The market for pre-owned luxury watches has fallen by more than 20 percent. The Chronext platform had to lay off a quarter of its staff. What investors should consider in the current environment.
Dealers and prospects examine watches at the London Watch Show in March 2022.
After a sprint to higher and higher spheres, the market for second-hand watches has collapsed in the past five months. While Patek Philippe’s Nautilus 5711-1A watch model was sold for up to 180,000 francs in the first quarter of this year, the average price for this luxury watch is now only around 140,000 to 150,000 francs.
Patrik Schwendimann, an analyst at the Zürcher Kantonalbank, explains that the prices of many luxury watches have fallen with the years of flooding of liquidity from the central banks: “speculative bubbles” have also arisen in some cases in the market for watches with the Certified Pre-Owned (CPO) label: “And now that central banks are raising interest rates, not only is liquidity being drained from the stock market, but also from the CPO market.”
Chronext had to lay off a quarter of the employees
The CEO and co-founder of the watch platform Chronext, Philipp Man, also blames the general economic situation for the price slumps of some luxury watches of more than 20 percent. The falling prices on the stock exchanges and in crypto currencies have also left their mark on the watch market.
Chronext had to lay off a quarter of its staff. “A hard step,” says the CEO. He regrets the measure, but it was necessary “in order to guide Chronext as best as possible through what is likely to be a longer volatile phase and to position the company stably for the future”.
Chronext, like its German competitor Chrono 24, relies on a hybrid business model: new and used luxury watches are offered on both platforms.
Even in the current environment, the Chronext CEO believes in the return potential of certified pre-owned watches as an investment. As the availability of new luxury watches is still significantly lower than demand and many customers are turned away from authorized dealers, the secondary market remains an attractive place to get hold of popular models, says Man.
A second-hand watch is therefore always a good alternative to buying a new one, because the respective market developments are already taken into account in the selling price. “We continue to see prices that are well above the list price for many models and remain at a high level.”
In fact it is Subdial 50 index, which shows the change in value of the 50 most traded luxury watches, is still a whopping 21 percent higher than in the previous year, despite a five-month decline. The official retail price of the aforementioned Nautilus 5711-1A from Patek Philippe was 28,500 francs (production was discontinued at the end of 2021). Currently, this watch is still trading at more than five times its list price, despite the fall in value since the spring.
The pandemic fueled the luxury watch boom
Before the recent crash, there was a veritable boom in many certified pre-owned luxury watches. The pandemic also played a role: During this time, many investors dared to invest in exotic real assets, including luxury watches. The prices of some Rolex, Patek Philippe and Audemars Piguet models rose sharply. According to Bloomberg, the value of individual used models even doubled in a short space of time.
2021 was also a very good watch year in general. According to the Association of the Swiss Watch Industry FH, exports from the Swiss watch industry reached an all-time high of over 22 billion francs last year, which corresponds to an increase of more than 30 percent compared to 2020.
But then, with the Russian war of aggression and the deteriorating economic environment, many began to shed their collector’s watches. The supply of limited watches, which had been very scarce for a long time, increased again, which ultimately led to lower prices.
At the beginning of the year, the German platform Chrono 24 only had around 300 Rolex Daytonas with the reference number 116500LN on offer, but today there are almost 1,000. “It is understandable that the prices could hardly remain at the level of the first quarter,” explains Chrono24 CEO Tim Stracke.
The managing director of WatchBox Europe, Patrik Hoffmann, also describes the current slump as “a normalization of the market”, as it also happens in the stock market after overheating. The watch expert assumes that certified pre-owned watches worth 16 billion francs are sold worldwide every year. Last year, WatchBox achieved online and offline sales of almost 310 million francs with second-hand watches.
Occasion watches should reach new target groups
The watch and jewelry group Bucherer has also been using certified second-hand luxury watches for a few years. After the takeover of the largest American luxury watch retailer Tourneau in 2018, the Lucerne-based company was able to benefit from the know-how and experience of the North Americans.
Odilo Lamprecht, Global Head of CPO at Bucherer, assumes that the global trade in used watches will exceed the sales volume of new watches in the next three to five years. Accordingly, Bucherer is setting the course for growth. Well-known watch brands see the second-hand market as an opportunity to reach new target groups. Rolex, for example, is working on a CPO program.
Millennials and Generation Z in particular are interested in watches. As the purchasing power of this group increases, more money is likely to flow into the CPO segment. According to auditing and consulting firm Deloitte, young people tend to prefer mechanical luxury watches when given the choice. Luxury watches have now become an investment, and almost one in five consumers buy watches for this purpose, according to Deloitte’s Swiss Watch Industry Study.
The oldest watch shop in Switzerland, Beyer Chronometrie on Zurich’s Bahnhofstrasse, has been selling pre-owned watches since 1965. According to owner René Beyer, selling CPO watches is an important part of the business. The turnover of used timepieces is in third or fourth place for the more than 260-year-old company. But only about three percent of the watch range is suitable as an investment, says Beyer. These included watch brands such as Patek Philippe, Rolex, Richard Mille and Audemars Piguet.
There are also risks for investors
As with all investment objects, there is also a risk of a loss in value with luxury watches. The liquidity of the market is less than that of the stock market: a watch cannot be sold immediately and at the current market price at any time like the stock of a blue-chip company.
In order to contain the risks, Patrik Hoffmann from WatchBox advises private investors to study the market and deal with the matter. He distinguishes two categories of buyers and explains this using the car market. “There are Ferrari and Porsche buyers who buy the car to drive and have fun. And there are buyers who focus on maintaining or increasing value.”
Hoffmann emphasizes that he would not buy a watch just because there is a hype at the moment. The analyst Schwendimann takes the same line: “I would be cautious in the short term about watches that have been particularly hyped in recent years. Further price setbacks must be expected here.”
Fake luxury watches are becoming more sophisticated
In contrast to the stock market, there is also the risk on the watch market that investors will be sold a counterfeit object. The counterfeiting industry in Asia has upgraded over the past decade, copying manufacture movements down to the very last technical detail. The counterfeit products are getting better and better, which sometimes makes it extremely difficult to identify them quickly.
Thomas Gronenthal is a lecturer at the Bavarian master school for watchmakers and one of the few German-speaking experts on counterfeit luxury watches. According to Gronenthal, the Rolex classics Daytona, Submariner or GMT-Master are often copied. Luxury models such as the Patek Philippe Nautilus, the Royal Oak from Audemars Piguet or Breitling watches are also often counterfeited. You should also be careful with cheap luxury watches from Hublot or Richard Mille.
Even extremely rare models from boutique brands such as MB&F or Konstantin Chaykin are now being counterfeited to varying degrees of quality. One always falls for counterfeits “where greed influences the brain,” says Gronenthal: on online auction platforms and classifieds portals, on marketplaces without regulation and within social networks. Secure marketplaces with a trustee payment system are always preferable, especially since you can get an impression of the sellers there.