Total U.S. watch sales slipped 4.9 percent between 2001 and 2005 to $7.6 billion, says the 2006 U.S. watch and clock market report of Packaged Facts, a product research firm. The report cites cell phones, cable boxes, computers, personal digital assistants (PDAs), iPods, and even DVD players as providing “all the time readouts one needs.” It also notes that those products “siphon off” discretionary dollars through monthly use and service payments, leaving less money to spend on watches.

Watches most affected seem to be those priced at $100 or less, and with distribution weighted to teens and young adults—reports last year said sales for some brands popular with young adults fell short of projections. Articles and blogs spun all this further with headlines like “The Watch Is Dead” and “End of the Watch Era.”

But a closer look at the watch business suggests a different picture.

While some watches, especially those priced under $100, are pressured, most leading brands are doing well. Among those reporting healthy business, including sales to young adults, are Timex, which accounts for a third of U.S. watch sales; E. Gluck Corp. (with brands AK, Anne Klein New York, Armitron, JLo, Nine West, Trump); Sequel International, a division of the Timex Group (Guess Collection, Guess Watches); Bulova Corp. (Accutron, Bulova, Caravelle, Harley-Davidson, Marine Star, Wittnauer); Seiko; Citizen; and Swiss Army. Together, these companies account for much of the popular and midprice watch business in the United States.

Executives at these companies are quick to challenge the watches-are-dead theme. “We sell strong lifestyle-branded products that are very popular in the youth culture,” says Sequel International president and chief executive officer Cindy Livingston. “They continue to show strong growth trends, especially in stores catering to the youth market.”

Francie Abraham, senior vice president and chief marketing officer at Bulova Corp., says overall sales increased significantly during the past decade and notes that brand awareness is continuing to grow among younger consumers.

At Swiss Army, business is strong and unaffected by the cell phone trend, says president and CEO Sue Rechner. She says the company has “steady sales in collections targeting young adults.”

“We haven’t seen any drop-off in sales to our younger consumers or to our retailers who sell to them,” says Michele Barouh, creative director at Michele, a popular fashion brand.

Mark Odenheimer, senior vice president, E. Gluck Corp., suggests media reports are much ado about little. “The fact some brands saw difficult sales in the past couple years plays into this,” he says. “Our own increases in business disprove what these stories say.”

Some find the media reports ludicrous. “I chuckle when I read, or hear someone say, the watch business is dead,” says Les Perry, executive vice president of Seiko Corp. of America. “Just because people spend more on cell phones doesn’t mean they stop buying watches. It’s like saying the engagement ring business is dying because people live together!”

Most upper midprice watches are doing well too, as are those over $1,000. Indeed, the U.S. market for fine watches has great potential, say watchmakers, because of growing enthusiasm by young affluent adults, especially women. (Of adults who buy watches, two-thirds are women, says Packaged Facts, and women buy one in three luxury watches, according to luxury retail jeweler Cartier.)

While the U.S. watch business slumped mid-decade, mainly in popular-price watches, Packaged Facts says such declines are cyclical, and it expects the market to grow 10.6 percent and top $9.5 billion by 2010. Packaged Facts publisher Don Montuori cites a number of factors that will drive sales: high-profile licensing, especially in children’s watches; designer names and logos; more fashion-inspired, high-tech, and sports designs; and increasing sophistication in personal appearance, which should create more fashion-brand licensing opportunities.

WATCHES AND CELL PHONES

Cell phone usage is widespread. The 2006 Jewelry Consumer Opinion Council survey of some 7,000 consumers, for example, found that 42 percent of young adults (ages 18 to 24) who don’t own a watch and 60 percent of those who do get time from a handheld device. How does that square with a growing watch market?

Some suggest it isn’t handhelds affecting the $100-and-under sector, but young people buying more expensive watches. “Their values today call for something more stylish than an $80 basic watch, and they’re spending more on more sophisticated items,” observes Seiko’s Les Perry. “Fashion brands grab some of that. Parking attendants wear pricey sport watches. Even the kid delivering my newspaper wears a $700 watch—and I’m not kidding!” Rechner agrees: “There’s a growing need to be as leading edge as possible amongst their peers,” she says.

Surveys of “Generation Next” (ages 16 to 25) support that. JCOC finds young adults have “a surprising affinity for pricier watches” and over half (57 percent) own at least one made of precious metal. A 2007 Pew Center Research poll says acquiring wealth and its accoutrements is a top “life goal” of those in the 18-to-25 age bracket. Piper Jaffray’s surveys of U.S. teens consistently find Rolex among their favorite watches (22 percent in 2006).

The controversy over watches versus cell phones isn’t limited to the United States. In 2006, for example, French watchmakers and jewelers sued a mobile phone operator to stop TV ads showing watches being tossed into a trash bin. And in Japan a few years ago, it seemed as if cell phones had watches on the run. “There was a sharp decline in the Japanese watch market that seemed to correlate with rising popularity of the Internet–cell phone system,” says Lou Galie, Timex senior vice president of research and development who tracks the worldwide watch market. “Many articles said cell phones would replace watches, especially for the younger generation.”

That was then. “Today, Japan’s market is back to normal and growing,” says Galie. “Teenagers of five or six years ago, whom articles said would rather use their phone than a watch, now wear watches, and since the market is normal again, the generation behind them must also.”

Galie believes the Japanese example holds a lesson for the U.S. market. “What I see is temporary,” he says. “[Young people] will return to watches when they outgrow the fad.”

Stuart Zuckerman, senior vice president of merchandising for Citizen Watch Co. of America, agrees. “Young people may buy fewer watches,” he says, “but as they grow older, move into the workforce, and begin families, they’ll realize watches’ important benefits and buy those that reflect who they are and how they want people to see them.”

JCOC data supports that. While a sizable proportion sometimes get time from handhelds, the majority (71 percent) agreed with the premise that “wearing a watch is more professional than using a cell phone or iPod to tell time.” Most (63 percent) expect to wear a watch daily or nearly every day in the future.

Watchmakers can explain why watches and cell phones can peacefully coexist. “None of us who are serious about the watch business say we sell time,” says Perry. “We sell image, style, and functions other than time-telling.”

Francie Abraham of Bulova says unequivocally, “Watches have outlasted their original role as timekeepers. Look at demand for high-end mechanical watches. That’s impossible to explain if timekeeping was the reason, because they have less accuracy than quartz watches. Look at the immense popularity of diamond accents on watches. Diamonds aren’t a functional element, but they’re responsible for a substantial portion of Bulova Corp.’s growth in recent years.”

“Those buying our watches want more than time,” says Michele Barouh of Michele watches. “They want something that’s colorful, looks like jewelry, or is a status symbol. If people used watches only for utilitarian reasons, the luxury and fashion watch business wouldn’t exist.”

The watch business exploded in the past 50 years, says Galie, because as watches’ use as functional instruments declined, the need for them as personal adornment increased. “Watches are now very much part of a person’s lifestyle,” he explains. “Women treat them as accessories, and men, who have limited choices in jewelry, increasingly use the watch as a personal statement.”

Most watchmakers enhance the personal adornment factor with innovative non-time functions. There are watches for sailing, golfing, diving, motor racing, running, climbing, and fishing. There are multi-time-zone watches for travelers; others that measure speed, distance, and heart rate; and versions with altimeters and compasses. There are watches that pick up signals from the U.S. government’s atomic clock to provide the exact time, and batteryless watches that use light or kinetic energy. Others function as an MP3 player, AM radio, and even digital video player. Some with wireless technology tell you when your muted cell phone rings, who’s calling, and if there’s a message; others retrieve data from your computer. There are watches to track UV radiation to prevent over-exposure and watches to help women track a pregnancy. And all these don’t include innovations in mechanical watches.

Watchmakers’ most creative efforts focus on watches as accessories. According to JCOC, most adults in the 18-to-59 age range (64 percent overall, 72 percent of young adults) say a watch is an “essential” fashion and work accessory. “Widespread use of cell phones or iPods may reduce people’s need to use watches for time, but watches, whatever the price point, remain an important way for people to make a statement about themselves,” says Zuckerman.

“When watches were primarily for tracking time, consumers had just one for years,” Abraham notes. “Now, the average American female owns five, and the average male owns three for various occasions, to complement clothing, or as fashion statements.”

“We sell fashion as well as function,” says Mark Odenheimer of E. Gluck. “That isn’t offered by a cell phone or an iPod, which aren’t fashion statements that coordinate with outfits or looks.”

“Watches are a form of status on the wrist,” Perry observes. “And it’s easier to check the time by looking at your wrist than digging through a purse or pocket for a cell phone or iPod.”

Watchmakers admit the spread of time-telling handhelds does affect them—it’s made a virtue of necessity. “We’re very aware there are more ways to tell time without a watch or clock, and we’ve changed our brand strategies to address this evolution,” says Abraham. “We now look at clocks as home decorating accessories and watches as jewelry or fashion accessories.”

The situation, says Livingston, is forcing watches to be more fashionable and accessory oriented. She believes that watches that merely give the time will continue to fade as personal devices spread. “Lifestyle-oriented and fashion-right accessories will continue to drive sales.”

So, reports of the watch’s demise are, to echo Mark Twain, greatly exaggerated. The watch era isn’t ending, it’s just changing. “Things change all the time,” says Zuckerman. “The watch business is no exception.”