It should come as no surprise that retail prices on Swiss watches, like the costs for most goods and services, are rising. Even before the war in Ukraine clouded the global economic picture, the lingering effects of the pandemic were still rippling across the watch industry’s supply chain. And the soaring cost of fuel now threatens to keep those price increases coming.
“Every day we are talking about price inflation on labor, energy costs, logistics, etc.,” Jean-Philippe Bertschy, a luxury goods analyst at Vontobel, a private banking and investment management group based in Zurich, said on a recent call. “And brands will take the opportunity to increase prices.”
Mr. Bertschy then ticked off a list of those that already had done so this year — including Hublot, Rolex and Audemars Piguet.
They were far from the only ones. Julien Tornare, the chief executive of Zenith, said his company had raised prices on select models and Jean-Marc Pontroué, the chief executive of Panerai, said he expected to do so as well.
“We have to make some corrections, between 3 percent and 4 percent, max,” Mr. Tornare said on a recent call. “Global inflation made our costs go up, so at some point we have to adjust. But it’s also linked to currency.”
Escalating manufacturing costs and fluctuating exchange rates are both important factors in the luxury watch price surge, but they explain only part of the story.
In a much broader sense, the entire category is moving steadily upmarket. Take Oris, for example. Known for its accessibly priced mechanical timepieces, the Swiss brand saw its average price rise by 10 percent last year, said Rolf Studer, the brand’s co-chief executive.
He singled out the October 2020 introduction of Oris’s in-house Calibre 400 in the Aquis Date collection — $3,300 for a model on a rubber strap and $3,500 on a stainless steel bracelet — and noted that the prices were about 50 percent costlier than the Aquis models without in-house movements.
“We just couldn’t make enough,” Mr. Studer said, although he would not disclose actual numbers. “That shows to what extent people are ready to spend money.”
Whether consumers are gravitating to more expensive products, or are simply willing to overlook their ever-increasing prices, Ruediger Albers, president of Wempe Jewelers in New York City, interpreted the phenomenon as a sign of the watch market’s health.
“Most companies have raised prices since the beginning of the year and our business has been extremely resilient,” Mr. Albers said on a recent call. “I have never had the January I had this year. Demand is undiminished.”
And yet that does not appear to be true for everyone. Guido Terreni, chief executive of the boutique brand Parmigiani Fleurier, pointed out that price increases make sense only for brands that are desirable. “You can increase if you’re confident,” he said on a recent call. “But I wouldn’t say that everybody is in the same shape. And this you can see very well from Swiss exports.”
Last year was a record-breaking year for the Swiss watch industry: Exports peaked at 22.3 billion Swiss francs, about $24.1 billion, 2.7 percent higher than in 2019 and a 0.2 percent improvement over the 2014 record export level, according to the Federation of the Swiss Watch Industry’s 2021 year-end report. But while exports grew in value, the number of items exported continued to decline, to 15.7 million, a decrease of 23.8 percent compared with the 2019 total.
Watches with a wholesale price of less than 500 francs fell sharply, accounting for more than 95 percent of the decline in volumes, while watches with wholesale prices of more than 3,000 francs grew by 9.7 percent.
The dramatic polarization between high- and low-priced watch exports began in 2017, Jean-Daniel Pasche, the federation’s president, wrote in an email. He laid blame on a host of factors, including competition from smartwatches and less expensive fashion watch brands manufactured in Asia, as well as the strength of the Swiss franc. And he suggested the phenomenon could damage Switzerland’s watchmaking sector.
“Volumes are important as they create activities and jobs,” Mr. Pasche wrote. “It is a matter of preoccupation as the Swiss watch industry has to provide consumers with products in all price categories. On the other side, middle price and high-end segments generate more than 94 percent of the exports in value for our industry.”
On the secondary market, the jump in prices during the past two years for some pre-owned and vintage models — particularly those by the “Big Four’” brands: Rolex, Patek Philippe, Audemars Piguet and Richard Mille — has been even more striking.
“With the shortage of Rolex watches (not only the steel sports models, but just about everything in any type of material), prices on a steel Rolex GMT-Master II ‘Pepsi,’ for example, are going through the roof,” Robert-Jan Broer, editor of the online watch publication Fratello Watches, wrote in an email.
The model retails for $10,750, but is selling for more than $33,000 on secondary channels, Mr. Broer wrote.
“It shows that the demand for these unobtainable Rolex watches (or the Audemars Piguet Royal Oak, or Patek Philippe Nautilus) comes from speculators, and has nothing to do with the love for watches anymore,” he added. “The watch has become a status symbol (again), more than ever.”
But is it a bubble? Not exactly, some say.
“I don’t see prices coming down,” Mr. Broer said. “When the Royal Oak was worth around 30,000 to 40,000 euros on the pre-owned market in 2019, I thought it couldn’t go any higher. Now, it’s almost 100,000. There’s no end.”
Mr. Bertschy agreed that there seemed to be a disconnect between prices and value on the secondary market, but consumers have not yet shown any resistance to the increases.
“I think it’s a virtuous circle for the brands, but also a vicious circle because the more prices are increasing, the more consumers want to invest in these brands,” he said. “A friend told me he wanted to invest and I told him to invest in a watch, and he bought two Rolexes. So that’s happening.”
Indeed, Bob’s Watches, an online dealer specializing in pre-owned Rolex watches, released a report in early February based on 10 years of sales data that tracked the appreciation of Rolex watches (by model) compared with major asset classes including stocks, bonds, real estate and gold.
“We were hoping Rolex would be in the top two leading asset classes but it ended being No. 1,” Paul Altieri, founder and chief executive of Bob’s Watches, said on a recent call. “How many things can you enjoy that double in value in five years?”
According to numerous sources, the year 2017 proved to be just as pivotal for the resale market as it was for new watches. Artemy Lechbinskiy, the chief executive of Ineichen Auctioneers in Zurich, said that was when new watches started to sell on the secondary market for more than their original retail prices — a shift he attributed to some producers decreasing production in an effort to control the gray market, a term referring to watches sold outside of authorized retail channels.
“Producers needed to protect their price policy,” Mr. Lechbinskiy said. “It doesn’t influence the industry if the retail price goes up 5 percent or 10 percent. But it’s not so easy to do when the gray market price is lower than your retail price. They played this game and it worked. And now for popular models, you need to pay double or triple ” on the resale market.
Asher Rapkin, co-founder of Collective Horology, a California-based collectors group, expressed a more circumspect view. “It’s easy to armchair quarterback and decide who has the right to make money,” he said on a recent video call. “Rolex has increased prices close to annually, usually on a 2 percent to 3 percent basis. And because of the market performance of Rolex, people are generally OK with it.
“The challenges are when watches that were disproportionately priced to begin with raise their prices and people are shut out,” he added. “Prices are rising but that doesn’t necessarily change the value exchange of the watch itself. We all know what we can get for the same amount of money.”