Recent price rises pushed through by Swiss brands and JLC in particular
Sometime in autumn 2021 I purchased a quartz JLC Reverso classic Monoface. At the time its MSRP was £3,950 but I very easily negotiated a 20% discount and could probably have got more with little effort. Even so, I thought I had been a little extravagant paying so much for a quartz watch which probably had a movement in it costing less than £50. At this price, JLC clearly made a very decent profit. Now, a mere eighteen months later, the same watch retails for an incredible £6,950. An increase of £3,000 or 76% (on an annualised basis 46%!)
“I am all right, Jack” as I have my watch but this level of increase worries me deeply.
I am a free marketeer and believe that everyone should be allowed to sell their product for the amount they see fit. But this is only true if the market works. I run a successful company, we have more than forty years of trade under our belts, have a great reputation and material market share in our sector. But even with all these advantages, I can at best increase prices by a couple of percent above inflation and lately have increased them by several percent below. This is because the market doesn’t give me the option to charge whatever I would like. It effectively protects the consumer.
So I now wonder if the market is working for luxury Swiss watches. The big players; Swatch, Richemont and Rolex have near monopoly power (normally defined as 25% of the market) and LVMH are not far behind. The four make up an incredible 79% of Swiss watch production. If one excludes Richard Mille, AP and Patek Phillippe on the basis that these brands do not really compete with most of the large player’s brands, the percentage rises to 89%! For comparison the OPEC cartel only controls 44% of the world’s oil production. The question is with so few competitors, is the market capable of keeping their price rises in check?
The Swiss luxury watch makers look rather like a (legal) neo-cartel. If they all increase their prices, they simply make more money, as if you think Tag Heuer is overpriced you might buy Zenith which is also owned by the same conglomerate. Their only fear must be that new brands might enter the market to provide competition and they will all lose sales to these companies who do not require stratospheric margins. We seem to be seeing this already. I have bought several microbrand watches and quality-wise they seem to compete with watches from the big brands costing two or three times as much. This must be a real worry for the large players.
It may sound cynical but many feel that the Swatch Group’s decision to try to make small brands’ lives difficult by refusing to supply ETA movements is their way of defending their market position. My feel is that this strategy is unlikely to work. Clearly Sellita produce some excellent movements which they agree to supply to independents and if this business was taken over by LVMH or Richemont, we have the Japanese. Citizen and Seiko could easily produce high-grade movements if they chose to do so. Therefore it seems likely that the independent sector will not just survive but thrive. Particularly as some of these smaller non-Swiss manufacturers are now establishing very good reputations in their own right. I, for one, would have much greater confidence in buying a Bremont than a Longines, Tissot, Rado or the like.
The price increases have been pushed through by many Swiss brands in recent years, it is just that JLC seems to be more brazen about this than most. So it will also be interesting if they manage to make their prices stick. I realise that if they manage to sell one quartz Reverso at £6,950 it probably produces as much profit as selling ten at £3,950. But I wonder if people will balk at paying that much for a watch with a £50 movement inside it. If they do, then their brand will no longer have a proper entry level watch making it more difficult to sell their expensive watches. Outside enthusiast circles, JLC is not exactly a well-known brand, it has the Reverso and a few nice (but not Patek-nice) dress watches. So it won’t take much for them to fall into obscurity. Richemont could easily afford to shutter the business (any write off would be, of course, tax-deductible), but many would think such an end would be sad.
The quartz crisis almost destroyed the Swiss watch industry in the 1970s, will greed do the same in the 2030s? People and brands are always in danger of descending into hubris when they are making a lot of money and things seem as if they will stay good forever. If you think the decline of the Swiss watch industry is impossible, a mere generation ago Swiss banking was the envy of the world. Since then short term (and often unethical) management has meant that the whole is industry is now pretty well one bank, UBS. Will their watch industry follow suit?
Many good points here. I agree that the watch market is definitely not a “market” in the normal sense of the word.
I 100% agree with your analysis. The Swiss luxury groups and their near monopoly have pushed their prices to record breaking numbers, far beyond the global inflation. But are they really at any risk of falling and what is stopping them?
Even if the price increase rubs the watch enthusiasts minority the wrong way and makes us look more into micros and independents for better value, the average sucker for luxury goods can't escape the trap. They're either too much of a slave for the brand names that they'll be taken advantage of, or rejoicing that their social status pieces are becoming less attainable. There will always be people buying Rolex because it's Rolex. Even if it's notorious that you're paying 75% for the brand and marketing. Even if the sub creeped up to $20k. Heck, it might even make it more desirable for some. Just look at LV re-releasing their Tambour and bumping the price from $4k to $20k because it wasn't enough of a flex before. 😂
Thankfully, at the other end of the spectrum, more and more great microbrands are breaking through every year with killer affordable watches ala Christopher Ward. As long as these new actors keep their feet on the ground, us watch enthusiasts have good things to look forward to.
They are making hay whilst the sun shines. My personal opinion is that this is part of the luxury bubble exacerbated by COVID (when people started buying more luxury items). Don’t think it’ll crash, but I hope there will be some normalisation.
I think the substantial price increases over the last few years are due to 2 main reasons;
A) Some brands charging more just because they can.
B) Shrinking market and less sales means up charges to those left seeking to buy to maintain revenue.
I honestly think over the next 10 years we are gonna see a lot of brands fall by the way side.
Agree with a lot of what you say.
The price increases actually stopped me from buying a Speedy. I was saving up to pay £6.1k. At £7.4k it’s just not gonna happen. If there are enough like me then they will have to reconsider their approach.
Thank you for your analysis. I'm also very frustrated by the price hikes, because they are a lot faster than I can save up for. I would've loved to own a Reverso, a Speedmaster or maybe even a Rolex, but for every Euro I can save, they increase the price by two.
I guess the sad truth is, that there are lots of people having a lot more financial resources than I have, so maybe I'm just not "allowed" to have this hobby, as I'm also not allowed to collect sports cars, boats or penthouses.
Therefore I'm looking elsewhere and fortunately there are enough brands who are more independent from the Swiss greed club and still offer reasonable value at a lower price. But even they start to rise prices significantly (I'm looking at you Nomos or Sinn).
Maybe one day, all there is left, is the secondary market. And I'm young enough to sit out demographic decline in the population, which hopefully will leave enough swiss luxury watches for much less younger collectors.
Luxury Swiss brands are just that, Luxury.
They're supposed to be ridiculously expensive for ordinary people, obtainable only by the lucky few.
We're in a fortunate time when ordinary people,if they work hard and save up or have a bit of luck, can attain these precious trophies.
It's not always been like that - my Grandfather's would've treasured their Smith's pocket watches that they'd have had to save up for, an Omega forever beyond their dreams as they were the preserve of professionals, Dr's Lawyers bank managers - let alone a JLC ,PP etc - they were for movie stars and Howard Hughes types.
Now, a couple of generations later & disposable income has massively increased and there's some "slippage" in the pricing of Veblen goods so that we the great unwashed can own these pretty baubles.
This is initially good news for the luxury industry because they shift more units & make lots more money.
But the problem is these industries sell off the back of an artisanal reputation and selling ever increasing volume is the necessity to industrialise to meet demand.
They can't compete on volume with more resource rich rivals & these emerging rivals can complete on quality (Grand Seiko, Credor for example) who feel justified in asking ball park prices for their products..
So as the Swiss industry can't compete on volume it's only option is to increase its prices - companies like Omega or Rolex for example are too industrialised to claim their stake in the Luxury high end artisan market occupied by the likes of MB&F.
The market of a couple of generations ago has gone, the Swiss watch industry is adjusting to the new marketplace by looking backwards to it's past.
And if you can make more money and produce less, why wouldn't you??
Hope that makes sense 🤔
It's not just the Swiss.
Seiko did the same, albeit more subtly. A watch like the former SARB costs 2x as much as the SARB did. The new GS lines, despite the same cases and dials, cost 2x as much. Some of it is to offset the R&D, yes, but a good bit of it will be profit.
Lange, okay they are Richemont, did the same. And wages in Saxony are MUCH lower than in Switzerland 😉
I also don't think it's a monopoly thing. There has just been an influx of new buyers, for new reasons I would say.
Watches these days are primarily about price/cost/resale etc. Design, fit and finish is secondary and how it keeps time really doesn't matter. In fact, what used to be chronometry competitions has become a pricing contest, "who can appreciate in value the most" (also Tissot embarrassed most of the high end watches at the last of these competitions a few years ago so there's that too).
In a way, it makes sense. People used to buy good mechanical watches for having a reliable timekeeper, those days are over. Now most people buy watches as shiny accessories, ie to flex and for potential profits/appreciation (most people aren't enthusiasts). And even that is somewhat understandable in my opinion. A watch is not like a car, you cannot take it for a ride and it has always been a sidekick and never the centre of attention, at least before the "investing" crown came along. Now watches can finally be the "centre of attention" as an asset class and some feel that spending big bucks might be worth it. That is, if you spend a lot you also want to play with your toy a lot. Other than repairing/modding a watch (which requires some skill) there's little else with that effect, i.e. making memories take patience/years and there is no quick fix. You'll also notice that posts about that sort of thing gather a lot of attention and so do YouTube videos ("market update" etc.). This type of "investing" into things that don't earn any money (=gambling) was always a thing but has been made a widespread phenomenon by crypto currencies. So it's kind of logical that pricing is, by far, the single most important aspect of the product. I'd say that's why Rolex introduced the CPO thing, to be somewhat in control of a benchmark on the secondary market price (ADs might be making prices but they are less independent). And if there has been a shock in demand due to a perfect storm of low interest and lockdowns and a new "asset class" crypto that introduces gambling to the masses, then it only makes sense that prices are going up just as fast across the board.