Can AppleInc.s Watch Disrupt the Traditional Watch Market?

By Markets Fool.com

Source: Apple.

Continue Reading Below

Apple's long-anticipated smartwatch just opened for pre-orders last week, and it's likely to be one of the most successful smartwatch launches to date. Slice Intelligence estimates that 1 million Apple Watches were pre-ordered on the first day, and KGI Securities believes that number will top 2 million by next month.

That's great news, especially considering that Apple isn't just competing with other smartwatches, but also the long-established watch market.

According to a survey released by Goldman Sachs (and published by VentureBeat), Apple's new device falls straight into the mid-tier watch market, and has a good chance of making a dent in the space.

"Regular watch wearers are among the most likely to order an Apple or other smart watch, suggesting high displacement rates for traditional watches from smart watch adoption," Goldman said. The survey results went on to say that "Those likely to buy a smart watch most often indicate Fossil, Seiko, Casio, Rolex, Timex, and TAG Heuer are the watch brands they wear today."

This indicates that Apple could be a significant problem for the traditional watch industry. But how significant?

Continue Reading Below

Source: Apple.

Apple Watch as a mid-tier threat
Goldman notes that the real threat for traditional watches lies in the mid-tier segment -- with prices ranging from $150 to $1,000 -- because most of Apple's watches fall between $349 and $1,099.

Of course, that's not by accident. Apple knew that its new device would have to compete in this segment and that watch buyers might consider the Apple Watch an alternative to a traditional watch purchase. That's why the company's spent a significant amount of time marketing the watch's time-keeping abilities, watch faces, and accessory bands -- all things traditional watch owners consider in a purchase.

Goldman says the traditional watch makers sold 61 million units in the U.S. in 2014, with a total of 11 million to 12 million units coming from the mid-tier segment. The banking firm believes Apple will sell 7 million watches in calendar 2016, with a 50% cannibalization rate. That would mean Apple will take about 31% of the mid-tier watch market next year in the U.S., and 6% of the total U.S. market.

Time will tell
I think the Goldman survey sheds some useful light on Apple's impact, but we'll have to wait and see if everything pans out the way it expects. The key thing to remember here is that Apple needs to entice traditional watch-buyers in order for the Apple Watch to be a success. And that's no easy feat: neither Sony's watch nor the several iterations of Samsung's smartwatches have been anything more than tech devices that users strap onto their wrists, and neither one was a hit with the tech world, let alone traditional watch buyers.

Apple's smartly taken a slightly different approach by catering to watch enthusiasts and offering a plethora of ways to customize the device. If the current Apple Watch pre-order estimates ring true -- and the Goldman projections do too -- then it seems that the Apple Watch won't only be a success for the company, but will leave traditional watch makers scrambling as well.

The article Can AppleInc.s Watch Disrupt the Traditional Watch Market? originally appeared on Fool.com.

Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple, Fossil, and Goldman Sachs. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.