Crypto bros aren’t flipping watches. That is an issue for luxury brands.
Summary
It is becoming less lucrative to speculate on luxury watches, which has a knock-on effect in brands’ stores.
To read the luxury watch business, it can help to look at what is going on in the secondhand market. Falling prices for used watches suggest that a recovery in firsthand sales will take a long time.
Watches were one of the worst categories for Europe’s top luxury companies in the latest quarter. Richemont, which owns Cartier as well as Vacheron Constantin, said sales of its specialist watches dropped 13% year over year in the three months through June. LVMH said sales in its watches and jewelry division fell 4% over the period, while Hermès watch sales dropped 4.9%.
The watch business has an unusually vibrant secondhand market. Around $50 billion of brand-new luxury watches are sold each year. A further $25 billion trade hands used, according to estimates from industry data provider WatchCharts.com.
For the luxury goods industry as a whole, secondhand sales were worth just 12% of primary market sales in 2023, according to consulting firm Bain & Co. Watches tend to hold their value better than other types of luxury products, and resale websites such as Watchfinder.com have made secondhand trading easier and more transparent.
But luxury brands have lost two sources of demand lately. Consumers who spent their excess savings on expensive watches during the pandemic pulled back once they were able to splurge on other things such as travel.
Speculators are also slipping away. For a while, luxury watches were billed as a hot new alternative investment. According to Charles Tian, founder of WatchCharts.com, many “crypto bros" diversified their portfolios by buying and flipping posh watches.
The trade was lucrative for hard-to-find models because collectors were willing to pay up to skip waiting lists in brands’ stores. At the peak of the luxury watch frenzy in March 2022, a Rolex Daytona could be bought new for $14,550 and immediately resold for $47,000 in the secondary market, data from WatchCharts.com shows. The Rolex Daytona still costs more to buy secondhand than new, as the brand keeps supply artificially low, but the arbitrage is less appealing now that the resale premium has shrunk to 43%.
Speculators also have backed away because they don’t want to be left with unsold stock. Available inventory on watch resale websites has soared. Because of a glut, a Rolex that took less three weeks to sell in 2021 now sits on the market for more than three months. The wait time is even longer for Patek Philippe watches, which currently take around half a year to shift.
The good news for watch connoisseurs is that they no longer have to compete with speculators to get their hands on rare watches in brands’ stores. Shoppers still can’t buy certain models immediately, but waiting lists are getting shorter.
Brands such as Patek Philippe that have an order backlog can rely on pent-up demand to keep sales steady during this slump. The outlook for less-coveted watchmakers such as LVMH-owned TAG Heuer and Hublot is more mixed.
Serious watch collectors keep a close eye on which models retain their value and are reluctant to splash out on a watch that is dropping in price secondhand. Nine consecutive quarters of falling watch values on resale platforms will depress demand and make it harder for the highest-end brands to raise prices in the primary market. Until the resale market stabilizes, luxury watch brands will have a difficult time.
Write to Carol Ryan at carol.ryan@wsj.com
