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What’s causing the price drop in the luxury watch market – and will it stay that way?

What’s causing the price drop in the luxury watch market – and will it stay that way?

Rolex GMT Master II Pepsi Dial watch on a white background

Those with even a passing interest in luxury watches know that  prices are crashing in the once-inflated after-market right now.  Some are even suggesting the current prices are a ‘rock bottom’ – the lowest prices we’re likely to ever see. 

 

 

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Most luxury watch brands are affected, from Audemars Piguet through to Breitling. Even Swatch – with its funky and highly coveted MoonSwatch – now see weakening demand on the after-market. One brand particularly affected by this downturn, however, is Rolex. 

As recently as last year, you couldn’t get a Rolex at a retail price(or in a retail store) unless you were a VIP. Or a VVIP for that matter. The Cut has a great piece on how not even the rich can buy a luxury watch at a retail store right now.

On the after market,watches like the Oyster Perpetual 41 in green or the iconic Tiffany Blue were going for 3x their retail price without breaking a sweat. The Rolex Daytona could run you into the hundreds of thousands. And let’s not get started on the new platinum blue Day Date collection.

Now, it’s down across the board. The most expensive luxury Rolex watches have taken the biggest hit. Some industry observers note a downturn of 20% or more is not unusual. Some models are immune, but it’s a short list.

What’s causing this downward trend? And will it continue? 

Luxury watches and cryptocurrency

One leading theory as to the downturn is associated with the decline of crypto markets around the world in 2022. As crypto bros got rich, they celebrated with luxury assets like Rolex watches. As they watched it all evaporate, those same watches hit the market en masse, lowering overall prices. Let’s explain.

 

 

When you look at the declining performance of defi assets, the trend is similar to after-market watch prices. Particularly, when you look at the bigger brands with more recognition and perceived social capital.

As these young men in their started experimenting and investing in cryptocurrencies, some of them struck it big. The ones lucky enough to bet in the right direction would then make their first nouveau riche purchase: a luxury watch. 

The purchase of a luxury watch to the same mentality that many of these crypto punters hold around NFTs. It’s an affirmation of their status and social capital.

But as we entered 2022, Bitcoin and other cryptocurrencies like it started a rapid decline – in some cases reaching a two or three year price low. Which has been nothing bad but news for many players in the space. This has arguably reduced the number of buyers in the after market. And fewer buyers generally means lower prices.

Of course, luxury isn’t just about a handful of people gambling on the crypto market.

 

COVID cash

 

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This period of lower prices in the luxury watch market coincides with the tail end of COVID, and its associated lockdowns.
When you look at the trends during our COVID lockdown periods, sales of big ticket items skyrocketed. Big TVs, new laptops, luxury cars and even property renovation all jumped.

The money that the middle- and upper-classes normally spent on going out, or on their mid-year holiday was suddenly sitting in an account unspent. And that cash started burning a hole in the pockets of some luxury watch fans.

The combination of cashed-up buyer and watch retail store closures (many luxury brands still won’t sell online) meant that people started turning to the after-market in droves. And as such, the demand sent prices higher. Perhaps unjustifiably so.

But as we all get back outdoors, times have changed. In case your Instagram feed hadn’t alerted you, the number of people on European summer vacations in 2022 was astronomical. At the beginning of 2022, consumer spending reached a new high. People ventured out to restaurants, bars, planes, and grooming appointments in record numbers. And simultaneously, demand for luxury watches has returned to where it was prior to COVID.

As such, it can be argued that the price fall is more of a correction to an overinflated market.

Luxury does not trend in the same way as other products

The other key factor in painting the most accurate picture of this downturn is understanding that luxury never behaves the same way that other consumables do.

Let’s look for a minute at the Hermes Birkin, one of the most sought after and expensive handbags in the world. These hard-to-find bags are traded with reverence on the after market as the in-store waitlist can be more than six years.

A 2017 study by Baghunter compared the Birkin as an investment to gold and the S&P 500. The Birkin was the clear winner with an annual return of 14.2% compared to 1.9% and 11.66% nominal respectively. Even during the Global Financial Crisis, the Birkin still increased in value. In fact, it’s never declined in value with the lowest increase coming in at 2.1% in 1986.

It’s because Birkins exist in a category called ultra luxury. In the same way that many (but not all) watch brands do. These products are not just characterised by high prices, they’re also scarce and generally hard to obtain. You often have to be someone or know someone to be able to have a chance to buy these items in a retail setting.

It means that prices and demand will often buck the trend of other consumables. They’re expected to hold value and continue to be in high demand even during economic downturns. And it means that they can be treated and traded in the same way as assets like shares or real estate, contributing to price inflations. 

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Swatch x Dragon Ball Z collection on the wrist

In July 2022, Beyonce released her album Renaissance and one particular line raised a few eyebrows – “Birkins? Them shit’s in storage.” It’s caused many to declare the Birkin as ‘cancelled’ and it’s likely this will be reflected in the after market demand.

 

The retail value and after-market value of these luxury assets often split, sometimes wildly. An item that retails for $10,000 can see a 5x increase based solely on the social capital people associate with it. The hype boosts the value of a product exponentially. All aboard the hype train.

The hype train 

Industry observers at industry trade show Watches and Wonders in 2019 noted that the luxury watch market was experiencing something of a renaissance. 

In the previous years, more people had become fans of luxury timepieces than any time in recent memory. Fan sites like Hodinkee saw a rush of traffic, and watch enthusiasts of yesteryear became industry influencers.

Naturally, new money gravitates to the biggest name: Rolex. 

There’s a suggestion to be made that as new watch fans come into the market, their tastes diversify. I know that the watch on my wrist right now isn’t the one that got me into watches, for example.

While the horological hype train leaving the station isn’t the sole reason for the downturn, it could certainly be contributing.

Will the luxury watch market go back up?

Right now, the ultra-luxury watch market has taken the biggest dive. Rolex Daytona, Day Date and even Pepsi GMT-Master II variants are all worth less today than they were 12 months ago. But not all prices are down.

 

 

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Steel sport watches from just about every brand – including Rolex – are entering a bit of a renaissance. The new range of Oyster Perpetual 41 models are all still sky high (yellow dials are the most popular at the time of writing). The Omega Speedmaster family is seeing a new price spike thanks to the popularity of the MoonSwatch. And Breitling’s new Navitimer can barely stay on the shelves.

Ultimately, it means we cannot tell what the future of the luxury watch market holds. Prices could continue on a downward trend. They could sky rocket back up. All we do know is that luxury is an asset class of its own. And tying the price trend to any one factor is far too simple.

 

© 2021 Redaktor

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