Sunday, July 24, 2005

Impending Burst of the Watch Bubble?

Pop! Have watches ever been cheaper recently? What's going on? Forget list prices. Even something as new on the block and popular as Omega's Planet Ocean is available easily at 25-30% off. And I'm not talking about from some grey dealer. Even new models like AMVOX1 ss have already hit 30% off, as has Reverso GMT, let alone the punishing established models are taking like Compressor Memovox at 40% off.

After half an hour of jovial, polite but persistent squeeze on and on, against the usual whining "I've got shop rent to pay...etc, etc" and "It's not worth my while...." I've got official dealers to within about 5% of the best grey dealer price I knew of (including customs charges!) And compared to when I was looking last year, I just see watches just generally 20% cheaper everywhere I look. There's just too much of everything around. Even 'hot' watches that you thought were sold out aren't and they're not commanding a premium when you find them either - e.g. VC Les Hist' chronos. AP Alinghi etc.

The number of people asking "which are the best investments" just don't have simple answers. Of course it'’s possible to make money buying and selling watches or there wouldn'’t be any dealers..... but right now....phew, you'd better have a collection made up of things you actually like. Right now the more relevant question is "which is best for value retention." Having had a superheated market, with sky high list prices, out of proportion premiums on complications and the persistent marketing of the myth that because you could buy a watch in 1950 for $1000 and sell it for $5M now, it makes sense to "invest" now, I really believe we're seeing some common sense finally intervene.

As has been said before:
“Well-informed collectors will generally seek those pieces that possess high intrinsic value first, rather than simply high current market value, thereby improving opportunities for the long-term appreciation and value retention."
The eight factors making up intrinsic value discussed in the above article being:
  1. Branding and prestige. E.g. Patek always held in high regard
  2. Historical considerations. E.g. was the watch type used specially like Comex divers
  3. Social considerations Emotional associations like Paul Newman/Steve McQueen
  4. Technical Design. High complications or horological significance. And is it really horologically signifcant? Really really? Ignore the manufacturer's hype and do your own research
  5. Functionality, not high complications but desirable additions
  6. Aesthetics.
  7. Rarity, absolute, relative and perceived. Remember also:Rare ≠ valuable and Limited ≠ rare.
  8. Condition and completeness. E.g box and papers
Personally, I then also try to make an estimate of the real cost and workmanship involved in the manufacture of any given piece based on the movement, case and so on. For off-the-shelf movements, the cost is a matter of record. For an 'in-house' movement, I break it down to parts list level and allowing for the production methods and whatever hand finishing are involved make an estimate for the effort and time taken to prepare the parts and assemble; the cost and complexity in the case, the angles and surfaces and so on. Then I look at the retail price. I only get interested in stuff with what I think is the lowest markup. Difficult? Yes, but put it this way, you can soon sort the wheat from the chaff.

I can think of two nasty examples immediately, an ETA 2824 that costs $40 in a watch retailing for $1400 or a $250 Valjoux 7750 in a watch on sale at nearly $12000. Sound like a good plan to invest in? Nope.....pretty much irrespective of how rare or limited it may be. You never know though, but you'll be lucky to make anything. There are a lot of (re-)emerging brands following this tack, predominantly style over content, relying on you not knowing anything.

Just remember the safest plan is you can never go wrong if you buy it because you like it....


Omega Blogger said...

Whilst I agree that in some ways the bubble is at least deflating I think we have two seperate things going on.

1. The "fashion" watch brands are being found out for what they are, I would expect to see their prices fall the greatest.

2. The strong upper and mid-range brands are holding firm, the discounts on these are a result of retailers struugling for sales. This is somewhat a UK perspective but the general jewelry sector is struggling , in line with a general retail downturn.

My view [unsurprisingly :)] is that Omega offers the best current buys. I think they have a price point that is related to the value of the watch, it is important to get the maximum discount which makes them ainto a good buy.

The real question is...when will the Rolex bubble burst, imho they are a grossly overvalued timepiece.

Velociphile said...

1. I very much agree with you.
2. Not so sure. They are beginning to suffer, and my analysis of prices was also looking at world grey market, so not just a UK perspective. Although of course UK retail is in the dumps right now.


Luxfinder said...

I have been looking for an Audemars Piguet Royal Oak. Your website was helpful. I also looked at several others and found that both that the AP site Audemars Piguet was helpful. One other site that I found useful was Lussori. This site had good pictures and was easy to navigate.

Harry SK Tan said...

Hi Velociphile,
With the current global financial crisis, the catalyst for the bursting of the bubble makes for the spiralling downturn of sales and prices all the more likely. SIHH 2009 is already reflecting this with a lower turnout as well as sales made.

The question now is not whether it will happen but how far reaching and how much change will there be to the industry and whether it will benefit collectors in the long term.