Main image source: www.revolutionwatch.com

Note: If you’re interested in checking out the round table discussion on this article, please follow this link to the Real Time Show.

In The Real Time Show’s last Audicle and its associated analysis discussion, Rob, Alon and I talked about the very real possibility that the wind could materially leave the watch industry’s sails (and sales!) in 2024; as far as I see the situation, the secondary market balloon has been popped, and the contagion could reach upstream sellers before too long.

The discussion and feedback we’ve already experienced have been enriching, but as far as I’m concerned, the topic of a coming downturn hasn’t been fully explored until I attempt to answer the crucial question:

So what?

In my professional life I’ve tried to train myself to remember that insights alone aren’t worth nearly as much as those associated with implications and possible courses of action. With that in mind, in this Audicle I’m going to outline (with some help from a watch industry legend…) what I think various watch industry stakeholders could do if they believe, like I do, that the lights have been turned on and it’s time to leave the party that’s been happening since 2020.

I need to mention a few quick disclaimers before I start:

1. Ideally I’d have lots of up-to-the-minute data to refer to but that’s not the case for this Audicle, so please consider everything I say from now on a hypothesis, or at the very most an educated suggestion.

2. Owing to that, none of this should be construed as any sort of official consultation, so if you try to implement any of these suggestions and they don’t work out, as the youth today says “don’t @ me”.

To put some structure around this discussion, I’ll break this down into buyers and sellers of watches, and then I’ll cover the brands.

Let’s start with sellers, because one could confidently argue that they’ve been benefiting hand-over-fist the last several years. If, like me, you’re not above a little sweet comeuppance, I think they will be hit the most immediately, and in fact that impact is already being felt. 

I do have some data to cite here, with watchcharts.com’s overall price index dropping from about $32,400 in late July 2023 to about $29,900 in late January 2024, representing an 8% drop. 

It’s important to note that brands that were heavily hyped such as Rolex, Patek Philippe and Audemars Piguet are driving the magnitude of this decline, while other brands such as Omega and Breitling that did not ride the rocket ship upwards have not declined as much (though, to be clear, the last 6 months have brought generalized secondary market price declines).

What does this mean if you’re a seller?

Well, that depends on where you think the market is going, and since I believe the market has not yet bottomed out, I’d do what I could now to sell the watches I have and get cash in the door.

If you were unlucky enough to buy up a lot of, for instance, Rolex stock not too long ago, you might be tempted to sit on your inventory to try and recoup as much of that investment as possible. My hypothesis is that this would be a mistake and your situation will only get worse as more people start to find success with AD’s directly, which will lead secondary market dealers to continue adjusting their pricing further downwards.

If it were me in this situation, I’d rather sell now, even at a loss, and have cash to stay alive rather than sit on my hands and take an even greater hit down the line.

This naturally leads me to anyone in the market for a luxury watch; if that’s you, congratulations! After years of headaches, the pendulum is finally swinging in your favor, and if I’m right in my market assessment, it has a ways still to swing, so deals could be in your future if you’re willing to wait just a bit longer before making your purchase.

If you’ve been eyeing a model that was previously unobtainium, my feeling is that, while you still may have to wait once you place an order (after all, no AD can stock vast quantities of expensive inventory), you shouldn’t be looking at years on a vague “waiting list”.

If you’re looking at watches that were more conventionally obtainable the last several years, I believe that we will see backups forming in AD stock rooms, so you should be able to get a deal with some discounting.

However…

With brands increasing prices (more on this later), your best bet for a bargain will be - here it is again - the secondary market, and here is where I feel things will get interesting.

As people make room for other hobbies or need cash for other aspects in their lives, and as the ridiculous expectation that any luxury watch can be an “investment” fades away, I expect that some of the huge influx of watches that resulted from the pandemic will find its way back into the market. As that happens, it will become easier for you to scoop up a deal.

If it gets to the point where brands start buying back inventory as they did in the mid-2010’s, all bets are off and you could be looking at getting a luxury watch at fire-sale pricing if you’re willing to mine grey market channels patiently.

This is a good place to transition to the brands, but before I do that, a word on purchasing. The pandemic brought about all kinds of unsavory profiteering and otherwise bad behavior.

This was widespread and the watch industry had its fair share. I’m sure you realize immediately what I’m talking about: salespeople who made no effort to make new customers feel welcome, knowing full well they would sell everything they had before it hit cases, placements on years-long waitlists which may or may not have existed in exchange for buying thousands of dollars of slower moving products, and that’s only two examples among many. 

Of course, you as a consumer are free to buy from wherever you’d like, but you know what?

If you know of such stories, don’t buy from these outlets. They crawled in the muck on the backs of potential customers to make as much as they could, so now I trust they have plenty of cash to figure out how to ride out the tough times.

Now, onto brands.

I think we can assume, in anticipation of a potential slowdown, that they are checking to make sure that all their debt facilities are in order, that they have made any requests now to wealthy benefactors while things are going well, and that they have thought about how to rationalize their supplier costs before there is a mad rush to do so during a downturn.

This is all important, but I’d rather focus on four aspects of preparing for, or indeed enduring, a downturn, that are more directly relevant to the discussion of watches (and less dry!). 

Those are:

1. Pricing

2. The product pipeline

3. Marketing

4. The watchmaking labor force

Now, time to bring in the living legend.

Leave it to Jean-Claude Biver to know a thing or two about the watch industry and its cyclicality, and as I consider these topics I can’t help but think of an interview he gave to Revolution magazine founder Wei Koh around the time of the last downturn in the mid-2010’s.

Perhaps deliberately in a nod to the times, the interview started off directly with a question about pricing. In the good times going back to the 1980’s, said Biver, no one cared about the cost of luxury watches. 

However, from the vantage point of 2016, he said that the technical challenges to making a complicated watch were a non-issue. Rather:

“The problem is how can I make it [a tourbillon] so that the perceived value is twice the price…People are looking now for value. Value, value, value”.

These words were valid in 2016, and I have a strong feeling they will be just as applicable as we exit what some have called the “free money” era.

You of course can’t talk about pricing without referring to the products to which these values are associated. So, let’s talk about the product pipeline, a topic on which Jean Claude Biver also had some wise words.

In 2016, Jean Claude Biver was leading TAG Heuer, and he outlined a three point checklist for new watches where, if any one point was not satisfied, the watch would not be produced. 

The three points, which I’m attempting to generalize here for applications beyond TAG Heuer, were as follows:

1. The product must be true to the brand’s strengths and differentiating factors

2. The product must be targeted at an identified, clearly delineated segment of the market

3. Perceived value must be at least double the price of the watch

This is such a simple checklist, but it encompasses basically everything there is to say about product-market fit, and yet, you probably don’t have to think too hard about a recent watch release that does not check each of these three boxes.

If you’ve ever found yourself asking “ok but who is this for” while reading a watch announcement, that’s the kind of watch I’m talking about, and my feeling is that the days of companies being able to bank on such models are, for now at least, coming to an end.

Any brand that believes that the good times are coming to a halt should consider distilling down their own product checklist, and really taking a hard look at what they have coming out in the next few years. 

I completely understand that sacrifices are tough and product conception in the watchmaking industry can take years, but everything that comes out in the future that does not hit the mark ultimately takes away resources from something else that does, or that could if more resources were devoted to it.

In other words, if you have a 44 mm chronograph planned for next year (looking at you, Omega), my hypothesis is that there is very little chance that in today’s market, with today’s tastes, you have put yourself in a position to deliver a watch that provides double the value relative to price for a critical mass of customers.

Of course, “value” is a relative, highly subjective term, and I think we can all agree that marketing goes a long way to forming a customer’s perception of value.

You would think that would make marketing a precious resource, but in fact, during a downturn, the marketing department is usually the first one put on the chopping block.

Let’s turn again to the thoughts that Jean Claude Biver shared in his interview with Revolution:

“We have a king and a queen, and that’s all [that] we have to do is to serve both. First, start with the king. Who is the king of Hublot? Stupid, immediate answer: the customer…If you want to serve a customer, you must know his history, where does he come from, how was he educated, what does he like, what does he hate, what is his religion, what is his passion, what [are his hobbies]...all this we have to know! The more we know, the better we can serve.”

Biver then goes on to say:

“The queen is the product…we must make the queen so beautiful, so sexy, so nice, so balanced…that when she meets the king, they fall in love.”

So, any brand, no matter the size, must be able to answer succinctly: who is my target customer, are my watches designed with that customer in mind, and do my marketing efforts enable sufficient contact between the two to enable sales?

If those three questions are not satisfied, then a brand cannot say it is prepared for a downturn. 

In other words, a rising tide lifts all boats, but when the tide recedes, there are winners and losers. In a downturn, you can sell watches, but you cannot sell any new release, you have to be hyper-deliberate about your efforts.

That means not treating marketing as a cost center when sales start to slow. The last thought I’ll share on this for now is that staying the course has very tangible implications: if you have an ad strategy in place, you can go hard in your marketing efforts while everyone might be giving in to the temptation to pull back, thus potentially getting more bang for your ad-bucks in the process.

As important as marketing is to surviving a downturn, in watchmaking the rubber meets the road at the bench. Believe it or not, Richemont actually carried out layoffs of its watchmakers in the mid-2010’s!

I understand the very basic logic - less people equals more profits - but talk about cutting off your nose to spite your face.

In addition to tanking morale, I wonder how much it cost to hire that workforce back and train it to manage the upturn the industry took a few years later?

Today, there is a severe lack of watchmakers, to the point where I wish I could turn back time and study this topic to earn the job security that should be available to me.

I say “should” be, because if I’ve realized one thing about business in my career, it’s that you never get between a shareholder and their profits, so if and when things start to get rough, the watchmakers - most probably those employed by publicly traded brands or groups - could be on the chopping block again.

I hope the industry does not repeat this course of action. If anything, the watchmaking department is a key lever in crucial areas such as cost reduction, so if they are empowered and incentivized to find those solutions, magic can happen (with profits hopefully following later, of course…).

I’ll end this on an even more hopeful note.

Though I do believe that a downturn is coming and that the watch industry will emerge differently than it entered, it will emerge, and when it does, I for one can’t wait to see what the newly hardened brands have to show us.