Has the luxury watch market peaked?

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

Pre-owned watches have hit record highs since 2020, with the most sought-after pieces such as the Rolex Daytona and the Patek Philippe Nautilus 5711 trading for three to four times their peak retail prices this year.

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

A decline in the secondary market could be an early indicator of lower demand in the primary market, according to Adam Cochran, a retail and luxury goods analyst at Deutsche Bank.

There are potential challenges on the horizon: signs of a slowdown in luxury spending, particularly in the US; ongoing Covid-19 restrictions banning international travel from China and an uncertain global economy could all threaten the troubled streak in this category.

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

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

Already this month, Vetzer started to see his sales increase again.

Passion for luxury watches

The reduction in resale prices is a natural response to hyped demand during the period of intense wealth creation in 2020 and 2021, according to Tim Strecke, chief executive of Chrono24, one of the largest online marketplaces for new and used high-end watches. .

“There are a lot of factors, including a lot of cheap capital that has fueled demand,” Stracke said, pointing to the skyrocketing valuations of tech and cryptocurrencies last year. “A lot of people started buying watches and that’s why they went up in value.”

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

“These people loved not only the watch, but also the love of profit,” Stracke explained. The sneaker resale market has observed a similar drop in recent months.

What’s more, there are far more people interested in luxury watches today than in decades past, said Wind, a vintage watch dealer. This phenomenon, which started even before the pandemic, is spreading across all income levels and tax brackets thanks to the growing prevalence of accessories in popular culture.

“You see it in hip-hop videos and all over Instagram,” Wind said. “People are interested in how wealthy people live, and that has led to a much greater interest in watches.”

And in general, the demand for watches in the primary market is still much greater than the supply. For example, purchasing a new Rolex from a certified retailer remains extremely difficult for first-time buyers.

The Nautilus and other “hype” styles from brands like Rolex, Patek and Audemars Piguet still fetch two to four times their original prices on secondary platforms. Meanwhile, other model brands, including Omega and Cartier, owned by the Swatch Group, did not see a price drop, Stracke noted.

Despite the drop in resale prices, second-hand sellers including Wind, Chrono24, Hodinkee and The RealReal said they do not expect overall sales to decline. Chrono24’s sales increased by 42 percent in the first eight months of 2022. Hodinkee, which sells both new and used products, hit $100 million in revenue last year and is on track to surpass that figure this year.

“My reliable estimate is that millions more people are interested in watches today than they were three years ago, and that has had a big impact on value,” Wind said.

What brands need to know

But despite rising demand, luxury watchmakers should tread carefully in the coming months given the economic uncertainty. After all, the category is not recession-proof, said Luca Solca, an analyst at Bernstein.

Now the prices in the secondary market are higher than the retail prices, which indicates that the demand exceeds the supply in the primary market. This means that brands can not only increase retail prices, but also increase supply to better meet demand.

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

“The shortage of our products is not our strategy,” the private company said. “Our current production cannot fully meet the existing demand, at least without reducing the quality of our watches – this we refuse, as the quality of our products must never be compromised.”

Many brands, however, are working to increase supply. The Swiss watch industry exported a total of 11.9 billion Swiss francs ($12.4 billion) worth of watches in the first half of 2022, up 8 percent from 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 done everywhere over the past few years.

Both measures should be taken with caution, Deutsche Bank’s Cochrane said. The decline in market prices “may indicate that there is less scope for further price increases than we expected a year ago,” Cochran said in an email to BoF. “Consumers view high-end watches as a means of preserving value and even as a hedge against inflation, and this will be negatively impacted if the retail price comes under pressure.”

That being said, “supply management is a key challenge for brands to ensure they stay ahead of [demand],” he added, especially for entry-level luxury watches that are more accessible to aspiring consumers.

While consumer sentiment toward watch purchases today may be lower than it was months ago, the market is ultimately cyclical, Solka said.

“With cryptocurrencies coming back to earth, much of the foam in the market has disappeared,” he added. “Iconic products are still very hard to find and still trade at a premium over the recommended retail price.”

Despite the global recession, falling resale prices may just be a tiny blip on the radar.

“The [resale] the bubble burst, but I don’t think it’s a big deal,” said watch enthusiast Mark Cho, co-owner and co-founder of menswear brands Drake’s and The Armoury, respectively. “People had a lot of FOMO [fear of missing out] in the last few years the mindset has been “if I don’t buy it now, someone else will”. Today, that FOMO is significantly reduced.”