If you scan the recently published barons.com article Watch Retailers Hunker Down During Covid-19 Crisis and Plan for Recovery, you’d be forgiven for thinking watch dealers are on coronavirus alert, but not panicking. They reckon they’ll “come through the Covid-19 crisis healthy and primed for recovery.” Reading between the lines, it’s a horological horse of a different color . . .
Our prediction – that Coronageddon would force shuttered dealers to reach out to customers to move the metal at a discount – has come to pass.
“We are managing to maintain some revenues through online in the U.K. where we are the clear market leader online,” Watches of Switzerland CEO Brian Duffy reveals. “In the U.S., we are taking a very personalized approach, contacting clients individually and managing to do some transactions.”
“We are staying in touch with our clients remotely via email and phone, not pushing a hard sell by any means, but just checking in to say hello,” asserts Brian Walker, VP of Shreve, Crump & Low. “A happy reminder that with ‘Hey, how are you? We are thinking about you and your loved ones during this time.’.”
If you think these calls are strictly casual, I’ve got a Rolex OP 39 I’d like to sell you for ten grand.
The situation is the same further down the retail food chain. As time marches on – and on and on and on – dealers will step-up this consumer outreach, looking to turn discounted timepieces – and how could they not be? – into rent, salary and utilities.
It’s worth noting that buying a watch doesn’t necessarily mean getting a watch. At least not quickly. Some watch dealers are telling us they can’t ship orders. Their corporate overlords don’t want to expose their employees to coronavirus during the stock retrieval and mailing process. Not to mention commuting issues (mailing watches is not considered an essential service).
Timepieces you’d see on the pre-owned market once in a blue moon are appearing on a daily basis. Especially Rolex, the watch a lot of people bought as a wearable savings/investment account. As you can see, prices are dropping. @watchtradingco posted the above graphic last week. You can bet pre-owned prices aren’t going up from there.
@watchbox has posted a “market wrap” gently trotting out the word “softening” and serving-up self-serving reassurances: we love F.P Journe and they’re holding steady! Somewhere in the middle of all that, Mike Manjos predicts that Richard Mille watches are set to crater (paraphrasing). Nothing we haven’t said before, but, well, here it comes.
chrono24.com has released a fascinating study of their global traffic (click here to view). The online marketplace reports weekly sales are still down 15-20 percent compared to before Coronageddon. Checkouts are way down in Japan and the UK, but stable elsewhere.
Dealers have been changing their prices in both directions. We’re seeing more price increases (blue) and decreases (red) than before coronavirus.
The speculation here: dealers worldwide are raising their prices – slightly – on grail watches that have finally come to market, and lowering their prices on everything else.
I think that’s right. Short term, we’re looking at increased availability of grail watches, rather than price drops. That will come after the new supply satisfies latent demand from collectors thinking “wow! there it is!” rather than “wow! what a bargain!”
Big discounts will arrive as demand diminishes and owners and dealers become increasingly cash stressed. Once they pass through denial and anger into bargaining. If they act too late, watch sellers will see even lower prices and feel even more depressed. After that, acceptance. And lower prices still.
Of course, there is a price below which a grail watch will never go. I suspect we’re going to find out what it is.
Click here to read our Coronavirus Watch coverage
Articles like this (the Barrons piece, not the one Robert wrote) are as predictable in a downturn as quotes of the form “People aren’t spending less, just moving away from disposable luxury into a few timeless pieces”, both of which are, to put it politely, complete bullshit.
I could probably write a thesis on all the chart abuse going on in the linked pieces (WHERE ARE THE AXES?!?!?!), but I will just pick a few fish to shoot in this barrel:
1. You would expect to see a large INCREASE in sessions on sites like Chrono24 given most physical retail is shut down right now. I run a fairly large ecommerce site that competes with brick and mortar for a non-luxury good and every metric we have has gone through the roof because we are one of the few games in town right now. Instead, their sessions are down.
2. Checkouts are a weak metric to use on a site like this because the variance in cart value is huge. If the expensive stuff isn’t selling but the cheap stuff is, it’s bad bad news.
3. The estimated worth #s are way off. The picture of the panda Daytona shows a band of $24.5 to 26, but if you go to Chrono24’s site, you can buy new in-box Daytonas all day for less that $23 grand. Same with the BLRO; the financial performance pic shows a low of $17.4 but there are a couple (brand new) at mid-15s and a ton at $16 – all from US dealers. Remember, it’s the *bottom* of the price range that matters here, not the top or the mean, since that’s where the transactions will be consummated.
As for the fervent hope by some in the industry that prices will snap back because there will be pent up demand and production will have been shut down (supply shock?). Keep dreaming. Fixed costs are a b**** and any manufacturing company is mostly fixed costs (unless you believe these guys are going to fire all their skilled watchmakers). Maybe they can cut down marketing, but that’s not a huge expense – even in the Swatch Group, marketing, general and administrative was only 1/7th sales – how much can you cut it? Half? Maybe? These guys are going to be pushing product the second they can open their production facilities – they just don’t have that much cusion (again, Swatch Group pushes net income margin of about 10% of sales). And you better believe, if they can move grail watches, they’re going to produce them. There’s nothing about a Daytona that is hard to produce and if you need the cash…
Thanks for cutting through the BS. There’s no getting around it: supply is outstripping demand. There’s only one way that can go…
Yet the prices aren’t showing it yet….I’m waiting for some rad ass deals, but everything is holding firm for some weird reason. Ridiculous!
PS This is my 3rd Farago site I have been a poster. I think you need to start at the beginning for your next one TTAA to Z!
Welcome back my friend to the show that never ends. We’re so glad you could attend. Come inside, come inside! Meanwhile, patience! And thanks for the follow.
True. Robert mentioned this somewhere else, but people are going to hold out as long as possible until they need the cash, at least for the grail watches. If a dealer can get an extra 20% for that Daytona by waiting a few months, or thinks he can, he will. Right now, everyone is waiting and watching but this is classic game theory, the second someone (with enough inventory) starts bringing prices down, everyone has to follow and the the trickle becomes a deluge.
Also, the quantity of data available to the public is *really bad*, so it’s hard to tell what the market is actually doing, The Chrono24 prices are asking prices, not actual transaction prices, since the mechanism exists to make an offer. Looking at ebay, there is only one recently ended auction for a new steel Rolex BLRO and it failed to hammer at a $16.9 opening bid. So that means all the people asking more than $17 are dreaming, even though Chrono24 SAYS the low is $17.4 (And Bob has it for $16.6 right now). Advertised prices are are definitely a lagging indicator. The advice given a few weeks ago on this site was right – call a dealer and start negotiating. There’s not a lot of transaction volume right now.
Seems like some of the smaller manufacturers are already starting to soften too. If you visit http://www.fortis-swiss.com you’re greeted by “LIMITED TIME OFFER: Enter the coupon code STAYSAFE during your checkout and save 20% on all our watches”.
But perhaps discounts are the standard MO there.
[…] was driven home when TTAW posted its ninth COVID update. The prices from Chrono24’s estimated worth looked a little off to me, as I have been following […]
Can someone reply to this thought that I am having and tell me why its wrong or right? Rolex is still shut down, and no telling how long it will stay shut down and when it will be fully operational again and at what level they will be able to produce once they re open. Asain markets Singapore, hong kong china are starting business again and what new inventory that is sitting around will probably be sent there asap right? Given that the supply of rolex sport steel watches was not meeting demand before corona virus, in theory there will not be a flooded market now with now even though “current demand” is down. All the watches that are moving currently are more or less just exchanging hands, but its not truly a flood to a market. Its just people who need cash, selling pre owned watches to those with cash. No new inventory is getting out there and new watch production will be slashed this year. When countries open back up, and people who were affluent before this and in the market for luxury watches will still be in the market, shouldn’t we see pre owned prices go back to where they were and possibly even increase, since there will be fewer new watches going to ADs this year? I would like to hear peoples thoughts on this theory. Thanks
W.S
It’s entirely likely we’ll see a market comeback after this slump. But when it comes to Rolex, some things to keep in mind:
1. Rolex make/made a LOT of watches – at least a million per year.
2. The market died in the matter of a few weeks – Rolex were producing at a pace to meet the high demand – right until they weren’t.
3. The odds are good Rolex have a ton of unsold inventory ready to fulfill the short to medium term demand.
4. As Rolex’s production methods are efficient, it’s safe to assume they can ramp-up quickly enough to keep the sales channel filled as demand slowly returns to normal (i.e., no shortage)
5. The supply of pre-owned watches for sale exceeds the demand – hence the price of pre-owned Rolex is going down
6. The demand is WAY down and not likely to come roaring back – preowned prices are gonna stay low for a while
7. Steel Rolex Daytonas – grail watches in general – are not immune to the laws of supply and demand. Yes Rolex purposely kept supplies low, but demand has fallen now. Premiums are evaporating.
RF
Thanks for your input.