Has the luxury watch market reached its peak?

Has the luxury watch market reached its peak?

Earlier this fall, vintage watch dealer Eric Wind was concerned about the state of his industry.

Pre-owned watches have posted record performances since 2020, with the most sought-after pieces – such as the Rolex Daytona and the Patek Philippe Nautilus 5711 – trading at three or four times their retail price at their peak this year.

But in September and October, Wind’s trading slowed due to lower secondary market prices. According to WatchCharts, which tracks the resale prices of high-end watches (also known as market value), the overall market index has fallen by more than a quarter since its peak in May 2022.

A drop in the secondary market could be an early indicator of a slowdown in demand in the primary market, according to Adam Cochrane, retail and luxury analyst at Deutsche Bank.

Potential challenges loom on the horizon: signs of a slowdown in luxury spending, particularly in the US; Continued Covid-19 restrictions prohibiting international travel from China and an uncertain global economy could all threaten the category’s turbo streak.

The industry, however, remains optimistic. Watch dealers say the drop in resale prices reflects a market correction rather than a permanent downturn. Sales in the primary watch market remain strong; Richemont’s specialist watchmakers segment, which includes Piaget and IWC Schaffhausen, saw sales rise 22% year-on-year in the first half of 2022. Swatch Group, which owns Omega and Breguet, also saw a 7% rise in sales. sales in the same period.

“The total addressable market for luxury watches is huge, for both new and pre-owned watches,” said Russell Kelly, director of merchandising for Hodinkee, a watch publication and e-commerce retailer. “We’re only scratching the surface of that.”

Already this month, Wind began to see its sales recover.

The craze for luxury watches

The drop in resale prices is a natural reaction to the frenzy of demand in a period of intense wealth creation in 2020 and 2021, according to Tim Stracke, co-CEO of Chrono24, one of the largest marketplaces in line for new and pre-owned high-end watches. .

“There are a host of factors, including an abundance of cheap capital that have driven demand,” Stracke said, pointing to skyrocketing tech and cryptocurrency valuations over the past year. “A lot of people started buying the watches, so their value went up.”

For example, when Patek Philippe introduced a limited-edition Nautilus 5711/1A-018 model last year in collaboration with Tiffany & Co. for a retail value of $52,635, the first piece sold for $5.35. million dollars at auction. Seeing an opportunity to return similar models for 10 or more times its original price, buyers flooded the resale market with supplies.

“These people not only had a love for watches, but also a love for profit,” Stracke explained. The sneaker resale market has seen a similar decline in recent months.

Plus, there are simply a lot more people interested in luxury watches today than in decades past, said vintage watch dealer Wind. The phenomenon, which began before the pandemic, affects all income levels and all tax brackets, thanks to the rise of the accessory in popular culture.

“You see it everywhere in hip-hop music videos and on Instagram,” Wind said. “People are interested in the life of the wealthy, and it’s sparked a lot more interest in watches.”

And overall, the demand is still far greater than the supply of watches in the primary market. Walking away with a new Rolex from a certified retailer, for example, remains extremely difficult for first-time buyers.

The Nautilus and other “hype” styles made by brands like Rolex, Patek and Audemars Piguet still command two to four times their original price on second-hand platforms. Meanwhile, other models from brands including Omega and Cartier, owned by the Swatch group, have not seen their prices drop, Stracke noted.

Despite lower resale prices, second-hand sellers including Wind, Chrono24, Hodinkee and The RealReal said they do not expect overall sales to decline. Chrono24 saw its sales volume increase by 42% in the first eight months of 2022. Hodinkee, which sells both new and used parts, reached $100 million in revenue last year and is in going to exceed that number this year.

“My best guess is that there are millions more people interested in watches today than three years ago, and that’s had a huge impact on value,” Wind said.

What brands need to know

But despite booming demand, luxury watchmakers should navigate the coming months with caution given the economic uncertainties. After all, the category is not recession proof, said Bernstein analyst Luca Solca.

At present, prices in the secondary market are higher than retail prices, demonstrating that demand is greater than supply in the primary market. This means that brands can get away with not only increasing their retail prices, but also increasing supply to better meet their demand.

The latter proved difficult for watch companies; luxury watches require a lot of time and resources to produce. Rolex said in a rare public statement last fall that it was not intentionally limiting the supply.

“The scarcity of our products is not a strategy on our part,” the private company said. “Our current production cannot meet existing demand comprehensively, at least not without reducing the quality of our watches – which we refuse to do because the quality of our products must never be compromised.”

However, many brands are working to increase the supply. In the first half of 2022, the Swiss watch industry exported watches worth a total of 11.9 billion Swiss francs ($12.4 billion), 8% more than the same period in 2021, according to the Federation of the Swiss Watch Industry. But it’s much easier to raise prices, which they’ve been doing across the board for the past few years.

Both measures should be pursued with caution, said Deutsche Bank’s Cochrane. Declining market prices “may suggest there is less scope for further price increases than we expected a year ago,” Cochrane told BoF in an emailed statement. “Consumers see high-end watches as a store of value and even a hedge against inflation, which would be negatively impacted if the retail price were to come under pressure.”

However, “supply management is the key issue for brands so that it does not get too far [demand]he added, especially for entry-level luxury watches that are more accessible to ambitious consumers.

While consumer sentiment toward buying a watch may be weaker today compared to previous months, the market is ultimately cyclical, Solca said.

“With cryptocurrencies coming back to earth, much of the market scum has disappeared,” he added. “Iconic products remain very hard to find and are still trading above the recommended retail price.”

Despite a global recession, falling resale prices might just be a tiny speck on the radar.

“The [resale] The bubble burst, but I don’t think it’s a big deal,” said Mark Cho, a watch enthusiast and co-owner and co-founder of menswear brands Drake’s and The Armory, respectively. “People had a lot of FOMO [fear of missing out] over the past few years, where the mindset was, “if I don’t buy this now, someone else will”. Today, that FOMO has gone down a lot.

#luxury #watch #market #reached #peak

Leave a Comment

Your email address will not be published. Required fields are marked *