The Luxury Watch Industry Should Brace For a Rocky 2024 and 2025
Main image source: www.rolex.com
Note: This was recorded as an “Audicle” for “The Real Time Show” podcast. Please do check it out (and the show’s back-catalog) for more of the watch industry’s Real-est content!
“What goes up must come down”
It works for gravity.It works for the scale after the recent holiday period (hopefully anyways!).
And it works for the watch market.
For those who only came into watches during the pandemic, it can be hard to believe that the watch industry would behave in any other way than a rocket ship upwards, but actually the intensity of the market’s recent surge has been nothing short of remarkable.
Did you know that there was quite a severe slump in the market in the mid-2010s, to the point where Cartier (certainly not the only ones to do this) bought back enormous stocks of watches to prevent them from flooding grey markets, tainting the brand’s “luxury” bona fides in the process.
And this was apparently happening all the way up to 2018!
In episodes 128, 130 and 131 of The Real Time Show, Alon, Rob and I had a good time discussing predictions for 2024 delivered to us by Clarice, our resident GPT chatbot. That was a fun exercise in examining AI’s knowledge of the watch market, but we didn’t spend too much time discussing our own, personal views of what will happen to the watch industry in 2024.
With that in mind, here’s my prediction:
My hypothesis is that the watch industry will see a contraction towards the back half of 2024 and into 2025, which could end up being painful for certain brands.
“What goes up must come down” is a justification for this, but I have to be a little more rigorous than that, so in this Audicle I’ll lay out my case for why the party could be winding down for luxury watch makers.
Before I start looking ahead, let’s look back to recent history.
According to the “Federation of the Swiss Watch Industry”, “Swiss watch exports reached their highest-ever monthly level in November [2023], at almost 2.5 billion [Swiss] francs.”
Keep in mind that these are sell-in numbers, to wholesalers and dealers, not sell-through figures to customers, so while the actual market size could be anywhere from 2-4 times higher based on markup, export numbers don’t account for watches that could end up sitting in cases.
That’s important, but let’s hold that thought and just assume that export totals do provide an accurate picture of the watch industry’s health.
Perhaps unsurprisingly, the US was the leading destination for exports, accounting for about 16% of the total, followed by Hong Kong and China which roughly added up to about the same share.
Here’s something else to keep in mind: the value of Swiss watch exports priced above 3,000 Swiss francs grew 5% from November 2022, whereas almost all other categories experienced a contraction (funnily enough not those under 200 Swiss francs, which to me could be the effect of MoonSwatch exports at wholesale cost, not MSRP, but anyways, back to the analysis).
In summary, and this also shows up in the breakdown of exports by materials, the high end really is driving, and has been driving, the Swiss watch industry for the past several years.
Nothing surprising there: on one hand you’ve had unprecedented interest in independent brands, while also interest in Rolex, Patek Philippe and Audemars Piguet has gone through the roof, and on the other hand, the MoonSwatch notwithstanding, anyone looking for a sub-1000 Swiss franc/euro/dollar watch is likely going to the Apple store for such a purchase.
The recent success of the industry aside, you could start to feel some of the wind leave its sails at the end of 2023, if only as part of a return to a more “normal” market context; my feeling is this will continue, and much like the mini-crash of the 2010’s, the flipside of what caused the watch industry’s recent meteoric rise will also be the braking force that will lead to its slowdown.
In the early 2010’s, in an effort to fight corruption, the Chinese government announced a ban, and started cracking down, luxury gifts. This had a profound effect on the global watch trade. In the same way, the post-COVID period could cause the tides to recede on brands in a way that would have been unthinkable just 18 months or so ago.
This is a good jumping off point for the framework I’d like to use to make my case, which, spoiler alert, basically comes down to supply and demand.
The value of the export market is simply the sum of the number of watches leaving Switzerland multiplied by their price. That implies that to grow the market, you need to do some combination of the following:
Raise the price of watches
Sell more watches to those who already own them
Grow the market pie, by introducing new people to watches (and then sell them more watches!)
Let’s tackle the first point, because this has been the focus of a lot of discussion in watch outlets recently, with brands such as Omega and JLC (among others) raising prices on their bread-and-butter models, and IWC dropping their new Ingenieur with a five figure price tag.
When you do this as a brand, you’re essentially testing this hypothesis: can I sell this watch, the same as it’s always been, to sufficient people who don’t already own it, at this new price?
Increasingly, I see this as a very, very shaky proposition; a strong Swiss franc is definitely a factor at play in all this, but I’d like to focus more on points 2 and 3 from earlier, selling more watches to those who own them, and introducing more people to the hobby.
During COVID, people were forced to stay indoors, and had very few outlets for the money they were still earning (I need to note that this is a privileged group of people, others had much more difficult problems to deal with). In addition, governments deployed gargantuan stimulus funds and for those crazy enough to put luxury watches on credit, interest rates made it appear this wasn’t such a foolish idea.
This made for a perfect storm, giving ample time and resources to enthusiasts and newbies to learn about watches, read about every single new watch coming out, and of course purchase them if they wanted.
Now, in 2024, though I have no doubt that the watch-loving population is higher than it was in 2019, people will leave the hobby for other things to enjoy or flip. In terms of future growth, can we still expect the same explosive increase in demand now that the world is opened back up and there are other options on which to spend time and money?
If anything, the responses I’ve read to my account of paring my collection back make me think that COVID-era buyers now want to sell off part, or indeed large chunks, of their collection, to focus on the watches or other experiences that give them the most satisfaction.
Add to that the fact that the usually moneyed tech sector in the US (remember, the largest single destination for watch exports) has been a bloodbath recently, and the conclusions aren’t promising on the demand side.
Now let’s get to supply, because that’s going to play a role as well.
With regards to what’s on offer in the market, all eyes are on Rolex, and in their own, considered way, they have been building capacity over the last few years, and those efforts now seem to be translating to model availability.
Again, this is only anecdotal, but I’m hearing a lot more accounts of people getting “The Call” quite quickly from their ADs, and I personally am getting a lot of emails from the grey market sellers I follow advertising price reductions on Rolex and other brands.
Rolex is really key here because what happens when someone who may have looked at an Ingenieur when a Milgauss wasn’t available, now can get that Milgauss at MSRP?
Indeed, think of all the new watches that the big brands have introduced since 2020.
Think of all the new watches that big brands are introducing now.
SO. MANY. WATCHES.
There’s barely a day that goes by that I don’t see an announcement for a new watch. Granted, there’s a lot of cool-looking stuff out there, but you have to wonder how much penetration in the market these are actually going to get.
And now think of all the micro-brands that have popped up recently!
Yes, the market has always been competitive, but I do feel we’re at a point now where some rebalancing has to take place, and that rebalancing, just as it did in early 2020, will have winners and losers.
Who those are and what they can do to soften the blow and/or take advantage of what I think we’ll see in the near future, I’ll cover in the next Audicle.
Stay tuned…