The luxury watch shortages due to the supply cuts during the Covid-19 Pandemic has created a huge surge of capital investment into the after-market watch industry, driving industry growth to over $20 Billion US Dollars in just a few years.
The Demand for high end watches including the big four- Rolex, Patek Philippe, Audemars Piguet and Richard Mille, who have maintained low supply lines throughout the pandemic, have had no shortages. In fact, the demand for these watches has gone up due to the price changes determined by the after-market, proving them to be a worthwhile investment for anyone who can get their hands on them. Some watches, such as the Rolex Platinum Daytona 116506 even fetching you more annual returns than NASDAQ and S&P 500 investments, highlighting again just how astonishingly quick the watch market is growing in terms of investment.
In this blog we will reveal the reasons for these price surges and whether the bubble is due to burst or remain the same.
A more obvious reason for the surge in watch prices, in particular for the big four brands, is due to supply shortages because of the pandemic and the closing down of several watch factories globally. This is paired with the fact that the big four have no intention of increasing supply to meet consumer demand, as it works in these brands favours, improving their fabled exclusivity, long waiting lists and ultra-exclusive client base.
Therefore, simple supply and demand suggests that the less supply the higher the price, and this isn’t any different in the watch industry! The demand is predicted to continue to outstrip the supply, with watches like the Patek Philippe Nautilus Ref. 5711 Green dial retailing at $35,000 now selling on the after-market for over $600,000. Moreover, discontinued watches like the Patek 5711/1r now sells for well over $300,000 dollars, and the end of retail selling at Audemars Piguet has created huge price surges, with the AP Royal Oak 15500.ST blue dial for example, now selling at around $120,000- a watch that was once upon a time, around $20,000.
New accumulations of Wealth
What has changed in the more recent years is the new ways of accumulating a significant amount of wealth. Whether it be through Tiktok, Instagram, YouTube, Shopify drop shipping or Crypto Currency, there are various younger demographics coming into wealth at a much earlier stage than ever seen before.
A matter of fact is that there are more wealthy people in the world nowadays, with Crypto Currency enthusiasts, for example, looking to put their money in more tangible and historically sound investments instead of the volatile world of digital currencies. With Return on Investments of over 100% in under a year on some timepieces, watches have proven to be yet another way to make money. People who have come into wealth either through stocks or Crypto tend to buy luxury watches, hold them for a few months, and flip it for a profit as they are a high liquidity asset (meaning you can sell it almost on the day) due to the demand. People are always finding innovative ways to make money, and with today’s generation being more internet savvy, finding out about watch markets like Chrono24, Hodinkee marketplace and eBay makes it a lot easier to buy and sell for a living, increasing the demand for watches and also their prices as new market entrants rapidly rise.
So, when is the bubble going to burst?
Well, according to Mckinsey, as U.S based consulting firm, the pre-owned watch industry was around $18 billion US dollars in 2018 and is predicted to grow upwards of $30 Billion by 2025. Historically the watch market has had major and minor corrections just like any other market, although what seems to be different is that people are now pouring their capital into these high liquidity assets as they are fun to collect for enthusiasts and have proven to be wise investments especially regarding the top four brands.
Chinese Property investors for example, have moved away from buying houses because of speculations over Xi Jinping’s tightening with the housing market, and instead are pouring money into watches, with a 40% surge in imports occurring in the first ten months of 2021 alone for Swiss Watches to China. With other markets, there is more downside risk than with what watches have historically shown in the last few decades, hence the turning of heads in various parts of the world, as watches are seen as a an “hedge against inflation” (financial times 2021).
What can be said is that the watch market has corrected before, but as you can see from today’s prices this is no sure sign that the bubble bursts and stays that way. Much like Mckinsey, it is of our opinion that after a few market corrections along the way, prices of watches will continue to go up especially if production stays at the same rate it is today.
The Financial Times (2021) "Chinese investors pick luxury watches over houses"