Along with periodic Above Avalon posts, I send out a daily email about Apple to members (10-12 stories per week). The following story was sent to members on August 11th.
This story flew under the radar late last week. Watch sales in the U.S. seem to be collapsing. Here's Bloomberg:
"U.S. watch sales fell the most in seven years in June, one of the first signs Apple Inc.'s watch is eroding demand for traditional timepieces. Retailers sold $375 million of watches during the month, 11 percent less than in June 2014, according to data from NPD Group. The 14 percent decline in unit sales was the largest since 2008, according to Fred Levin, head of the market researcher's luxury division."
A 14% year-over-year drop in unit sales is a pretty significant drop. According to NPD, timepieces priced from $50 to $999 saw declines in June, with the $100 to $149.99 range seeing the biggest drop, registering a 24% decline in unit sales. Just a few notes about NPD's data: they rely on consumer surveys along with point-of-sale data collected at individual retailers. NPD doesn't include sales from boutiques owned by watch brands, supermarket chains like Walmart, and online retailers. Think of it as if you are willing to share your sales data with NPD, you will then get much more comprehensive data from NPD in return.
Let's get the obvious out of the way first: we don't know if the Apple Watch is the reason for this watch implosion. Consider that Fitbit's earnings implied that the company sold at least 1 to 2 million devices in June, most of which were in the U.S. I think it is much safer to say that something is going on in the "wrist wearable" market because this watch sales decline is just too significant.
Apple could very well have been the top watch manufacturer in the U.S. during the month of June when looking at revenue. While NPD pegged U.S. watch revenue in June at $375 million, it is likely Apple sold around 1.5M Apple Watches in the U.S. during the same period bringing in somewhere around $700 million of Watch revenue. This estimate comes from the fact that Apple sold between 2 and 3 million Watches last quarter at an average selling price (ASP) of around $475. My theory is that the U.S. represented an outsized portion of Watch sales because of the number of U.S. Apple retail stores, which were important locations for showcasing the Watch to consumers. In addition, Watch sales were backloaded in June due to supply/demand imbalance.
There is evidence to suggest that much of the collapse in U.S. Watch sales was segmented to the low-end of the market. Swiss watch export trends did not show a similar level of collapse in June with U.S watch revenue actually up 5% in June.
When you add Apple Watch U.S. sales to those of other wearables like Fitbit, you likely had 2-3 million "smart wrist devices" being sold in June, which would come very close to outpacing the number of watches sold in the U.S.
It is an understatement to say we are still the early days of wearables (I have only seen one Apple Watch in the wild, although I am seeing more Fitbits these days), but I would look at NPD's watch sales data as one of very first pieces of evidence that there could indeed be deterioration in the traditional watch market caused by smart devices in the form of watches and fitness trackers with Apple and Fitbit being the market leaders.
Since owning Apple Watch, I'm more confident in saying the device may be a bit much to get used to at first if you are a luxury watch owner. It's not due to any particular inferior aspect of Apple Watch, but instead just the fundamental difference between wearing a computer on your wrist that tells time and so much more and a luxury watch that is worn for other reasons besides just giving you the time.
I do think it is more likely that Apple Watch will initially impact the low-end watch industry, which I will call "casual watch owners," those who may buy a $99-$299 watch just to have something on the wrist. This may explain why, according to NPD, the $100 to $150 space saw the biggest drop even though the Apple Watch retails for a good 3-4x the cost. In addition, watch loyalty at the low end is likely to be weak, and these consumers would be continuously on the lookout for new things to wear. Said another way, buyers in the $100 to $150 Watch range are more likely to experiment.
Given June's awful U.S. watch sales data, it is important to monitor if this is the start of a trend throughout the summer. If there are continued sales declines, then we are in a much stronger position to make more solid declarations about smart wrist wearables.
Along with the preceding story, the full list of stories sent to Above Avalon members this week included:
- China's Yuan Devaluation and Apple (2,500-word story broken into various subtopics: What Happened?, Brief Background, Apple's China Growth Story is Cracking, Continued Yuan Devaluation Headwinds, Where Does This Leave Apple?, Final Takeaways)
- The Smartphone Subsidy Myth
- Thoughts on Alphabet
- Finding iPad's Future
- Apple Music Family Membership Strength
- Jimmy Iovine on Curation
- Cable's Problem
- Fossil is Seeing Issues in the Watch Market
- Thursday Q&A (AAPL valuation metrics)
Become a member to receive these stories (will be sent to you via email), and future stories in a daily email containing 2-3 stories (10-12 stories/week). For more information and to sign-up, you can visit the membership page. A weekly option is also available if you prefer to receive one email instead of four each week.