At what point does the price of a watch become disconnected from the value of the materials in it? (Excluding hand-made watches)

For me, it's when I see brands charging €700 for watches that contain an NH35a.

I think that you are looking at it the wrong way. What does it cost to manufacture? Profit margins are fairly stable over many industries. Some like publishing and music, have historically low returns. Many closely held businesses and industries are notoriously opaque (diamond mining?) and so there is no basis to make a rational choice.

The watch industry is opaque. We don't know their costs. If it costs $1000 to make a Rolex watch, and another amount to market it, and the AD takes a cut, Rolex at MSRP many only be making 10-15% profit. I think that we all suspect that it is more.

Surely, someone like @Mr.Dee.Bater , @Edge168n , or @celinesimon knows more. However, I don't think the retail cost is the determining factor.

I work in retail (have worked in motorcycle shops as well as current job running a vape shop) and in my experience stock is bought in at between a third and a half of retail prices. Dunno about the watch industry,but would imagine that's somewhere in the ballpark.

No idea about manufacturing costs, would vary greatly depending on materials, labour, location, brand prestige.

TBF in my opinion I feel like a watch that costs over $20,000 (unless fully hand made) becomes disconnected from the value of the materials in it. So, in the poll we need an option for $20,000+ 😜😜😜

Apart from precious metals, anything over $5000 is definitely divorced from material costs. If the Chinese can produce steel watches with sapphire crystals for under $100, there is no material reason a steel watch needs to cost $5000. Throw in branding, finishing, marketing, etc., the price can make sense, but that's not the question asked.

Keep going up. Gold is expensive, platinum is pricy, gemstones cost a lot especially color matches. Hand laquors cost money to buy even if you're ignoring the cost of labor to paint.

@Aurelian

Per the NY times, the retail gross margin on Rolex was 40% (that is 40% not including sales person commissions or the bottle of champagne they pop when you buy a Submariner or the tony digs on Bond Street). That number is almost certainly higher for every other luxury brand (because of less ability to pass on the full MSRP to customers).

So in any case the number you're thinking of is probably a smaller delta than the headline price.

But to answer the question. Luxury is inherently disconnected from the value of the underlying materials. Hell, a Seiko is disconnected from the value of he underlying materials. Steel blanks and mass produced movements don't cost that much.

But I think it's a fallacy to suggest that the underlying materials are the only thing that have value. There's plenty of intangible value with the purchase of a luxury timepiece. It's that intangible value that allows the creation of a secondaru market around luxury watches vs say AliExpress watches.

When you eat in a restaurant and order a bottle of wine, you should expect to pay 100% gross margin (a $24 bottle of wine becomes a $48 bottle of wine on the menu). Given that labor costs in uncorking and pouring are de minimus for any restaurant that does not employ dedicated wine staff (sommeliers, etc.), wine is where they make money, more than food (with caveats, of course).

So, as I understand you, Rolex of America (not the Foundation) makes $4k for every $10k but still has commissions and incidentals to pay. Rolex of America will have a lower true profit margin. I wish that I could extrapolate more but the paywall got me.

@Aurelian, exactly.

Depending on the brand, an AD's gross margin is anywhere from 35% to 55% when they order from the brand. Plus, Switzerland has some of the highest cost of living rates in the world (which, of course, affects labor costs.) Throw in marketing, training, construction, production, servicing, admin, etc, etc, and the impact of material costs starts to get diluted real quick.

But more importantly than all this, is that pricing is a marketing tool, and that is especially true with luxury goods.

"Veblen goods are high-quality, luxury items that people purchase to inflate their self-esteem. The high price is the point, which is why demand for them increases as their price increases." - Investopedia

I have been concentrating on how much profit Rolex (as a healthy luxury good) is making per unit. That is not exactly the question posed in the OP. The answer is that you are almost always paying for something other than quality, at any price.

Luxury watches are certainly a Veblen good. They are also a positional good. No one wants a $5000 #richardmille or #fpjourne. At that price any car salesman who has a good month could afford one.

Funny, but I have an 8,000 word essay lined up about how EVERYTHING in modern life is a luxury, and so all we're really paying for is branding, regardless if it's a $2, $2K, or $200K watch.

Let me turn on my throne warmer first...

Every new watch is going to cost more to buy than it cost to make. Some companies take more, some less, but at the end of the day, what matters as a customer is whether you feel like what you receive is worth the money you spent on it. I'm sure there are watches that technically cost more of their asking price to make than whatever we're all wearing right now, except we're not wearing watches because of the slim profit margins the companies take.

A sale is supposed to be mutually beneficial. If a seller didn't think the selling price was good enough for them, they'd raise it, and if the buyer didn't think the price was good enough for them, they wouldn't buy it. If you think a watch isn't worth the price to you, don't buy it. I think searching for low prices makes sense, but selecting for low profit margins isn't a very useful orienting principle. Do you enjoy buying something on sale because it cost you less or because the seller made less money?

Loving the spread of responses in the poll so far. No definite correct answer, as expected

Can’t lab grown gems be made perfectly and much cheaper? Like if the crystals are solid, artificial sapphire, why can’t the gems be too?

I think barebones the materials don’t cost a lot, as has been said by others and how no-name Chinese brands can pump out so many lookalikes cheap

(altho I imagine mass producing look a likes that are far cheaper = more customers = easier to do bulk stuff = cheaper)

I think the main reason brands are expensive is advertising and history, tho I might be forgetting some. And of course, brand appeal

I get advertising but not really history that much. (To me it feels lile grasping at straws)

Because materials are fairly cheap and there’s obvious mass production, I’d say anything over $1000

It doesn’t really work this way but I would say Christopher Wards prices are probably fairly representative of where mid range watch prices would be without brand building and advertising costs (and if watch companies were willing to accept a smaller margin)

Materials are not indicative of pricing at all. Most of what you paying is labour, RD, marketing, shipping, licenses, QC etc

This seems like an awful lot for a SW220, even with "Grade 2 Titanium". Beautiful watch - but c'mon!

Sooo, materials you say? Are we including the slave labour for the gold, silver, cobalt and other materials? Environmental consecuences? What values are we talking about here?

Will not repeat myself on this one by breaking down costs, etc, but it is all relative. @celinesimon hit a lot of my normal talking points. Watches, like any other product, are a sum of it's parts. One can build a watch using cheap parts for next to nothing, or one can build a watch using quality parts, for much more. Regardless of the false narrative, there is a significant range in quality for literally every component of a watch and a watch maker has to decide where to spend money and where to cut costs. On the higher end, rarely are costs cut. That is what you pay for.

I just received a new Seiko. Honestly, it is grossly overpriced and we as a community give the brand way too much slack for making a pretty shit product at times. Where as I can look at a GO and see where every penny went and at 10X the cost, it is a better value.

I'll take my luxury Starbucks black please. Just sayin.