Luxury Watches That Don't Impress Me Much

by Overheard Wall Street May 1, 2023

They’ve become a status symbol of bankers and high rollers everywhere. Luxury watches came onto the scene over the past century and are here to stay.

But could these deal toys also make worthwhile investments? Most of us got too rekt this bonus season to buy a new Rolex, but luxury watches have outperformed the S&P 500 consistently over the past five years.

History

While it might seem like the luxury watch market has been around forever, it really exploded over the past century or so.

Swiss watches have taken center stage as the holy grail of luxury watches, and have become a timeless stamp of approval.

Early history: The origins of the luxury watch market can be traced back to the 16th century, when portable watches first became popular. At first, watches were very rare and primarily used by wealthy men as a symbol of status and prestige.

Industrial revolution: The industrial revolution of the 19th century marked a major turning point for the luxury watch market. Advances in manufacturing and production made it possible to create watches on a larger scale, which helped to bring down costs and make them more accessible to the middle class.

The rise of Swiss watchmakers: In the early 20th century, Swiss watchmakers emerged as the dominant force in the luxury watch market. Swiss brands like Rolex, Omega, and Patek Philippe became known for their precision, craftsmanship, and timeless design.

The quartz crisis: In the 1970s, the luxury watch market was rocked by the introduction of quartz technology. Quartz watches were cheaper, more accurate, and more reliable than traditional mechanical watches, which led to a major decline in sales for many Swiss watchmakers.

The rebirth of mechanical watches: In the 1990s, mechanical watches experienced a resurgence in popularity, as consumers began to appreciate their craftsmanship and aesthetic appeal. This led to a renewed focus on traditional watchmaking techniques and a return to the roots of the luxury watch market.

The rise of smartwatches: In the 2010s, the luxury watch market faced a new challenge with the emergence of smartwatches. Brands like Apple and Samsung began offering high-tech watches with a range of features, from fitness tracking to mobile payments.

Universe

The luxury watch market is dominated by the same handful of players, with Rolex leading the pack, though there’s historically been room for new players like Richard Mille. Estimated market share according to retail sales in 2021 below:

Most luxury watch brands are still privately owned.

Privately-Held Luxury Watch Brands

Rolex - Rolex is a British-founded Swiss watch company. Rolex has been around since 1905 and is one of the most well-known luxury watchmakers. Rolex is still owned by a private family trust. The Rolex submariner costs between $9k up to close to $50k.
Patek Philippe: Founded in 1839, Swiss, and a favorite of collectors. Patek is still family-owned. The Patek Nautulis ranges from $35k to $150k, with some models running close to seven-figures.
Audemars Piguet: Swiss luxury brand, founded in 1875, and known for complex mechanical movements. Audemars is family-owned. An AP Royal Oak ranges from $50k to $100k.
Richard Mille: Relatively new (founded in 2001) and Swiss. It’s a favorite brand of rappers and athletes. Richard Mille's RM 016 is around $60k, but many of their watches range in cost from $500k to $1M.
Vacheron Constantin: The oldest Swiss watch company on the list, and the only one to be publicly owned (it’s a subsidiary of Richemont SWX: $CFR). An entry-level Vacheron will cost over $10k, and easily run into six-figures.

List of Public Companies

Swatch Group (SWX: $UHR) - The Swatch Group is a Swiss company that owns luxury watch brands such as Omega, Longines, Tissot, and Blancpain.
Fossil Group Inc. (NASDAQ: $FOSL) - Fossil is an American company that designs and manufactures fashion watches under brands such as Fossil, Skagen, and Michael Kors.
Movado Group Inc. (NYSE: $MOV) - Movado is an American company that designs and manufactures luxury watches under brands such as Movado, Concord, and Ebel.
Seiko Holdings Corporation (TYO: 8050) - Seiko is a Japanese company that designs and manufactures watches under brands such as Seiko, Grand Seiko, and Pulsar.
Richemont (SWX: $CFR) is a Swiss luxury goods company that owns Vacheron Constantin as well as clothing brands like Peter Millar.

Watches v. S&P 500

According to recent data, prices for Rolex, Patek Philippe, and Audemars Piguet watches have appreciated at an average rate of 20% per year since mid-2018, outperforming the S&P 500 Index by a significant margin.

During the pandemic, the secondary-market watch price increases have accelerated sharply, fueled by Millennial and Generation Z consumers who have taken up watch collecting as a pricey new hobby. As a result, the pre-owned market has grown to $24 billion in 2022, surpassing the primary retail market, which was worth $55 billion.

With more than 60% of transactions taking place online, the pre-owned luxury watch market is expected to continue its upward trajectory. Experts predict that the pre-owned market will grow by 9% annually to $35 billion by 2026 as prices rise and more people begin collecting watches.

While the luxury watch market was once called the “grey market”, it’s gaining legitimacy. Swiss giant Rolex SA that it would start authenticating pre-owned watches for resale through its network of authorized dealers.

Reasons to Invest in a Physical Watch

Appreciation in value: Some luxury watches can appreciate in value over time, particularly if they are rare or limited edition. Luxury watches
Resale Market: Collectors and enthusiasts may be particularly interested in owning watches from certain brands or time periods. And with companies like Rolex authenticating pre-owned watches for resale, it’s easier than ever to resell a luxury watch.
Emotional Attachment: Watches could have sentimental value as a gift, as well as a status symbol while the owner is wearing it.

Reasons Not to Invest

High-Upfront Cost: Investing in luxury watches requires a significant amount of money upfront, which makes it unappealing or unpractical for some.
Volatility: The luxury watch market can be highly volatile, with prices fluctuating greatly depending on consumer demand, economic conditions, and the availability of certain models. This can make it difficult to predict the value of a luxury watch investment over the long term. For example, the market prices of Rolex Daytonas, Patek Nautilus, and AP Royal Oaks have declined by as much as a third since Q1 2022.
Liquidity: While some luxury watches may hold their value well over time, they can be difficult to sell quickly if needed. This lack of liquidity can make it challenging for investors to access their money in a timely manner.
Maintenance: Luxury watches require regular maintenance and servicing to keep them in good working order. This can be expensive, and failure to properly maintain a luxury watch can cause its value to decline.

Swatch Group

Swatch Group is a Swiss watchmaker and is publicly traded. It could be a solid investment opportunity for those seeking exposure to the watch market.

Swatch owns a diverse range of watch brands, including Omega, Breguet, Longines, and Tissot, meaning the company has a well-rounded and diverse portfolio. As a result, it is well-positioned to capture market share across multiple price points and segments.

Luxury stocks took a significant beating in 2022, but Swatch has rebounded over 50% from its October 2022 lows.

Swatch has heavy exposure to emerging markets, and 50% of Swatch’s sales take place in China. Swatch anticipates record-breaking sales in 2023 as China reopens. Swatch also expects to capture a larger market share in China.

While Swatch is ambitious about its growth, the company does post lower operating margins than its peers, and we’d recommend waiting to see if Swatch indeed delivers on its prediction of reaching the China market. Until then, it’s a bit of speculation.

To Buy or Not To Buy a Luxury Watch

If you’re a watch enthusiast, we by all means recommend buying as a fashion purchase first, and an investment second. While luxury watches have indeed outperformed the S&P 500 over the past five years, the fact some noticeable models have lost ⅓ of their value year-over-year makes it difficult to accurately predict future returns.