The watchmaking industry is like any other industry that operates where brands and companies operate with corporate growth, profit making and shareholder pleasing in mind.
However, that’s a pretty basic explanation for the increase in watch prices on the open market that we are all seeing at the moment. Certain watches are trading 10, 20, 30 percent higher than their RRP price – and some even doubling. The value of stock on the secondary market is up, well known auction houses are constantly setting records for sought-after, pre-owned watches and it seems that every man on the street is now a watch dealer.
But is this good or bad for the watch industry? What does it all mean? And will it ever stop?
Over the last few years, supply has been far outstripped by demand and very lengthy waiting lists are forming for the world’s favourite watches. Furthermore, auctioneers and grey market dealers find their customers increasingly willing to pay a premium in order to gain immediate access to a rare or sought-after watch. This is having a knock effect on the pre-owned and vintage watch market place too. It is simply the cause-and-effect of supply-and-demand which we see in many other luxury commodity-based industries such as Art, real estate, classic cars, trainers, handbags and antiques.
With the watchmaking industry being labour-intensive and focused on quality – high-end watchmakers cannot react quickly to demand and this perpetuates the waiting lists on the primary market.
It is alleged that Rolex watches take approximately a year to make, so today’s demand will be satisfied only by last year’s production. This is already maxed out and Rolex is unable to increase at a rate fast enough to alleviate the situation.
This demand typically marks the beginning of a positive feedback loop, where waiting lists produce premiums on the SECONDARY market.
With watch premiums – that is, people paying over a watch’s retail list price – customers of authorised dealers are likely to join the waiting list to gain access to a watch at its retail price so that they can flip it – sell it – for a profit. That is quite typical “profit driven”, business-minded behaviour that most private individuals would find hard to resist. After all, who could and would resist making a quick and easy £500 or £1000 (or even more) – especially in these post pandemic times.
Rolex (and other luxury watch brands) price increase seem to be acceptable for 1) sellers 2) investors and 3) professionals – but not so good for buyers who genuinely want to get their hands on a new Rolex at list price. Quickly. For their own personal use. And that is a lot of people.
The luxury watch market place is reported to be worth in the region of $20 billion – and looking to rise over the coming years. And the preowned luxury watch marketplace is only a few billion dollars lower than the primary market.
But IS THIS cause-and-effect driven by consumers the watch industry’s fault?
The last few years of highly favourable market conditions have enabled the majority of watch owners to see their timepieces appreciate – even through the pandemic.
Luxury watch brands including Rolex and many others, including small independent watchmakers, are experiencing record primary market sales and increasing value on the secondary market. This ultimately drives the investment aspect of watchmaking, growing the market and enabling brands to innovate further. For many people, the current high prices of watches in the secondary market are not detrimental to the watch industry.
Ultimately, the free market is its own beast that brands can’t tame. Wherever there is a supply/ demand shortage environment, in any sector, industry or vertical, it will form business opportunities and anyone with an entrepreneurial spirit will look to capitalise on it.
Whether on a large scale, like a giant business conglomerate – like Watchfinder – and its acquisition by The Richemont Group, Chrono24 with their recent $118 million Series C funding round announcement, HODINKEE with their purchase of Crown & Caliber and 40 million dollar investment announcement or ebay with their recent Authenticity Guarantee on watches sold over £2000. Big things are happening for the big boys.
Or on a smaller scale with lots of small businesses popping up. YouTube Influencers are gaining online presence and doing paid partnerships with brands and seller marketplaces.
In today’s world, becoming a content creator and YouTuber is considered a “proper job” with people looking to do it straight out of school or college – and even at a younger age.
And why not – with successful YouTube millionaires being created all around the world it is reported that YouTube now has 2.3 Billion active monthly users. That’s over a quarter of the world’s population and the YouTube creator ECONOMY is noted as being one of the fastest growing small business types.
Being a YouTube entrepreneur is real and YouTubes creative eco system – in 2020 – supported nearly 400,000 full-time equivalent jobs in the US alone. The total contribution of YouTubes creative ecosystem to the US GDP in 2020 was $20.5 billion.
Going off piste here a bit, however the opportunities for people and businesses in the watch industry and community are strong right now.
What can the watch industry do about the increasing prices..?
We hear that the leading watchmakers are trying to alleviate the situation, actively trying to maximise production and prevent flipping from taking place. Some brands produce limited edition models to capitalise on the situation in the interim, but they don’t actively perpetuate the market’s overarching conditions. We hear stories about authorised dealers implementing a three-watches per household system. Rolex has increased production year on year, whilst Audemars Piguet is creating a database that pairs customers with serial numbers to hopefully prevent flipping, and others are implementing similar reactionary systems.
Then of course there is the big question of when Rolex (and Tudor) will increase the list prices of their watches pushing pricing up further.
Rolex watches and many other luxury watch brands are investments. Investing in watches is a great way to make money, especially if you have money just sitting in a savings account.
Since the 1970’s, the price of a stainless steel Rolex has never depreciated. Ever.
That’s because the demand for specific watches, current and dis-continued far exceeds the rate of production and availability. This is one of the main reasons why luxury watches are so expensive.
Scarcity always creates value – and it has got to the point where specific models have a 4, 5 or even 6-year waiting list if you try to buy them new, directly from an authorised dealer.
The solution for people who want the watch sooner is to pay a premium to fast-track that process. Then Rolex sees the prices go up on the market, and they will increase their own list prices to follow the rise.