The watch industry is anything but boring, right now. The latest business trend I’ve noticed is something that could quite possibly change the way the modern watch industry does business, even if consumers protest at the start. The question us watch buyers need to ask ourselves is: Are we willing to up the amount of money we are accustomed to spending on certain brands or models, in exchange for increased actual exclusivity and also retail price consistency? Prices for a lot of popular watches and big-name luxury brands are going up — and in some instances, by a lot. The first reaction from all watch buyers is understandably defensive. So, the bad is news that the watch industry will probably raise prices on a lot of popular timepieces, and entire brands might up their average price points anywhere from 20% to 80%.
What this doesn’t mean is that all watches prices are going up, but rather prices from many popular brands. Naturally, smaller or second-tier brands will enter now abandoned price categories left by primary brands. So, there will always be wristwatches at all price categories, but the entry point for serious luxury timepieces is probably going to be raised.
A natural reaction to this turn even of events might be confusion — because the last few years saw a lot of watch price points drop. I celebrated the drop in prices because, in many instances, models were priced too ambitiously, and I always appreciate it when more people can afford good timepieces. That said, the reason prices went down was to help stimulate sales — but that isn’t really what stimulates status-item popularity. The bigger problem with overall price reductions is that they rely on a watch industry benefiting from an economy of scale that is rapidly decreasing. The mechanical (“traditional,” if you will) watch industry isn’t going to disappear but is probably experiencing another phase of contraction and consolidation as market share becomes increasingly gobbled up by more marketing-agile independent brands, as well as wrist real estate space crowded by connected-technology watches.
Another challenge the watch industry struggles to overcome is the stagnation in the economy. People aren’t making as much money as they used to, and not enough new people are becoming rich. Existing rich people are mostly well-insulated from the recession, but they are a finite buying pool. The watch industry of today must face the reality that its most likely customers in the coming years are existing customers, not the new customers it keeps scouring the planet for. (I’ll note that retailers prefer fresh-money consumers because they are considered less educated in luxury products and more prone to going with a retailer’s suggestions and less their own personal preference at that phase in their consumer journey.) But established watch consumers, who have been through at least several timepiece purchases, are at a point that retailers have far less persuasive power over their next purchase.
The response to fewer overall global sales for luxury wristwatches is to increase the price of each timepiece in order to make up for the lower overall production. We have seen what two decades of over-production of wristwatch inventory has done to the market — and it isn’t pretty. Scores of gray market dealers (and far worse) hawk all sorts of watches at all price ranges. Watch brands and authorized dealers routinely dump watches they can’t sell to consumers into the “gray hold,” where they are just expected to magically find discreet buyers who are paying on average 30 to 50 cents on the dollar (wholesale) for unsold wristwatches. The overwhelming volume of these unsold watches has leaked out of every orifice that one can imagine a timepiece could be sold. The situation barely lends itself to the classy, exclusive club luxury watch ownership that retail should be all about these days.
The watch industry is, unfortunately, not earning enough money right now to just decrease production volumes without increasing prices. Sure, some brands could do that, but as a whole, the cost of producing watches, including the number of suppliers involved, means that a lot of people need to eat each time a Swiss-made watch is produced. That means consumers of most big-name watches will have to accept higher costs in order to enjoy similar watches because fewer of them are actually being produced.
Enough consumers will celebrate this trend immediately because they know that, in the long-term, decreased wristwatch production is valuable to future resale values and collectibility. Luxury items are most valuable when they are exclusive. The deluge of limited-edition watches collectors have seen over the last 20 years or so is a direct manifestation of this trend. Consumers are actually willing to spend more to get something that fewer people have.