3 Signs the Watch Industry Is Under Attack From Apple

NEW YORK (TheStreet) -- Is it only a matter of time before sales of mid-range watches made by the likes of Fossil (FOSL) and Michael Kors (KORS) suffer at the hands of the  Apple (AAPL) Watch?

According to a report from market-research firm Slice Intelligence, Apple has moved about 2.79 million units of the Apple Watch since its April 24 debut. Slice based its estimate on the behavior of 2 million online shoppers in its database. And if traditional watchmakers weren't in enough of a tough spot because of Apple's first foray into smartwatches, what the king of tech has up its sleeves next could deal another blow.

Citing "multiple sources familiar with Apple's plans," Apple news and rumor site 9to5Mac reported last week that the second-generation Apple Watch will have a Face Time video camera, be more independent from the iPhone and could be launched in 2016. 9to5 mac also reported that Apple will be looking to develop more Apple Watch options priced between $1,000 and $10,000. Apple didn't immediately return a request for comment.

Projected sales for the Apple Watch ahead of the company's second-quarter earnings release, which is scheduled for late July, are just one of several indications that sales of affordable timepieces from big names such as Fossil and Michal Kors could wane this coming holiday season. TheStreet takes a look at three signs of impending doom.

1. Swiss exports of watches nosedive.

According to a new report from the Federation of the Swiss Watch Industry, exports of Swiss-made watches in May fell year-over-year for the first time in six years. The decline comes just over a full month into availability for the Apple Watch, which was launched online on April 24. June's export figures could decline again, perhaps at a faster clip, as the Apple Watch became available for purchase in Apple stores worldwide on June 17.

There could be other reasons behind the drop, of course, but on a monthly basis, exports of Swiss-made wristwatches fell by 8.9% between April and May this year. All countries showed a drop in exports except for Italy, where exports rose 4.5%. Exports to the U.S. declined 13.7%, the second-worst in the month behind Hong Hong's 33.6% tailspin.

"The United States recorded a clearly negative result, however the long-term trend here is very positive and robust," the Federation said in a statement. Its blind optimism on the health of the U.S. watch market may be erased as the year unfolds, however.

2. Sales of Michael Kors' fashion watches have plummeted.

Michael Kors watches have taken over display cases at Macy's (M) and receive prominent placement inside the company's luxurious-feeling retail stores. Prices for the fashion watches range from $195 to $695 depending on finish, which puts Michael Kors in direct competition with both models of the Apple Watch. 

And that direct line of sight may have led to a disappointing start to the year for the company's important watch business -- watches are a big part of Michael Kors' "licensed" segment, a business representing about 8% of annual sales. Fossil manufactures Michael Kors watches, with Michael Kors licensing out its name.

"We saw a decline in sales in the watch category, particularly in North America following many years of sequential growth," Michael Kors CEO John Idol said on the company's May 27 earnings call. Idol added that the decline in the watch business caught his team "off-guard" and that its watch business "is not healthy in North America."

Investors have adjusted to the possibility of the lucrative watch business declining for Michael Kors this year because of greater competition from wearable devices such as the Apple Watch. Shares of Michael Kors have plunged 37% year to date. 

3. Watch makers are tripping over themselves to release wearable technology.

Traditional watchmakers are now in a frenzied race to release watches that have some Apple-like technology in a bid to attract millennials flocking to the wearable-device category. But an influx of inferior tech gadgets at cheap prices might only serve to increase the appeal of the Apple Watch.

"We do have a lot of interest in wearable technology -- we think we're in a situation where consumers are very, very interested in this convergence of fashion and technology, so our objective is to put some of this technology, which could be notifications, sensors, other types of activity, in our watches that could add value," Fossil CEO Kosta Kartsotis said on a May 5 earnings call. According to Kartsotis, the flagship Fossil brand will be the first to introduce a wearable device in time for the holiday season.

Meanwhile, Michael Kors is scheduled to launch a "suite of products" in wearables in 2016, according to Fossil, some of which could include jewelry with sensors. Should Michael Kors fuse technology with fashionable jewelry next year, it could hurt newly minted IPO Fitbit (FIT) which sells generally run-of-the-mill fitness trackers.  

Watchmaker Movado (MOV) has plans to introduce a wearable device under its Movado label at the end of the third quarter this year. In December, the company hired a former Apple executive to market its new wearable device and seek strategic partnerships.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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