The market for high-end luxury timepieces has cooled off significantly in recent years, causing a rethink of how Rolexes, Piagets, Patek Philippes and their ilk work as investable assets.
None other than Rolex’s usually secretive chief executive Jean-Frédéric Dufour touched on the matter this week, telling Swiss publication NZZ: “I don't like it when people compare watches with stocks. This sends the wrong message and is dangerous. We manufacture products, not investments.”
His comments come as the world’s pre-eminent luxury watchmakers, including Rolex, Patek Philippe, Cartier and TAG Heuer, descend on Geneva for the annual Watches and Wonders event.
Dufour was referring to the 2021 bull run on luxury watches. It was a unique period for the items, with high-end pieces generating all-time high prices on the secondary market, thanks to pandemic-era stimulus spending and crypto bros turning their millions into tangible signifiers of wealth.
Bloomberg’s Subdial Watch Index shows that the speculative frenzy has since died down and prices have tailed off substantially. As of today, high-end watches fetch around 40% less on the secondary market than two years ago.
It suggests a vindication of Dufour’s warning on looking at watches as investments; he also sees more challenges to come.
“A phase in which all manufacturers were doing well is coming to an end,” he told NZZ.
“In good times, too much is often produced. When the markets weaken, as is the case now, watch dealers come under pressure and respond with discounts. This is extremely problematic because discounts damage emotional products like ours.”
Opposing market drivers
Barry James Johnston, chief marketing officer at Fah Mai Holdings Group Inc (OTC:FMHG), whose expertise spans alternative investment including high-end whisky, categorically opposes drawing parallels between luxury watches and the financial markets.
This is because the main market drivers are fundamentally different.
“I don’t believe that people view the luxury watch market as they do the stock market, but rather see collectable and rare watches and other goods as desirable, tangible assets that they are in possession of, satisfying both the ego and the chance to hold tangible value in their personal possession.”
In Johnston’s view, “luxury goods are valued entirely by the consumer appetite, and driven by clever marketing” as opposed to the “speculation on future productivity” that drives the financial markets.
Like any other luxury-related market, watch prices “will continue to be driven by those with vast means to acquire desirable objects, and to live unaffected by the realities of the daily fluctuations of the financial markets”.
Johnston said that primary luxury watch market players generally have “such enormous amounts of disposable income, that they create their own markets to trade things between them that they feel satisfies their ability to flex”.
Nonetheless, they may also see exclusive items as a store of value “when the increasingly large sums of cash (high-net-worth individuals) generate can be eroded by real-world factors such as inflation, market volatility caused by political unrest, and the fact that in the real world, these items, at more accessible levels, depreciate rather quickly”.
But if Rolexes, Patek Philippes and the like were seen as stores of value in the past, near-term trends are certainly shifting elsewhere.
Gold’s recent all-time high suggests the precious metal has returned as the safe-haven asset du jour, while luxury watch prices continue to fall.