Forecasting the future is a fool’s errand, but there are shifts appearing in the global watch market that look likely to continue into 2023.
To put these shifts in context, we must first remind ourselves how the watch market looks today.
Sales of luxury watches have been rising dramatically, particularly in wealthy western markets, since the end of the first wave of lock downs back in 2020.
This rise can be put down to a number of factors:
- A surge in interest for luxury watches due to people researching online during lock downs.
- Demand running ahead of supply, leading to surging prices on the secondary market and making watches a notable alternative investment.
- Zero interest paid on cash in the bank, encouraging people to splurge.
- Wealthy people, unable to travel or splash out on expensive restaurants during covid, cheering themselves up by spending on hard luxury goods like watches.
- Retailers and brands exploiting these conditions by pressing customers to buy watches they might only marginally desire in order to move up waiting lists for watches they really want.
- Empty display cases fueling panic buying. Remarkably, the same psychology that saw supermarket shelves stripped of toilet rolls also applies to Rolex watches.
These factors and more propelled the watch business to record heights. In 2021, the Swiss exported watches valued at CHF 22.3 billion, well above the pre-pandemic figure of CHF 21.7 billion.
Record Swiss watch exports
We are still waiting for the final month of export totals to complete 2022, but the total is on track to hit CHF 25 billion.
It should be noted that watchmakers from outside Switzerland, notably Germany and Japan, have also had exceptional years.
Momentum has slowed in Europe since the summer, but the United States remains hot, and is comfortably the largest market in the world for Swiss watches.
From January-November, Swiss watch exports to the USA totalled CHF 3.6 billion and will likely end the full year just shy of CHF 4 billion.
No country in the world has ever come close to this total. The next best performer was Hong Kong back in 2015 with Swiss watch exports of CHF 3.2 billion.
And, even though retail sales growth in Europe has been affected by the rising cost of living, it has still performed strongly this year. The UK, Germany and France are all increased imports of Swiss watches by over 20% in 2022.
Secondary and grey market
At the start of 2022, it looked like the second hand market for luxury watches would have an even better year, with prices for the most tradeable watches continuing to sky-rocket in the first quarter.
The best-established players in the secondary market were talking about going public with billion dollar valuations being bandied about.
That gravy train hit the buffers, and all-but the most financially secure players have looked vulnerable as the value of pre-owned and grey market watches fell.
They will be hoping that Rolex’s gentrification of the second hand market will shore up the foundations of what is a pretty shaky sector right now.
More likely, Rolex will lead a charge in the coming years that elegantly brings second hand and new watches together within the authorised dealer network.
Expect to see more brands fire up similar certified pre-owned programmes in the new year with their retailers looped into a system that increasingly behaves like the new and used car market.
In terms of prices, I do not think we will see the end of the slide for modern-day second hand watches until they are virtually all being traded at below retail prices, just as you see in the used and new car market.
Rolex sales topped CHF 8 billion in 2021, according to investment bank Morgan Stanley, and could touch CHF 10 billion this year since prices have been hiked three times this year in some markets.
Biggest watch brands in 2023
Brands with the greatest momentum into 2023 are Rolex, Audemars Piguet, Cartier, Breitling, IWC, Tudor, Grand Seiko and independents like H. Moser & Cie, MB&F, Gronefeld, F.P. Journe, Czapek and De Bethune.
2023 is going to be more difficult for every brand and retailer, the question is, how much more difficult?
Economic headwinds do not affect every business or individual equally, and nor will they blow every watch brand or retailer off course.
Delivering value will be critical, whether that is in the form of a $100 quartz watch or a $250,000 grand complication, and I believe the greatest step change in value will be with the customers’ experience.
Let’s be honest, the watches that will be launched in 2023 will be much the same as in 2022.
Sure, we will all get excited if Rolex retires its steel on steel Daytona and replaces it with something very similar to mark the collection’s 60th anniversary.
We may even raise an eyebrow if Swatch comes out with new versions of the MoonSwatch. A Snoopy MoonSwatch anybody?
But every novelty will be a variation on a product that has barely changed in the past century. The task is to make it seem new and exciting, to hit a hot trend or to trigger desire through a connection to the past.
The greatest assistance watchmakers can give in a cooling market is to be commercial in their choice of creations, relentless with their marketing and to make the correct number of watches so that demand matches or just exceeds supply.
Give this assistance to retailers, and they will do the rest.
A five year boom in Europe (particularly the UK), and the explosion of demand in America has generated record profits for retailers, and they are constantly investing these profits into delivering ever-improving experiences to their customers.
Retailers make short-, medium- and long-term investments; shifting their focus with admirable agility as needs arise.
Short-term, retailers must make the correct buying decisions so that watches and jewelry do not gather dust and stink up balance sheets. Buying the right product at the right time is critical.
Medium-term, they must have exceptional teams. Investment has to go into hiring the right people, training them and retaining them so they develop valuable skills and deep relationships with customers.
Long-term, retailers must have showrooms in the right locations, and they must be best-in-class when it comes to the perfect environment, atmosphere and customer service.
In January, WATCHPRO is publishing a special publication about the World’s Greatest Showrooms with 40 examples of best-practice from across the globe.
Researching that report showed me just how creative retailers are when it comes to delivering stunning experiences to their customers.
I should point out that many of the Greatest Showrooms are directly owned and operated by brands such as Cartier, Chanel and Bulgari, but most are either run by huge retail groups like Watches of Switzerland and Bucherer, or family-owned independents (some of whom are well on the way to becoming major groups themselves).
It is the quality of retail in the watch business that inspires me to predict that we will see a soft landing in 2023, despite what experts say will be a difficult year for Western economies.
I expect profit margins will be squeezed a little, because customer acquisition will be more expensive, but demand is still strong for a centuries-old product that has been enjoying a genuine renaissance in recent years.