Apple Watch Demand: Sizzle or Fizzle?
Anyone skimming the news today would think the Apple Watch, which officially goes on sale April 24, is a runaway hit.
The $17,000 model did sell out in China in under an hour. Every model, at every price point, was snapped up by eager shoppers and shipping dates were pushed out well beyond April 24 into May and even June.
But if you poke beneath the numbers, a different story emerges. My Bloomberg colleague Tim Higgins notes that customers were able to try on the watch in select Apple stores today, yet they didn’t line up in droves to get their hands on the product. At the company’s flagship Fifth Avenue store in Manhattan, the line was about 10 minutes long. The same was true in London, Paris and Beijing.
Last September, hundreds of people lined up for the iPhone 6 at the Fifth Avenue store, wrapping around a city block. So what explains the discrepancy between consumer behavior around the watch online and offline?
One answer is that Apple’s rollout of the watch -- including the sold-out models and the perceived scarcity -- had the effect of creating an aura of heavy demand. The resulting buzz, the company hopes, could generate sales for a gadget that even the most glowing reviews concede needs more iterations.
I don’t say this to imply that Apple is doing anything wrong. The company has never been a watchmaker or even dabbled in the world of high-end fashion. Now it’s trying to do both and its marketing strategy reflects that reality.
Scarcity is an essential characteristic of what makes something a luxury good. It keeps prices high and makes the difference between, say, a luxury handbag and another that costs tens of thousands of dollars less. It’s not unusual for very trendy items to be perpetually on a waiting list. It’s why counterfeits are such a problem for the high-end fashion industry.
Angela Ahrendts, Apple’s head of retail and online sales and the former chief executive officer of Burberry, is no stranger to the marketing psychology needed to move luxury goods. So it comes as little surprise that Apple is shifting its sales strategy around the watch, which ranges in price between $349 and $17,000.
Under Ahrendts, the watch is available for sale online only, which means that buyers can look, try it on and learn about it -- and then must wait weeks or even months for their order to arrive. It’s the same strategy that helped make the Hermes Birkin bag a must-have, even at the astronomical price of several thousand dollars.
Piper Jaffray analyst Gene Munster says it’s hard to tell if Apple's watches sold out because there was tons of demand or because the company strategically used scarcity to create an online frenzy for them. He wrote: “We view this as an indication of solid demand paired with very limited supply, with supply being the most significant limiting factor.”
Even as shoppers grow impatient to get their watches, demand could be relatively low. Munster estimates that there will be 300,000 pre-orders in the first 24 hours and that 1 million watches could be sold during the opening weekend. By comparison, Apple had 4 million pre-orders for the iPhone 6 and 6 Plus and sold more than 10 million of them during opening weekend.
Apple’s strategy could drum up enough interest to keep sales steady in coming months. (The fact that celebrities like Katy Perry and Drake already have theirs could help with demand, too.)
Is any of this bad? Of course not. The Apple Watch could someday be a blockbuster product, but first Apple has to make us want one, despite the fact that we know we can live without it.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
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Paula Dwyer at firstname.lastname@example.org