[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).
Courtesy: Apple
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.
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“What makes a high-end watch?” asks Hoover. “It’s the Swiss movements, the inner workings. That’s why collectors buy them.” …And that it can be passed down for generations and become a family heirloom…..”Grandson I want you to have my second generation Apple Watch for your college graduation that stopped receiving software updates 40 years ago.”
LMAO! That last line is priceless!
You are SO funny.
Here’s my problem. It will be outdated in 12 to 24 months. Why would you buy a watch and pay that much for it when you will want Apple Watch 2 in a year?
If you’re really, really rich.
Rich people don’t stay rich spending money without thought (unless you are talking about their spoiled children, in which case, go nuts!)
What do you mean rich people don’t stay rich spending money without thought? do you think that someone with millions and millions of dollars or billions of dollars thinks too much on a watch that costs less than $10K? They spend a LOT more than that on a watch. $10K or less on a watch to them is like you buying a candy bar. That takes you about 1 minute to figure out which one.
@RichDavis9 – Until you lose that line of thinking, you’ll never be wealthy. You don’t become “rich” by thinking “I’m now making $1,000,000/year. When I was making $100,000k/year, I spent $25,000 on a car every 3 years, so now I’m going to start spending $250,000 on cars every 3 years because it’s the same thing!” Money doesn’t scale like that if you want to have it build up and not end up bankrupt.
I’m know several high-end watch collectors (aimed largely in the $3,000-$30,000 range), and many of them are very interested in the Apple Watch – but would only consider the Apple Watch Edition if it were somehow future proofed and could be upgraded, with some assurance of an increase in value. If you go buy a Tag Heuer Grand Carrerra (~$7500), you can safely expect it to appreciate in value 10%-20% each year. It’s a timeless piece that will continue working and be repaired year after year. Meanwhile, I sell my iPhone each time I upgrade to the latest model.
Apple’s going to find itself in a tricky situation if they don’t announce “upgradeable guts” where they can either upgrade annually and lose out on that high end market, or upgrade infrequently and lose out on the consumer market that wants the latest and greatest.
I’m really curious to see how they play this one.
Other than a longer battery life, I’m not sure what Apple Watch 2 will do that the Apple Watch doesn’t. Supposedly it has an A5-class processor. It has a 38-42mm screen. You aren’t going to be using it to edit photos or play advanced games. It might have a longer replacement cycle.
Existing battery technology make having built in WiFi impractical. Future generations of Apple Watch with power sipping cell technology are likely on the roadmap. Then you have advanced sensors that could measure different aspects of our physiology. Imagine an Apple Watch that could measure blood glucose levels. About 10% of Americans are diabetic. Then finally, the first generation watch looks a little pudgy. It could use a little slimming in future generations.
In other words, there’s a lot of room for improvement. If the iPad 1 to iPad 2 are any indication, the 2nd gen Apple Watch will be dramatically better in every way than the first leaving 1st generation watch owners looking positively obsolete.
Jesus f.. christ, stop it already! How many times do you have to ask the same question? Is that the whole creativity you have, 9to5mac?
Apple made a brilliant move by not announcing prices of Watch and Edition Watches. For budget causious Sport already has price. But it also made intriguing discussion precedent never seen in the tech industry before. Even jewelry experts are involved – unreal! I think Apple extensively analyzed how jewelry is sold. Rich people do not like to advertise how much they pay for things. It cheapens the effect. So expensive jewelry is never advertised with a price tag. I would not be surprised if Apple will not even announce how much Edition will cost. You will just show up to get it and then find out the price. Bravo Apple!
Anyone giving High-end watch money for this watch is out of their mind! Or they have F you money. Either way, it’s a total waste.
It’s a $300 watch any way you slice it…
What do you think F You Money is meant for? To give to homeless people? NO, most people that have millions or billions of dollars want something that your common every day person DOESN’T have. It’s part of being wealthy. Personally, I would have liked to see Apple just get the polished stainless steel watch a PVD titanium nitride/Gold sputtered coating which is durable, looks just like Gold (because it has actual gold sputtered with titanium nitride) and I’m sure it’s a LOT cheaper and it visually looks the same. Maybe someone at Apple will get a clue on this. This type of PVD coating has been used by Mont Blanc so when you buy a Mont Blac product that says GOLD PLATED. Chances are that it’s PVD coating instead.
The worst part of the presentation on March 9 will be waiting through all the fluff about what it does and how revolutionary it is. Get right to it, Apple. Just tell me the price of the Edition (rose gold 38mm), when I can pre-order it, and where I can buy it! If I can afford it, sign me up! I’m hoping the $6,000 price is right. I can worry about what it does later. A $6K 18kt gold watch is a steal, provided that Apple supports battery replacements. After all, a Rolex just tells time.
I think $6,000 is too low. He estmates Apple would make $1,000 profit at that price. Apple normally enjoys 40-50% profit margin on their normal electronics.
Now that Apple is getting into the luxury business, I think they will RAISE their profit margin on luxury items, not lower it. I expect Apple will get 70% (maybe 80%) profit on the Edition watches, meaning the cost at least $10,000.
How Apple deals with the technology in these gold watches becoming outdated is the question. I think we’ll find out the answer to both questions on March 9th. :)
Yes, traditional jewelry has a much higher margin. That said, if Apple intends this to be non-upgradable, like most of their product line, then a 40% margin would be more doable. I’ve seen gold plated watches for $3,000 so I agree that $6,000 may be optimistic (though I suppose I can be hopeful until March 9th around 10:40am PDT when they cut through the announcement and Jony Ive’s video, and get to the important stuff like the price).
I wonder what the volumes will be. If the WSJ is right and they have ordered 1 million edition, that’s a LOT of revenue, perhaps too much to be reported in the “Accessories” segment with Apple TVs and iPods. The SEC might want it broken out and be skeptical that Tim Cook isn’t reviewing the Watch’s financial results separately from a $99 set-top box or $49 iPod Shuffle. Even at $6,000 that’s $6 billion of revenue plus whatever they bring in on the much more affordable Sport and stainless steel models (which I’m guessing will all be $1200 or less).
The so called expert is ill-informed! He talks about how soft gold is and how that means it is I’ll suited to mass production. The fact is that Apple have a custom gold alloy that is far harder than regular gold, this will negate some of the typical problems we have when we work with gold. No one know how much this custom gold alloy costs but it is almost certainly more expensive than the standard gold alloys.
It sounds like marketing speak. Rose gold is gold mixed with copper. Yellow gold uses other metals. 18kt gold is generally about twice as hard as 24kt gold. Apple may have tweaked with the alloy to make it somewhat easier to manufacture, but if they did anything revolutionary we’d have seen some patents on it.
It’s absurd how the one Apple Watch model that is of least interest to the vast majority of buyers gets the most media attention…
Why are people so fixated on the %^+! Edition watch? 99.9% of the addressable market won’t be buying this watch so who cares what it costs.
It’s the flagship, plus it establishes a range for other watch manufacturers. Anyway, I thought you were interested in the rose gold with rose gray leather edition.
buy a rolex. at least u know it has value in the long run. screw this apple watch. like seriously. the apple watch audience is for people aged 25 and up.
erm, what’s wrong with people 25 and up?
To compare the craftsmanship of a high-end Swiss watch, yet scoff off the genius that it takes to write software to accomplish what iOS does is pure ignorance mixed with a load of narcissism. An expert in time pieces doesn’t make you informed in any capacity in software and hardware engineering, so this was just his ignorant opinion. It was quite hard to get past that sentence. This guy reminds me of other dinosaurs that I know that don’t get technology. “Where is my USB on my mobile device;” “I want a cursor on my touch device;” “why can’t I take this battery out” and so on and so on.
Bling ~ $$ AAPL $$ ~ Bling
Chin-chin-chaching.