Eldens

By any measure, 2022 has been a gloomy year: from the war in Ukraine, to soaring inflation and a UK Prime Minister being outlasted by a lettuce. For watch enthusiasts, there’s been another cause for concern: is the luxury watch market declining? Since the summer, there’s been a flurry of stories about dramatic price drops and an overall market slump. In this article, we’ll go behind the headlines to uncover what’s really been happening in the watch market, and consider the long-term outlook.

What happened in the watch market?

As the world emerged from the pandemic, the luxury watch market made an impressively rapid recovery. By the end of 2021, the Federation of the Swiss Watch Industry were reporting its best-ever annual results, amounting to $22.5bn. At the same time, the pre-owned watch market had come of age, with digital platforms such as Watchfinder and Chrono24 reporting double-digit growth.

Rolex, Audemars Piguet and Patek Philippe (the big three) continued to dominate and each had its “hype watch”, which reliably fetched extraordinary sums on the secondary market, compared to retail. For Rolex it was the Daytona, Audemars Piguet had the Royal Oak and Patek Philippe’s Nautilus reigned supreme. In December 2021, Phillips sold the first of a new limited edition Tiffany Blue Nautilus for $6.5million. That’s more than 120 times its retail price.

Then came the cryptocrash. From May to June 2022, the cryptocurrency market had lost approximately two thirds of its value, and panic set in. A segment of collectors found themselves in sudden difficulty and triggered a sell-off of popular watch models. The market was suddenly flooded, and sought-after watches that had been so scarce were now in ready supply. Prices dropped accordingly, and, for those hype watches, the drop was dramatic. There were reports of Daytonas, Royal Oaks and Nautilus models halving in value since their peak in 2021.

Is it all bad?

If you focus on those ultra-luxury hype watches, the picture looks bleak. But pan out to look at the broader pre-owned market, and it’s clear that it remains strong. While trading prices have dipped in the second half of this year, they are still far above pre-pandemic levels. A recently released Morgan Stanley report confirms that secondary market watch prices fared better than many other asset classes during the past 18 months.

In fact, commentators are seeing the dip as a positive. According to Robin Swithinbank, it’s “a long-overdue healthy correction”. This necessary adjustment in pricing proves that the astronomical figures that the most popular models (briefly) achieved was due to speculation rather than genuine, sustainable demand.

It also hasn’t come as a surprise. Flicking back through the McKinsey State of Fashion Watches and Jewellery Report, published in June 2021, it seems the writing was on the wall. One comment, made by François-Henry Bennahmias, Chief Executive of Audemars Piguet, now reads as particularly prescient. “What the industry needs more than anything, more than innovation or creativity, is control over volumes,” said Bennahmias. One year later, we witnessed the effects of excess volumes in the market. In the same report, Zahra Kassim-Lakha from Watchfinder warned that the soaring pre-owned prices could not be sustained. “Some of this is a bubble created by an international but small group of collectors and press,” she said, “and there are cycles, just like in art collecting.”

The outlook

The McKinsey report predicted that pre-owned watch sales would grow 8-10% annually from 2019-2025. As the industry’s fastest-growing segment, it’s expected to outperform new watches, which is likely to see more modest growth of 1-3% per year. Even after the tumult of the last 6 months, commentators are confident that the market is on track to meet those projections.

The resilience of the market is thanks to the inherent value of the asset itself. A watch carries symbolic power, as well as aesthetic appeal and practicality. When it comes to the pre-owned segment of the market, the rising demand is driven by a new generation of collectors. Whereas “pre-owned” used to have a certain stigma amongst consumers, it’s now being actively sought out. Gen Y and Z consumers perceive second-hand goods as “pre-loved” and preferrable to new, as they offer a more sustainable route to luxury status symbols.

Bennahmias has confidence in the future of the market. “Watches aren’t going anywhere,” he said. “Even the younger generation love watches. They love the tradition, the craftsmanship, the sustainability.”