A Prediction for the Future of the Luxury Watch Industry

[freddy333]

I sense a perfect storm gathering that may quash or at least severely cripple the luxury watch industry as we know it today.

The 1st squall formed when the Democrats took over the White House, with their cheap, populist watches (at least, in public - todays Dems always save their resplendent high end collections for private gatherings among their wealthy comrades) & neo-socialist values (& I say this as a registered (& embarrassed) Democrat myself).

The 2nd squall is the ubiquitousness of cell phones, which do a better job of telling time than even the most advanced mechanical watch can ever hope to match. In tandem with the growing number of cell phones comes a decreasing number of (mainly older) people who own or wear a watch.

The 3rd squall directly relates to the 1st, which has effectively hammered the final needed nail into the big watch fad coffin. This leaves most of the luxury watch brands in a serious pickle since nearly all have bet the farm on the continued popularity & rising sales of ever-larger & more technically spectacular watches.

The 4th & final squall is the collapse of the global economy & the toll it has taken (& continues to take) upon the mid-level luxury watch makers, most especially Rolex.

Altogether, I think this perfect storm may just reach the velocity to overcome & broach the financially weakened facades of the luxury watch industry. And as anyone who has ever riled a bees' nest knows, the reaction is an often maniacal release of drones (lawyers, in the case of watch companies) sent out to attack whatever & whoever they can sink their stingers into. Even if that sting results in their own demise.

Whatever happens, I doubt it will be pretty.

[AllergyDoc]

There will always be the rich but the upper middle class will be buying fewer luxuries.

[dluddy]

Well if the housewife from Orange County is any indication

A couple of thoughts pop into my head about this:

One, why is Rolex coming out with so many iced out models if the trend is heading in a more economical fashion - they smoking dope?

Second thought is that, like Doc said, there will always be an upper class to buy, but I also think that "boys like their toys" and I think the market will still be there amongst the middle class...perhaps with more pressure on the brands to hit the right value points (listening Rolex )

[RedSoxMan]

Interesting theory. I guess I'd add to it the fact that Reps have gotten so good... (Wall Street Journal recently reported that 9 out of 10 Rolex's you see are replicas...)

On the other hand, luxury watches were never about accurately telling time... maybe they were at first, but not for a long time. And there will always be a class of people who seek status through material signifiers: such as watches, cars and clothes...

The economy will take it's toll--and we've seen that with a depreciation of prices in the Gen market; but, long-term, I think luxury watches will remain strong, for better or worse.

RSM

[freddy333]

One, why is Rolex coming out with so many iced out models if the trend is heading in a more economical fashion - they smoking dope?

Yeah, I was wondering the same thing, too. But then I remembered that it usually takes 2-3 years for a new watch design to go from drawing board to showroom. So the 'iced-out' watches we see today actually began as marketing ideas a few years ago when the economy was bubbling, flaunting wealth was accepted & money was loose. Also, Rolex has been making jeweled watches either to order or for limited market segments for decades. It is only in the past decade that they have been openly marketing these things to the general public. The change has been that, in recent years, more of the public have come to accept (& demand) such excess displays. However, as with all recent Democratic administrations - Henry Ford=bad, Robin Hood=good.

Second thought is that, like Doc said, there will always be an upper class to buy, but I also think that "boys like their toys" and I think the market will still be there amongst the middle class...perhaps with more pressure on the brands to hit the right value points (listening Rolex )

The problem is that the hardest hit segment of the luxury watch industry has been the middle level, those watches in the $5,000-$20,000 market segment, which is Rolex's bread-&-butter. During the bubble years, that segment ballooned more than any other. But, come the crash, it is the segment that gets hit the hardest.

[Ronin]

Interesting thoughts.

I think we are quickly eroding into a 2 class society as the middle class slips to the bottom. That being said, human nature likes to differentiate itself. Like the feathers of a peacock, people will still want to show their status (legit or false representation).

The cell phone is a good example. When the iPhone came out, it was a fashion and status symbol. Now, high school kids are running around with them. So how does a fashion conscience, status seeker, differentiate. Perhaps the car they drive. But wait! BMW now has approachable 1 series and lease deals. Hmmm, maybe a luxury watch. So, if you are into that world of human peacockery -- You flash your trendy cell phone wearing your PAM/Rolex/etc. after you have rolled up in your BMW wearing your Burberry scarf.

I realize this is a generalization, and I live in a "metro"polotin city full of FADs (Fashion Addicted Dolts) my experience may be skewed. Some of us, myself included, are in it simply for our love of watches.

As for Rolex, I agree some of the bling surprises me. However, maybe they need to adapt as well. Maybe Rolex needs a "1 Series, C Series" like BMW / Mercedes. Example: EXP I, no-date Sub, that is non-COSC and comes it a lower price point that they can make up in volume. Or on the flip side they can stick to their guns like Apple and keep prices up there since they think they know their customer base. Either that or I would love to see an explosion of Tudor's. Most people never heard of Tudor in the US, let alone the Rolex connection. (The VW to Audi if you will). Perhaps they can use that line to hook new customers.

Good discussion.

-Ronin

[freddy333]

I would love to see an explosion of Tudor's. Most people never heard of Tudor in the US, let alone the Rolex connection.

You will soon get your wish.

1 of the news tidbits to come out of Basel is that, over the next few years, Rolex intends to return to marketing the entire Tudor line internationally, instead of limiting distribution to certain markets. No word yet on specific dates or timelines, they just said 'over the next few years' (I think they are just hedging their bets against a longer-than-expected global recession).

[ThinkBachs]

Although the industry may be hit hard by recent world wide economic events, some things will never change. People will still want status symbols, which means that new watch sales will most likely decline, the market for used will improve. Also, there will always be those that don't care about having atomic time available to them, but appreciate the workmanship of a mechanical watch. There's some comfort that goes with wearing one that should the world fall into chaos, they'll never have to worry about not being able to find a watch battery, which gives a sense of self reliability to the owner. Part of me thinks also that when things become difficult, people start to appreciate things that last. My take on it is to do some research, find the most common parts that need replacing, purchase those parts and put them in a drawer for that rainy day. Watchmakers looking for work will be much easier to find that the parts they need should things get really bad.

[jkerouac]

High-end watches haven't been strictly about time keeping since the advent of quartz and subsequently digitial watches. The ubiquity of cell phones makes it even more superfluous to wear a time-keeping device on one's wrist.

Having said that, I don't think the takeover of the liberal Democrats will have one jot of difference in the market for luxury goods. Yes, the state of the economy will impact luxury good purchases, particularly by the middle and upper middle classes, but as long as society's value systems remain as they are today, then luxury goods manufacturers are safe, at least for the long term.

If perchance society's value system turned away from materialism and displays of affluence as expressions of identity, which has been talked about, then you would see a shift in the fortunes of the luxury brands. But I don't see that happening, unless there were a much more cataclysmic event than the current recession, as bad as it is. Sure, people talk about the venality and excessive pay of executives, entertainers, and athletes. But I don't believe that these expressions represent any change whatsoever in peoples' values regarding the possessions that they desire and rightfully deserve.

[bwhitesox]

Actually there was a recent article which I am trying to find from IWC stating that they are selling more watches than normal and that they are in fantastic shape. Not sure if that goes for all luxury watch makers but at least one is still doing well or better than expected.

[monkeypie]

Interestingly enough, there is an AD right next to my office building that sells various brands, including JL, IWC, Cartier, and so forth. I've always wanted to go in, but it is always empty. The nearby watch stores seem to be empty too. Still plenty of window-gazers from Mainland China though.

Quite a shame. There is an Audemars Piguet and Hublot AD nearby as well that recently opened as well, but they are always empty whenever I go past as well.

[_brian_]

There was an interesting article in FT about Rolex and it

[Watchmeister]

As most folks know the vast majority of better brands other than Rolex, Audemars Piguet and Patek are owned by larger luxury good conglomerates. Some were sold so that families could cash out but more were sold in times of distress. A name like Rolex does not disappear. But they are obviously taking it in the chin with sales down 30-40%. In theory as long as they didn't use too much debt to fund their expansion they likely survive. And if they do get into financial distress one of the luxury product conglomerates will add it to their stable. I also think in my hear of hearts that Rolex is a Swiss institution on par with the major Swiss banks so either the banks or the gov't itself will find a way to keep it afloat if it does get into trouble.

[coolfire]

As most folks know the vast majority of better brands other than Rolex, Audemars Piguet and Patek are owned by larger luxury good conglomerates. Some were sold so that families could cash out but more were sold in times of distress. A name like Rolex does not disappear. But they are obviously taking it in the chin with sales down 30-40%. In theory as long as they didn't use too much debt to fund their expansion they likely survive. And if they do get into financial distress one of the luxury product conglomerates will add it to their stable. I also think in my hear of hearts that Rolex is a Swiss institution on par with the major Swiss banks so either the banks or the gov't itself will find a way to keep it afloat if it does get into trouble.

WOW. Couldn't have put it any better...

[caracarnj]

In my opinion, the rep industry would continue to prosper even when the last one of us here (RWG) bite the dust.