Apple is crushing the Swiss watch industry — and one brand is particularly vulnerable (AAPL, FOSL)

swatch wristwatchTom Pennington/Getty

Smartwatches are taking over our wrists, and it’s likely to get worse for traditional Swiss watchmakers, according to UBS.

The Apple Watch is bigger than every Swiss watch brand except Rolex, analysts at the bank said in a note on Monday. And Swatch is most vulnerable in this environment, according to Helen Brand and her colleagues.

Swiss watchmakers recognize the demand for wearables, but are reluctant to dive in because they would need to rely on the tech companies that make the microprocessors that replace the mechanical parts, UBS said.

Also, the high-end companies could hurt their status when they sell wearables cheaper than they would traditional timepieces. That puts Swatch at the most risk because it leans more heavily towards entry-level products than its peers, Brand said.

“Market share may be further eroded for the Swiss industry as smartwatches improve in functionality,” Brand said. “The wider wearables market is now likely 30-40 million in volumes in total with Swiss watches industry volumes at 28m.”

Swatch’s biggest threat is from China.

“This has been a region where we have seen strong momentum, notably for Tissot and Longines driven by the emerging Chinese middle class,” Brand said. “If this consumer prefers the Apple Watch over these brands it could be a threat to Swatch’s medium-term growth prospect.”

Bloomberg reported that Swatch was working on a smartwatch to launch around the end of 2018.

US watchmaker Fossil has already entered the smartwatch market, but its foray has not prevented a sales decline. Kosta Kartsotis, Fossil’s CEO, cited “a watch category undergoing significant change” when the company reported weaker-than-expected earnings in the first quarter.

This chart shows that traditional watchmakers’ sales peaked right as the first-generation Apple Watch launched in Q2 2015.

Screen Shot 2017 06 26 at 1.26.28 PMUBS

More wearables are shipping than Swiss watches.

Screen Shot 2017 06 26 at 1.53.33 PMUBS

A redeeming factor for Swiss watchmakers is that their products are essentially jewelry, meaning they are timeless and can hold emotional value when gifted. A smartwatch, however, would become obsolete after a few years if the battery goes flat or its maker stops providing operating-system updates.

Also, there remains the perception that the Apple Watch is a smartphone on your wrist, which it arguably isn’t. UBS’ survey of nearly 8,000 smartphone users in May found that the biggest reason why people didn’t want an Apple Watch was that they thought it wasn’t needed.

Screen Shot 2017 06 26 at 2.02.01 PMUBS

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