You might think luxury watch prices would be immune to annoyances like viral outbreaks and economic downturns. Nope. According to voguebusiness.com, “the last global recession lopped nine per cent off the size of the personal luxury goods market,” lowering luxury watch sales and prices. It would have been worse if not for China. Yes, well, the coronavirus outbreak . . .
has taken the Chinese luxury watch market off-line for the foreseeable future. The rest of the key Asian watch market is perched on a knife’s edge.
As Asia accounted for roughly half of all Swiss watch exports, if the supply of luxury Swiss watches doesn’t already exceed demand on a worldwide basis, it will soon. This glut will impact prices here, eventually, in different ways. Here’s my best guess as to how it might play out.
[NOTE: this analysis doesn’t reflect the worst case scenario: a major coronavirus outbreak in the U.S. In that case, luxury watch prices will crash across the board, as sales dry up and scared consumers look to raise cash.]
Rolex – prices hold
The Chinese coronavirus outbreak does not mean Rolex will roll back its recent price hikes. The Swiss watchmaker got where it is today by building superb timepieces and carefully controlling the supply – demand equation.
Falling demand in Asia will allow Rolex to restock Rolex-deficient dealers elsewhere in the world. But the brand will never flood the supply chain – even if it means warehousing tens of thousands of watches – which they’ll release strategically as they cut back on production.
Remember: Rolex is an old company made of money that plays the long game, and plays it well.
OMEGA, TAG Heuer, Bell & Ross, Bulgari, etc. – official prices hold, dealer and gray market prices soften
Just like Rolex, the rest of the Swiss luxury watch crew can’t be seen to cut their retail prices to move the metal. I repeat: they can’t be seen doing it. They can quietly offer “sales incentives” to their authorized dealers to shed inventory, who can then offer discounts to their customers on the DL ,without besmirching the manufacturer’s luxury rep.
At the same time, an authorized dealer trying to push product through the pipeline can [continue] to sell unsold inventory to gray market dealers like Authentic Watches, Jomashop and Prestige Time – as manufacturers [continue to] turn a blind eye. If an authorized dealer pays less for a watch (or is willing to cut their margin), the gray market dealer pays less and the consumer pays less.
Keep in mind that there’s a lot of profit baked into the luxury watch business. Authorized dealers enjoy an average 40 percent margin. Manufacturers, too.
Would luxury watch manufacturers with bloated inventories offer price deals online? They’ve held off on direct-to-consumer discounted sales for fear of alienating/pulling the rug out from under bricks and mortar dealers, but desperate times may call for desperate measures.
Pre-owned Luxury Watches – price crash
If a surfeit of new-in-box luxury watch inventory deflates new watch prices, pre-owned pieces will get hit with a triple-whammy: stronger competition from dealers, stronger competition from gray market sellers and the smell of a downturned market. What savvy buyer buys pre-owned when they can buy new-in-box for slightly more or the same money? Unless they want to pay a lot less.
Again, if the coronavirus takes hold here, demand for luxury watches will die. Prices will be softer than a cashmere scarf. Free from manufacturers’ pricing constraints, the price of pre-owned luxury watches will crash, how do I put this? Bigly. Yes, even pre-owned Royal Oaks and Nautili.
I’ll say it again: it’s a good time to sell a luxury watch, a good time to wait to buy. That’ll be doubly true if the coronavirus outbreak breaks out in The Land of the Free. I pray to God it doesn’t.
UPDATE: Well it sure did! Click here to read our March 27, 2020 update on the market for grail watches.