How Rolex is fighting off the smartwatch

The digital bell has yet to toll for Swiss watches.

by Adam Gale
Last Updated: 30 Jul 2018
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Future Business

Management Today still doesn’t own a smartwatch. Call us contrarian, Luddite  even, but sometimes you’ve just got to say no to the relentless march of technology. The 21st century’s always-on culture is psychologically harmful, and a veritable groin-kick to productivity to boot. You can trace it directly back to the smart phone, but at least your Android isn’t attached to your body. Try going cold turkey on your tech addiction when temptation is never more than an inch away.

By the looks of it, we’re not the only ones with doubts. It’s three or four years since the smartwatch’s early adopters started loudly proclaiming the disruption and death of its mechanical cousins.

An example last year in TechCrunch, in an article  responding to the fact that market leader Apple Watch was outselling Rolex and Omega: ‘It’s not surprising that the Apple Watch outsold Rolex and Omega and other luxury watch makers. What is surprising is that Rolex and Omega are still fighting this losing battle.’

The numbers appeared to be on the tech evangelists’ side: exports of non-electronic Swiss watches fell 15% in volume terms between 2014 and 2016, according to the Fédération de L'industrie Horlogère Suisse (FHS to its friends).

Yet in 2017, ‘progress’ had something of a mishap. Mechanical watch sales increased. It wasn’t by a lot – volumes rose 3.9% to 7.2 million units – but it bucked what had been assumed to be an inexorable trend of decline.

It turns out that the fall in Swiss watch sales may have been driven as much by Xi Jingping’s crackdown on luxury goods for the Chinese elite than the launch in 2015 of that big daddy of wrist gadgetry, the Apple Watch.

Indeed, it’s telling that Swiss electronic watch sales have continued to fall precipitously as the mechanical watch has stabilised. In their simplest terms, one is primarily a convenient mechanism to tell the time, while the other is a luxury accessory.

Naturally both come loaded with bells and whistles, but in the case of mechanical watches these movements are works of engineering art rather than functional appendages. It is for precisely this reason that the classic watch can continue to hold its own as the smartwatch becomes more and more advanced: they exist for different purposes. The alarm clock on a Casio W-59-1VQES, on the other hand, is never going to compete with the haptic sensors or AI-assisted call screening that Apple can or surely enough will offer.

Rolex is no relic

Let’s take a look at famed Swiss watch manufacturer Rolex. Owned by a secretive trust set up by its founder Hans Wilsdorf, the company and its finances remain somewhat shrouded in mystery. We do know that in the UK, revenues grew 41% according to its latest public accounts (2016), to a respectable £268m, which is over three times the level of a decade earlier. Pre-tax profits were also up, hitting £22.5m.

These hardly seem like the numbers of an outdated company with an obsolescent business model. The reason for its health can perhaps be found in the company’s persistently powerful brand and reputation. Rolex is a stalwart of the Reptuation Institute’s annual RepTrak list, for example, rising to number one this year in the annual survey of nearly 300 companies and over 30,000 respondents.

Its appeal isn’t perhaps as obvious as you might think. After all, as the Reputation Institute’s chief reputation officer Stephen Hahn-Griffiths reminds MT, Rolex has traditionally been association with conspicuous consumption, social status and elitism – hardly a recipe for public admiration when the economy is sluggish with uncertainty.

But reputation is a complex beast: the RepTrak list assesses everything from innovation and performance to governance and citizenships. Hahn-Griffiths identifies three areas where Rolex stands out.

‘Rolex has built a strong emotional connection over time. It’s been highly effective in leveraging celebrity endorsements and sports sponsorships to comtemporise its reputation,’ he says. Think Roger Federer, Wimbledon and the British Open golf.

Then there’s the perceived quality of its good and services. ‘As a company that delivers on timeless quality, Rolex has upped the ante on redefining luxury by launching new products that capture a spirit of adventure,’ says Hahn-Griffiths. These include hard-wearing timepieces that can withstand high water pressures and changing temperatures; the Rolex smart watch remains little more than a persistent rumour.  

Finally, Hahn-Griffiths says that Rolex’s commitment to global philanthropy and environment sets it apart. The company has programmes like The Rolex Awards for Enterprise (which recognise people whose efforts are making the world a better place) and the Mentor and Protégé Arts Initiative (which aims to advance global culture and artistic endeavour). ‘It is one of the few companies to be recognised for corporate social responsibility,’ says Hahn Griffiths.

Exactly how far a good reputation leads to a healthy P&L remains a matter for academic debate, though certainly it can’t hurt. But in Rolex’s case it perhaps demonstrates that there is more to the survival of a company or an industry than whether it utilises the latest technology.

Yes, smartwatches are innovative and intensely clever. For a lot of people they’re very useful, and more and more people will surely decide to buy one. Yet it will take more than just smarts to set back a business and indeed an industry with such a powerful brand, and a product that remains differentiated from the newcomers.

Disruption is fundamentally about business model innovation and marketing to an underserved consumer base, and as yet it’s not completely clear that’s happening in this case. The tech giants will continue to grow their market – that’s what they do – but there’s still time left for the Swiss watch.

Image credit: pio3/Shutterstock

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