An iWatch Could Be Big Business for Apple (AAPL)
According to a research report from Citigroup today, the global watch industry will generate more than $60 billion of sales in 2013 and will grow at least +7-9% in 2013. If smart watches can achieve approximate 10% of this share this would yield a global addressable market of $6 billion.
Profit margins on watches are higher than other products, the firm also notes. Non-electronic watches carry an average gross margins of 60-70% versus apparel gross margins of 45-55%.
Commenting on what a it might take for an smart watch to be successful the firm listed four criteria:
(1) A successful smart watch likely needs to create a completely new market & not compete on fashion or luxury brand prestige as this existing success has been based on strong histories of either craftsmanship, chic fashion runway products, and/or global lifestyle brand presence.
(2) Battery charging would likely need to be automated (e.g. Solar) in order to simply the experience, in our view.
(3) We expect new Smart Watch functionality to be the most significant driver & a device's success or failure most likely depends on synergies w/ existing devices.
(4) E-devices have been important Holiday purchases for Teens which is a positive given pre-existing loyalty.
In addition to a possible entrance by Apple, Citigroup expects Fossil (Nasdaq: FOSL) and Movado (NYSE: MOV) to launch new electronic products. The firm said Fossil has committed R&D to the smart watch market; however, the company acknowledges that response has historically been poor given daily charging needs and this added complexity. The firm expects Movado to launch touch screen Movado brand watches and we expect this to be successful based on our preview of this product combined with the strength of the core Movado brand.