[Ed. Note: Rob Bates, is a senior editor for JCK, and blogger/writer about the diamond and jewelry industries—this post originally posted here]
When we first started talking about the Apple Watch, some predicted that the highest-end model—the 18k gold Edition—could retail for more than $1,000. Now that seems almost quaint. Apple-focused blogs such as Daring Fireball now regularly bandy about numbers like $10,000—and sometimes far more.
The jewelry and watch sources I spoke with all think a price tag of $6,000 or more is reasonable, maybe even probable. “If it’s under $5,000, it will shock me,” says Michael Pucci, founder of the Los Angeles–based Abbiamo Group, marketing and sales consultants for jewelry and watches. He thinks the price tag will fall between $6,000 and $10,000, but not likely much more than that.
The 18k gold is, of course, the watch’s most valuable component. While it’s difficult to judge gold content from photos—given questions about thickness, etc.—industry experts believe the watch and accompanying case will use about 1 ounce of gold (currently trading for around $1,200).
The Apple Watch Edition.
Yet, you can’t just value the gold by weight, argues Torry Hoover, president of Hoover & Strong, the metals refiner.
“These can’t be mass-produced,” he says. “You can machine parts of it, but it will take a fair amount to make a case. There is still a lot of handwork that has to be done with it.”
That’s because gold’s properties sometimes make the metal ill-suited for assembly lines, says Jason Wilbur, a Los Angeles–based watch designer.
“We all know how soft gold is. It’s tricky. It moves around a little more than other metals. You have a lot of sharp edges and soft materials and little connection points, so you can’t just use manufacturing tools. The lugs may end up snapping off. One little pockmark on this thing will show up. You can’t just use the same tools as the other models and throw some gold in there, and there is your watch.”
Apple claims it’s using a company-developed metal that’s “up to twice as hard as standard gold.” Of course, saying “up to” gives it a lot of leeway, and no one I spoke to thinks it will introduce anything truly radical.
“There are always different alloys, but I think that’s more marketing than anything else,” says Morris Chabbott, managing director of New York City–based Morét Time. “I’ve been in the gold business, and there are many different things you can do with it. Apple is about making the best technology, so if they are making gold they may want a little edge to it.”
Given all the extras involved—including promotion costs and Apple’s traditional 40 percent margin—most guessed the watch will likely wholesale for around $3,000–$4,000. Then comes the thornier question of how much it will retail for.
Apple’s hiring of Patrick Pruniaux, former sales director at TAG Heuer, signals it wants to sell the high-end watch sold at the standard places that sell high-end watches—perhaps department stores like Saks Fifth Avenue and Bergdorf Goodman.
But the company is known for offering retailers (including its own) meager margins. Stores make a scant 3 percent on each iPad, according to ZDNet. High-end retailers may like the Apple Watch as a traffic builder. But they may draw the line at 3 percent.
“This could bring a new consumer to department stores,” says Pucci. “But I think they will also tell them: ‘Look we love you guys, but we have to make at least 35 to 40 percent.’ ”
Watch markups vary depending on the power of the brand and its price point, according to Andrew Block, who spent 25 years at Tourneau and now heads Stephen Singer Fine Jewelry. For new or unproven high-end brands, they generally near 50 percent, with the bulk pocketed by the retailer. For more sought-after names, the retail markup falls to 30–40 percent, with the manufacturers keeping more for itself.
So what category does this fall into? Apple being Apple, retailers may give it some leeway—to a point.
“Apple’s brand is formidable,” says Block. “But so is Rolex’s, so is Patek Philippe’s. Some of the other brands are just as formidable in this category. It hasn’t established its value yet in gold.” (He believes the Apple Watch will be bigger in overseas markets such China and South America than it will be in the United States.)
Apple could sell the watch at its own high-end boutiques—it is reportedly opening a store on Madison Avenue in New York City, on a retail strip surrounded by jewelry stores. In addition, according to The New Yorker, Apple design head Jonathan Ive and store chief Angela Ahrendts—who formerly ran Burberry—are remodeling the standard stores so they “become a more natural setting for vitrines filled with gold.” (Among the rumored changes: Salespeople will wear shirts with collars.) Ive talks about overhearing one conversation: “I’m not going to buy a watch if I can’t stand on carpet.”
So it’s safe to say Apple stores will now feature nice carpets. That costs money. So does the extra security needed for high-end items. Carrying a gold watch is “totally antithetical to their current retail model,” says John Kennedy, president of the Jewelers’ Security Alliance. “You can’t have people touching it. You can’t have it out on counters. You have the same problems that retail jewelers have, in terms of distraction thefts, in terms of switching, in terms of grab and runs.”
Then there are the X factors. Wilbur believes that Apple will leverage the “psychology of luxury brands.”
“The whole purpose of this is to create extra emotional buzz,” he says. “There is no functional value to having the gold there, there is no beauty advantage—if it was just about the look, you could just gold-plate it.”
“No one wants an Hublot for $3,000. They want it for $20,000 or $30,000. A lot of people will only want this if it’s $10,000 or more.”
It is difficult to find a gold watch for less than $10,000—many retail for double that. Of course, Swiss manufacturers will argue this is an Apple-to-Rolex comparison, as their products’ intricate craftsmanship justifies that high price tag. “What makes a high-end watch?” asks Hoover. “It’s the Swiss movements, the inner workings. That’s why collectors buy them. This has none of that. It’s inserting a high-end case on a piece of electronics.” (That said, not all consumers will realize that—or care.)
Then there’s the question of value. As the watch industry likes to remind people, its products are built to last generations. The Apple Watch might turn obsolete by next week. The high-end model might allow users to upgrade by making the “guts” removable, which would partly solve the problem, but not totally. “The Watch will become thinner,” says tech site Venture Beat. “It may incorporate a better battery. It might get a camera.… After a couple of years of ownership the first-generation 18-karat gold Apple Watch will be outdated beyond anything a firmware update can fix.”
This is also still pretty new ground for the company, and tech in general. “As far as I’m aware, this is the first technology product that is made out of precious metal besides the Vertu phone,” says Chabbot. “I think it will fit into a price point where it’s accessible luxury.”
I agree, and predict a low price point—possibly $5,999. High margins and low turnover are the luxury store business model. Not Apple’s. If the company makes a thousand dollars or more on each high-end watch, that’s far better than what it takes home on a $700 iPhone.
Plus, it can always go higher. If Apple establishes itself as a luxury brand, it could produce watches sprinkled with diamonds, or introduce limited-edition designs, or do co-ventures with established names.
The company is still dipping its toe in the water here. Whatever number the first Edition retails for, it may not be the ceiling, but the floor.
Filed under: AAPL Company
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Tagged: Alexander Wang (designer)
, Apple watch
, Apple Watch Edition
, Bergdorf Goodman
, United States
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