Apple Watch Edition: Fear and loathing in Rolex-ville

In all the coverage and hype concerning Apple’s event on Tuesday I’d like to concentrate on one easily-overlooked product I feel is by far the most revolutionary of those announced. I am of course talking about the Apple Watch Edition -- Apple’s gold watch.

Where we might expect an Apple Watch to be aimed at competitors like Samsung, LG, or even Sony, the Apple Watch Edition is aimed squarely at Rolex. It is Apple’s first-ever true luxury product.

There have been near-luxury products from Apple before, but nothing like the Apple Watch Edition, which I am convinced is the brainchild not of design director Jony Ive or CEO Tim Cook, but of SVP of Retail and Online Stores Angela Ahrendts (former CEO of Burberry) and Patrick Pruniaux, former VP of Sales and Retail at Swiss watchmaker (and LVMH brand) Tag Heuer.

Let’s consider for a moment what this gold watch means for Apple. They didn’t announce the price for the gold model, but given that we’re told the Apple Watch comes in three basic styles starting at $349 I’d guess that the gold model will list for 10 times that amount or $3,495. 10x pricing is one of the fundamental definitions of a luxury product.

Insane, right?

Wrong.

That price puts the Apple Watch squarely in Rolexville and Heuerland.

You’ll be able to buy one at the Apple Store but I’ll tell you right now it will never be in stock and will have to be a special order. Gold Apple Watches will instead be sold in the same stores as those other fine watches. That’s why Apple hired Monsieur Pruniaux.

Apple gets a new, small (but highly lucrative) sales channel that is perfectly happy holding inventory. And if they sell Apple Watches the watch retailers will probably sell iPhones to go with them.

The innards of all Apple Watches are identical. Only the cases and bands vary. Think of the profit margin Apple is likely to get on those gold watches! It’s probably in the order of 70 percent.

And while fine watches look like a boutique market, taken in aggregate the market is not small. Sales of Swiss watches alone were more than 21 billion Swiss francs (more than $23 billion) in 2012. Rolex -- if that’s Apple’s prime target -- is a $4.5 billion company.

Seventy percent of $4.5 billion is by my calculation about the profit Apple would expect from selling eight million iPhone 6’s.

I’m not saying this will be an enduring business for Apple. Far from it. But Apple will seed $1 billion in inventory alone and back it up with huge advertising those margins can easily support. The Apple Watch Edition will be 2015’s luxury gizmo. I’ve seen the watch and it’s stunning. Just imagine the iPhone market share trajectory compressed into a single year. There’s a push and pull to this since none of the competing eWatches has a luxury model so having the gold will help the other Apple Watches while the success of those watches can’t hurt the gold model.

So iPhone 6’s are great and Apple Pay is exciting, but there’s a distinct possibility those products could pale in profit compared to the Apple Watch Edition, which ought to also be more or less immune to the market performance of other Apple products.

Think if it as a market hedge for Apple that might -- and should -- have Paris and Geneva trembling.