The luxury watch market bubble has burst. What next for Rolex, Patek Philippe and Audemars?
After a post-pandemic downturn in the luxury watch market, manufacturers have limited supply to shops to avoid a glut of merchandise in the market.
The pandemic-era boom, which saw luxury watch prices rise by 20 per cent in just the fourth quarter of 2021, is now over.
“[The bubble wasn’t] something that we’ve seen before in the watch market,” a watch seller told City PM last month.
“I’m definitely seeing quite a lot of new models coming onto the market – as in freshly dated within this month and the last month,” Joel Faith, director of Atlas Watches, said.
“I think a big part of it is down to how the authorised dealer dynamic has changed. Previously they could call up a customer for any watch and have it sold.
“Whereas nowadays that’s not the case because a large volume of their stock trades below retail price – some of it quite considerably below retail price – and their customers aren’t really aren’t buying those watches,” Faith added.
Chief executive officers of watch manufacturers told participants of a trade show last week that they will limit shipments to prevent retailers from holding on to a glut of inventory, in an effort to protect themselves against further price drops and brand erosion, according to Bloomberg.
“The hype is over because there is too much merchandise,” Frank Müller, an industry consultant at Germany-based The Bridge to Luxury who previously ran the Swatch Group brand Glashütte Original, told Bloomberg.
A high supply of watches may lead to discounting at stores at they tried offload stock.
A popular way to do this is for retailers to sell “bundles” of watches to buyers containing a hard-to-obtain timepiece from brands like Rolex and Patek Philippe. This could lead to the lower-priced watches being “dumped” on the second-hand market, hurting brand value.
Faith, however, doesn’t see shops selling bundles – or indeed manufacturers limiting supply – quite yet.
“It’s not as if suddenly somebody’s turned on the tap and there are all these watches available. It’s still really scarce,” he said.
Patek Phillipe, too, told City PM they had not reduced supply of watches to shops, and said that “demand remains higher than supply”.
A squeezed middle
There is trouble for middle-priced pieces, rather than your average retail watch or rare Rolex, though.
Export data from the Fédération de l’industrie Horlogère Suisse showed that Swiss watch exports were down by 16.1 per cent year on year, with a 42 per cent drop for middle-priced watches (those priced at around £500-£2,500).
It seems the safe middle-class of watches is suffering the most from the post-pandemic downturn, as people look to other high-end purchases.
Throughout the last year’s price correction, Faith said, the “biggest impact” has been on the suffering middle market. This is likely to continue in the near future, he added.
Watches of Switzerland said in January it expected revenue for the full year to be in the range of £1.53bn-£1.55bn, down from a guidance of £1.65-£1.70bn.