It’s no surprise that the retail prices of Swiss watches, like the costs of most goods and services, are rising. Even before the war in Ukraine clouded the global economic picture, the lingering effects of the pandemic were still rippling through the watch industry’s supply chain. And soaring fuel prices now threaten to keep those price increases coming.
“Every day we talk about inflation in labor prices, energy costs, logistics, etc.,” said Jean-Philippe Bertschy, luxury analyst at Vontobel, a private banking and investment management group. based in Zurich, in a recent call. “And brands will take advantage of this to raise prices.”
Mr Bertschy then ticked off a list of those who had already done so this year, including Hublot, Rolex and Audemars Piguet.
They were far from the only ones. Julien Tornare, chief executive of Zenith, said his company had raised prices for some models and Jean-Marc Pontroué, chief executive of Panerai, said he expected to do the same.
“We have to make some corrections, between 3% and 4%, maximum,” Tornare said in a recent call. “Global inflation has driven up our costs, so at some point we have to adjust. But it’s also currency-related.
Escalating manufacturing costs and fluctuating exchange rates are two big factors in the price spike for luxury watches, but they only tell part of the story.
In a much broader sense, the entire category is constantly moving upmarket. Take Oris, for example. Known for its affordable mechanical watches, the Swiss brand saw its average price increase by 10% last year, said Rolf Studer, co-chief executive of the brand.
He singled out the October 2020 introduction of Oris’ in-house Caliber 400 to the Aquis Date collection – $3,300 for a model on a rubber strap and $3,500 on a stainless steel bracelet – and noted that prices were about 50% more expensive than the Aquis models. without internal movements.
“We just couldn’t do enough,” Studer said, though he wouldn’t disclose actual numbers. “It shows how willing people are to spend money.”
Whether consumers are turning to more expensive products or are simply willing to ignore their ever-increasing prices, Ruediger Albers, president of Wempe Jewelers in New York, interpreted the phenomenon as a sign of the health of the watch market.
“Most companies have raised prices since the start of the year and our business has been extremely resilient,” Albers said on a recent call. “I have never had the month of January that I have had this year. The demand is not diminished.
And yet, that doesn’t seem to be true for everyone. Guido Terreni, managing director of boutique brand Parmigiani Fleurier, pointed out that price increases only make sense for brands that are desirable. “You can increase if you’re confident,” he said on a recent call. “But I wouldn’t say everyone is in the same shape. And this can be seen very well in Swiss exports.”
Last year was a record year for the Swiss watch industry: exports peaked at 22.3 billion Swiss francs, or about $24.1 billion, or 2.7% more than in 2019 and an improvement of 0.2% compared to the record export level of 2014, according to the Federation of the Swiss Watch Industry 2021 Year-End Report. But while exports rose in value, the number of items exported continued to fall, to 15.7 million, a 23.8% drop from the 2019 total.
Watches with a wholesale price of less than 500 francs fell sharply, accounting for more than 95% of the drop in volumes, while watches with a wholesale price of more than 3,000 francs increased by 9.7% .
The dramatic polarization between high-priced and low-priced watch exports began in 2017, Jean-Daniel Pasche, president of the federation, wrote in an email. He blamed a host of factors, including competition from cheaper smartwatches and fashion watch brands made in Asia, as well as the strength of the Swiss franc. And he suggested that the phenomenon could harm the Swiss watch industry.
“Volumes are important because they create activities and jobs,” Mr. Pasche wrote. “This is a matter of concern because the Swiss watch industry has to offer consumers products in all price categories. On the other hand, the middle and high-end price segments generate more than 94% of exports by value for our industry.
On the secondary market, the spike in prices over the past two years for certain pre-owned and vintage models – particularly those of the “Big Four” brands: Rolex, Patek Philippe, Audemars Piguet and Richard Mille – has been even more striking. . .
“With the shortage of Rolex watches (not just sporty models in steel, but just about anything in any type of material), prices for a steel Rolex GMT-Master II ‘Pepsi’, for example, are skyrocketing,” Robert-Jan Broer, editor of online watch publication Fratello Watches, wrote in an email.
The model sells for $10,750, but sells for more than $33,000 on secondary chains, Broer wrote.
“It shows that the demand for those unobtainable Rolex watches (or the Audemars Piguet Royal Oak or the Patek Philippe Nautilus) comes from speculators and has nothing to do with the love of watches anymore,” he added. . “The watch has become a status symbol again (again), more than ever.”
But is it a bubble? Not exactly, some would say.
“I don’t see the prices going down,” Broer said. “When the Royal Oak was worth around 30,000 to 40,000 euros on the second-hand market in 2019, I thought it couldn’t go any higher. Now it’s almost 100,000. There’s no the end.
Mr. Bertschy agreed that there appeared to be a disconnect between price and value in the secondary market, but consumers have yet to show resistance to the increases.
“I think it’s a virtuous circle for brands, but also a vicious circle because the more prices go up, the more consumers want to invest in those brands,” he said. “A friend told me he wanted to invest and I told him to invest in a watch, and he bought two Rolexes. So it’s happening.
Indeed, Bob’s Watches, an online retailer specializing in pre-owned Rolex watches, released a report in early February based on 10 years of sales data that tracked the appreciation of Rolex watches (by model) against major classes. assets, including stocks, bonds, real estate and gold.
“We were hoping Rolex would be in both major asset classes, but it ended up being No. 1,” Paul Altieri, founder and CEO of Bob’s Watches, said on a recent call. “How many things can you appreciate that have doubled in value in five years?”
According to many sources, 2017 proved to be just as pivotal for the resale market as it was for new watches. Artemy Lechbinskiy, managing director of Ineichen Auctioneers in Zurich, said that was when the new watches started selling on the secondary market for more than their original retail price – a a change he attributed to some producers who cut production in an effort to control the gray market. , a term for watches sold outside authorized retail channels.
“Producers had to protect their pricing policy,” Lechbinskiy said. “It does not influence the industry if the retail price increases by 5 or 10%. But it’s not so easy to do when the gray market price is lower than your retail price. They played this game and it worked. And now, for popular models, you have to pay double or triple” on the resale market.
Asher Rapkin, co-founder of Collective Horology, a California-based collecting group, expressed a more circumspect view. “It’s easy to sit the quarterback and decide who gets to make the money,” he said in a recent video call. “Rolex has increased its prices almost every year, usually on a 2-3% basis. And because of Rolex’s business performance, people generally agree with her.
“The challenges are when watches that were disproportionately priced to begin with increase their prices and people are left out,” he added. “Prices go up but that doesn’t necessarily change the trade-in value of the watch itself. We all know what we can get for the same amount of money.