Has the luxury watch market peaked?

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

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

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

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

There are potential challenges ahead: signs of a slowdown in luxury spending, especially in the US; continued Covid-19 restrictions banning international travel from China and an uncertain world economy could threaten the category’s turbo series.

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

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

Already this month, Wind has begun to record a recovery in sales.

The craze for luxury watches

Falling resale prices are a natural reaction to frenzied demand amid a period of intense wealth creation in 2020 and 2021, according to Tim Stracke, co-CEO of Chrono24, one of the largest online marketplaces for new luxury watches and used .

“There are many factors, including an abundance of cheap capital that have driven demand,” Stracke said, pointing to sky-high valuations in tech and cryptocurrency last year. “A lot of people started buying the watches, and so they went up in value.”

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

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

Plus, there are far more people interested in luxury watches today than in decades past, said vintage watch retailer Wind. The phenomenon, which began before the pandemic, crosses income levels and tax brackets, thanks to the increase in the prevalence of the accessory in popular culture.

“You see it in hip-hop music videos and on Instagram everywhere,” Wind said. “People are interested in how the rich live, and that has led to a lot more interest in watches.”

And overall, there is still much more demand than supply for watches in the primary market. Walking away with a new Rolex from a certified dealer, for example, remains extremely difficult for new buyers.

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

Despite a cooling in resale prices, second-hand sellers including Wind, Chrono24, Hodinkee and The RealReal said they did not anticipate a decline in overall sales. Chrono24 reported a 42% increase in sales volume in the first eight months of 2022. Hodinkee, which sells both new and pre-owned pieces, hit $100 million in sales last year and is on track to surpass that number this year.

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

What brands should know

But despite growing demand, luxury watch makers should navigate the coming months with caution given the economic uncertainties. After all, the category isn’t recession-proof, said Luca Solca, an analyst at Bernstein.

As of now, the prices in the secondary market are higher than the retail prices, showing that the demand exceeds the 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 take a lot of time and resources to produce. Rolex said in a rare public statement last fall that it does not intentionally limit the offer.

“The scarcity of our products is not a strategy on our part,” the private company said. “Our current production cannot satisfy existing demand exhaustively, 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 offer. In the first half of 2022, the Swiss watch industry exported watches worth a total of 11.9 billion Swiss francs ($12.4 billion), or 8 percent more than in the same period of 2021, according to the Federation of the Swiss Watch Industry. But it’s much easier to raise prices, which they’ve done across the board for the past few years.

Both measures should be pursued with caution, Deutsche Bank’s Cochrane said. Falling market prices “may suggest there is less room 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 and this would have a negative impact if the retail price were to come under pressure.”

Meanwhile, “supply management is the key issue for brands to ensure it doesn’t go too far [demand]he added, particularly for entry-level luxury watches that are more accessible to ambitious consumers.

While consumer sentiment towards buying a watch may be lower today than in previous months, the market is ultimately cyclical, Solca said.

“With cryptocurrencies returning to earth much of the froth in the market has disappeared,” he added. “Iconic products remain very hard to find and are still trading for more than the recommended retail price.”

Despite a global recession, falling resale prices may just end up being a small blip on the radar.

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

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