Grail Watch – Availability Increase?

We all have our “Grail Watch.” You have yours, I have mine: the Patek Philippe Split Seconds Chronograph, Jaeger-Coultre Duomètre Quantième Lunaire and Breguet Répétition Minutes. Any of these would be most welcome on my wrist. But we all know what you really, really want . . .

Panda dial Rolex Cosmograph Daytona. Steel Patek Philippe Nautilus or Aquanaut. Steel Audemars Piguet Royal Oak.

If one of these Grail Watches is on your radar, affording it is only the beginning of the story. It continues with one of three plot lines: waiting list, grey market or buying a lot of other watches at your dealer to get an allocation for The Chosen One. (Click here for RF’s how-to guide.)

The manufacturers’ reluctance to fulfil the demand for grail watches – while pumping out a never ending supply of Datejusts, Calatravas and Patrimonies (available pre-owned for well under MSRP) – has always puzzled this homo economicus.

The “big three” Swiss watchmakers constricted supply strategy seems crazy. You can talk about “maintaining brand cachet” all you like, but deliberately under-producing a product to the point where third parties can resell it for double retail price leaves a lot of money on the table.

At the same time, this “no soup for you” policy creates a lot of pissed off potential customers. An eight-year waiting list for a steel Nautilus? No I don’t want to look at a Calatrava, thank you very much.

So it goes. But maybe not forever. There’s a strong possibility that Coronageddon will change the Grail Watch calculus . . .

As you know, the luxury watch industry is hurtin’ for certain, from the manufacturers to the distributors to the dealers. Luxury watch manufacturers are going to need to make up for lost time. There are only two ways to generate short term cash.

The hard way: steady as she goes. Maintain Grail Watch scarcity (e.g., Patek Philippe’s pinkie-swear pledge to limit steel-watch production to 25 to 30 percent of total production). Put the usual suspects on the market and wait for things to recover.

That could happen – the Quiet Life Hypothesis is real. All of the operational decisions to support this strategy were made back in December and January; there are no surprises or major changes to be effected. On the other hand . . .

Luxury watch sales have been on pause mode for over a month. Dealers aren’t eager to take on more inventory. So a “tough it out” strategy bets on the watchmakers’ stakeholders’ patience. Their faith that the economy will recover, unleash “pent-up” consumer demand and clear the constipated product pipeline.

The easy way to create short term cash flow:  shift resources a bit and produce more Grail Watches.

Producing a Royal Oak isn’t that much more complicated than cranking out a Code 11:59 – Gérald Genta’s masterpiece doesn’t require an exotic production process or advanced finishing compared to the rest of AP’s line. The Royal Oak will sell through instantaneously, quickly dumping a large amount of cash into the corporate coffers.

The Grail Watch money would flow through the dealers, who’ve been hammered by Coronageddon, coping with shuttered stores depressed demand (no matter what the shills are saying) and ongoing costs. An influx of Grail Watches – products they could absolutely sell – would help keep them afloat. 

As for the danger that the watch press would expose this sudden availability of watches previously made of unobtanium, “devaluing the Patek, Rolex, AP brand,” no worries. They’ll shut up and do as their told, either because they are so completely in bed with the manufacturers that Mata Hari would blush or because they need that advertising do-re-mi.

“Wait!” you sputter. “There’s a sacred bond between the manufacturers and customers to keep supply limited and prices up in the secondary market! I know because every ‘independent’ watch site tells me so!”

Oh, my sweet summer child. The watchmakers – these large, integrated companies – don’t care one whit about your resale value. Insofar as they even pay attention, it’s only to gather information to tweak their product mix and pricing to maximize profit. Many manufacturers take a dim view of the buy-and-flip market, and not only in watch-land.

It all boils down to simple economics.

A steel Rolex Daytona retails for $13,100. Wholesale price is likely around $9,000, given the typical 50 percent markup on luxury goods. Producing 5k extra grail Daytonas this year – an amount that the market wouldn’t even notice – would generate nearly $50mm of extra revenue for Rolex. 

Tell me – is your “sacred bond” worth fifty million in cold hard cash? Not to mention the proud history of luxury-good manufacturers wildly exceeding promised production.

So if you’re a Rolex, Patek or AP, pushing out a few more grail watches looks good. It makes all your important constituencies happy, it’s guaranteed money and nobody’s the wiser. And if you,the customer, get a Daytona, Nautilus, Aquanaut or Royal Oak eight years ahead of time for the actual retail price (ask for a discount anyway), who are you to complain?