches at about $6 billion out of a total of $60 billion for all watches.

LVMH's biggest watch brand, TAG Heuer, said this week it had created a one-off smartwatch for members of the Oracle sailing team that won the America's Cup on Wednesday.

But the brand's diversification and innovation director Thomas Houlon told Reuters TAG Heuer did not see a business case for making gadgets. "What makes Swiss watches so exciting is that they're mechanical."

Industry experts say Swatch Group , with its entry-price Swatch and Tissot brands that are roughly in the same price category as $300 smartwatches, might be interested in entering the smartwatch market.

"I'm sure Nick Hayek has something up his sleeve, no pun intended," Rupert said.

Asked for comment, Swatch CEO Nick Hayek said in an emailed statement his company had worked on interactive watches for years and already was the No.1 in touch technology for watches.

In a magazine interview in May, he said Swatch Group was helping Apple to master challenges for the iWatch, such as reducing power consumption and making curved touch screens, but also stressed he saw the future of Swiss watchmaking in mechanical watches rather than in smartwatches.

Citi analysts said they believed Swatch was keeping a close eye on smartwatch developments and could react promptly given its previous successes in the field. "Technology has always been an intrinsic part of Swatch Group's lower priced brands."

SHARED BENEFITS

Biver said the tech firm that contacted Hublot wanted to benefit from its knowhow and distribution network.

"We have received offers and we sat down a few times with one of the two big tech groups...but we declined," he said in a telephone interview on Thursday.

"They came to us because we are a watch brand for young people."

Hublot, known for its porthole-shaped watches with rubber straps, has just signed a partnership deal with the Paris Saint-Germain soccer team as it seeks to reach tomorrow's customers via a sport not commonly sponsored by luxury watch brands.

Biver said the rise of smartwatches might actually help makers of luxury watches.

"If young people get used to read information on their wrists instead of only on their phone, that will prepare them to one day also wear a watch."

Citi analysts said "new wearable technology should positively introduce 'arm candy' to a younger demographic and can ultimately increase adoption of fashion watches". (Editing by David Cowell)

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