Around the beginning of March, I walked into one of my favorite Italian restaurants in Zurich (Stapferstube), headed for the cigar room and ate a nice lunch there.
The restaurant had been my refuge, as the financial markets had started falling severely, and I would bring my laptop there and trade shares while smoking my after-lunch cigar. An elderly Italian gentleman walked in with a beautiful platinum Patek Philippe chronograph and before you know it, we started talking about watches. He took his watch off and showed it to me. I took my watch and showed it to him (a Rolex star dial from the 1950s) and we both wondered what would happen to vintage watches in the coming year.
We both did not know it then, but the world was about to change significantly.
My reason for the story above is that today, while I write this post, what happened at the restaurant would be unthinkable.
For a starter the restaurant is closed due to a lock down we are in. Secondly, I would not risk holding, wearing or trying on someone else’s watch anymore (not until we find a vaccine). In fact, the more I think about it the more I realize that this COVID 19 crises is probably the worst thing that ever could happen to watches. Watches is about exchanging, holding, trying on, touching and meeting fellow collectors. In a post COVID world this will prove trickier.
I don’t think the watch industry has ever been more challenged. I lay out some thoughts how things might change for the watch industry going forward, the positives that might come out of this, and also give my thoughts on the outlook for vintage watches.
For the watch industry this is one tough wake up call. I say this because I think the watch industry had some very good years behind them.
In fact, in hindsight maybe it was too good. Large waitlists for certain models (not only Patek Philippe and Rolex) were becoming the norm. Every year at Baselworld, new limited editions were being brought out and bought by new collectors from all over the world who were increasingly wealthy due to healthy worldwide economic growth. The big watch groups were swimming in so much money that the famous shopping streets around the world were dominated by single brand watch shops often owned by the same company. New York, London, Paris, HK and Zurich all started looking alike. Often you would see a Panerai store directly next to a Lange store even if both were owned by the same parent company (what economic sense does that make?).
The days of multi-brand retailers seemed numbered and now it was about opening up single brand stores (often managed by retailers though). It was a yet another sign for me that the luxury boom that had started in 2010 knew no limits. It also, in hindsight, should have been a warning sign that things couldn’t go on forever like that. I always wondered how long this model could last? And sitting here today I am questioning this model even more. I think we might revert back to the days of multi brand retailers taking a more prominent role.
Here is what else I think will happen to the modern watch industry as we move forward in 2020.
- I see more collaborations among watch brands and other brands like clothes, cars, luggage: I think the future of selling watches will be sold even more via online but also in a different format than what we are used to. Instead of single mono-brand stores which are often staid and boring and intimidating, the future of selling watches will be like this: Breitling selling watches with Norton motorcycles in a mall setting with a cool bar where you can have a drink (this already exists in Zurich). Or Rimova suitcases doing a collaboration with a watch brand (even outside the LVMH group of watch brands). I see more watch brands collaborating with clothing brands that have a similar DNA. I think the boring way of selling watches, like we do now, will change as that model makes no sense to me (mono brand stores are finished in my view). In that regard I also see more pop up stores as a solution. Pop up stores are cool in that they offer the consumer something new, fresh and different. Most importantly it is time limited. This is what the millennial consumer wants.
- I think brands will move even further online: I see it with Bucherer here in Zurich (see main picture above which is their online store with a chat function). Not only can you buy new watches online, you can also buy used watches (what they call certified pre-owned). It makes economic sense for a big retailer like Bucherer (which also owns Tourneau in the US) to get into this field of used watches, also used vintage watches (even if it is a crowded field). Otherwise I find big groups like Richemont have a good online presence which will help going forward. I see this crises as an accelerator of the online channel becoming even more important.
- Online is becoming more accepted among consumers: We are pushed by this crisis to embrace online more and more. And as consumers become more comfortable with online, high-end watches (which is not an obvious item to buy online at all) will be bought online too. Just look at Hodinkee who has more and more brands coming on to their platform and being an authorised retailer. This trend will continue.
- Portfolio of brands might shift: Depending on how long this crisis lasts I don’t think we will see the same brands belong to the same groups. What I mean by this is that the portfolio of Richemont and Swatch might change. Either through divesting some brands or adding others. Same with LVMH, even if they are digesting and still have not closed the acquisition of Tiffany. I also and still think LVMH could buy Richemont and that it would be a great fit. In one move they have the leading watch brand portfolio. And be Nr 1 like they are in pretty much all other business lines. Another wild card is Patek. Can they manage to stay alone if times get tough? In a recent interview (weekend FT) they insisted on independence, but half-jokingly said that CHF 50bn would be tempting. At least we know what figure could be negotiable (yes there are a few groups within luxury that could afford CHF 50bn). But it is a heavy price. Last wild card is AP. How long can they manage to be alone?
- Continued rise of the electronic or smart watch: As every year goes by, I see the electronic smart watch take a more prominent role. The Apple Watch already sells more watches than the entire Swiss watch industry (Apple sold 31m units last year vs 21m units for the entire Swiss watch industry). Although Apple doesn’t specify an exact sales amount for the Apple Watch but they do disclose that their wearables unit (which includes the Apple Watch) sold $10bn last quarter. The Apple Watch and other wearable (Fitbit etc) is a fast growing segment. I think with time we will see people wearing a fine high-end mechanical watch only on special occasions. Just like the days of the 3-piece suit are over, the days of wearing an elegant Patek on a daily basis are also numbered. This brings me to my next point.
- New casual wardrobe will influence modern and vintage watches: People are dressing ever more casually (not something I am in favour of) but it is what it is. This will of course influence what watches they wear. I see a continued interest in timeless sports watches that can be worn with a track suit but also blazer. Where a tie used to be standard attire for a man, when I see a man today wearing a tie, I think ‘Wow. Nice to see that again. It is dying out’. And this change of consumer wardrobe will influence the watches we buy.
Before I go onto to comment on Vintage watches, let me quickly comment on prices. I think the ‘bubble’ has burst in terms of the mania of the Nautillus and steel Rolex sports watches with 5-7 years of waitlist. Evidence already exists on Chrono24 with dealers becoming more realistic with their pricing. I think in the end it comes down to basic economics too. Too much supply (even with demand still being stronger) creates a problem sooner or later. Why?
Because luxury is about dreaming and aspiration. About owning something very special. So, when every person around the block owns a steel Rolex sports watch – where is the allure of owning, what is just a ‘commodity‘ watch at the end of the day?
Comment on Vintage watches
As many of you know, Vintage watches is where my real passion lies – and for that reason I take an even greater interest what will happen to vintage watches in the future. While in terms of pricing I am more optimistic on vintage than on modern watches – I see other problems for vintage watches going forward.
I have been collecting vintage watches since 2012, and this is the first time I can recall where we are facing a true financial crises. Now in 2008 where we had the last financial crises, vintage watches held up relatively well in terms of prices. This is the impression I got after doing my own research into this matter. Therefore, I am extremely curious how watch prices will hold up in face of an upcoming global recession.
First allow me to lay out some arguments to be optimistic:
- Collectors will ride out the storm: I think even if a collector is thinking about selling something in the future, he will want to have others ‘test’ the market before he decides to sell. This will create unintentionally another problem though: Not many incredible pieces will come to the market as nobody wants to sell his trophy assets in this lousy environment. However this will also ensure that not a flood of great vintage watches hit the market at once (which would be negative for pricing).
- Vintage watches have a fixed supply: This has always been a strong argument in favour of vintage watches. There simply is a fixed amount of them out there. This will help pricing.
- Strong interest with new collectors coming to the market: In 2008 there were not that many young collectors. Today this is different. Social Media has caused young collectors to learn incredibly fast about vintage watches and start collecting them too. More collectors are fighting over what is essentially a fixed supply. This should help prices too.
- Exceptional quality and rarity will always be in demand: If there is one thing to be sure of, this never changes. Collectors will fiercely fight over the best watches that come to the market. This happens in good times but also in bad times. There is always someone with enough financial assets willing and intelligent enough to recognize quality and fight for the very best.
- Vintage watches age well: This may seem obvious, but it is an extremely important point. You can’t put a price on patina. On how a watch has aged. This is another large advantage vintage watches have in my opinion. More people are recognizing the allure of owning a vintage watch.
While vintage watches have a lot going for them here is some of the worries that keep me up at night:
- True leverage in watches is higher than people think: I often hear of the argument that vintage watches are bought by true collectors only. Unlike vintage cars (which are often financed) watches are bought outright by collectors with no leverage. While this may be true to an extent – there is far more leverage than people think. Let me explain: Wealthy people have collectables as a stand alone-asset class. Watches are simply one part of this. While you cannot finance a watch easily (which you can do with cars) it doesn’t mean many collectors are not leveraged with their watches. They are. They have bought art, cars, watches over the past 10 years and its all sitting as one asset. And they use this as an asset to invest in other areas with the collectables often used as collateral. It makes sense when interests rates are so low, you borrow and get higher returns investing elsewhere (view it as an almost guaranteed present from the federal reserve). When things get ugly, these leveraged collectors could have to part with some of these assets. Watches are not immune. I know two large collectors of watches who have this financial setup.
- How many speculators have entered the watch market over the past 10 years: collecting watches is fun anyway. It’s even more fun when they increase in value. I often wonder how many of these collectors bought for financial enjoyment rather than just for themselves? To collect out of pure joy. I think this year we are about to find out for the first time since a while. It will be good test to see how resilient the vintage watch market really is when prices are just not increasing but rather flat or going down.
- Casual wardrobe and changing times: We cannot underestimate this. There are simply less and less occasions to wear an elegant high-end watch. This is also why fur coats and high-end jewelry and black tie outfitters are suffering in my opinion. There is simply a lack of occasions. We just are not living like people in the 1950s and 1960s did.
- Social distancing is a problem for vintage watches: For people who are worried about getting close to other people or trying other people’s watches on – this is major problem. Think about what happened to me the restaurant, in the beginning of this post. Unless we find a cure or vaccine for this virus people are not going to be trying other peoples watches without being paranoid or getting the disinfectant wipes out. Think about the GTG and the close bond vintage watch collectors with each other. Sharing, touching and exchanging watches in this environment. The close bond between collectors is what makes vintage watch collecting great; but in times of COVID 19 is also its ‘Achilles heel‘ in many ways.
Allow me to expand on the last point briefly. The way we are going to view vintage watches has to change going forward not only in terms of viewing but also in terms of the auction process itself. Starting with the viewing, I argued already last year that we should view watches differently, and now even more so especially in times of COVID 19. I really like how Christies puts important watches in transparent watch boxes, and you can only view them with a staff member at hand. I think all auctions will think about this going forward. It doesn’t mean all watches have to be viewed in closed in boxes but we can’t continue having 100 people inspecting every watch with their bare hands (no matter how many times they wash them). I think we all better start getting used to plastic gloves.
Also the viewing should change. On one hand you want as many people viewing watches as possible, as there are many aspiring collectors who might not be able to buy an important watch today, but they will tomorrow. On the other hand, maybe the good clients of auction houses should have some kind of priority? I don’t know how solve this problem. Also, the actual auction logistics need to change. The overcrowded rooms, that are unbearably hot, are hopefully a thing of the past. I don’t know how to fix the problem of social distancing at auctions houses but rest assured – the auction houses teams are brainstorming solutions because something needs to change (which is why last year already I bid online from the comfort of my hotel room in Geneva).
Yup, this crisis is one big headache for the physical auction process. I can imagine that the online auctions (which are already a fast-growing part of the vintage watch world) will continue to gain traction. Which on one side makes sense, we should take advantage of technology. On the other side I am a big believer that important watches should be viewed in person. The physical process of interaction of an auction house staff at various levels and the collector.
No online chat can ever replace that.
Closing remarks
I have had a lot of time think in the past month. About consumption and luxury.
The one positive about this crisis is what we are all sitting in the same boat. No matter your background, your nationality or your financial status. We are forced to make do with the most basic freedoms we have. For me this has meant cooking and re-learning how to cook. Going running in the woods. Managing the best I can on a day by day basis with relatively little luxury. Things I took for granted now I view as an ultimate luxury. I can’t wait to eat in a restaurant again. Enjoy a massage. Have my morning coffee served by someone. That was a pretty basic need of mine a few months ago which I took for granted. Now it is a true luxury I cannot wait to receive.
Also, in these times of quarantine, I came to realise one thing. We are social animals at the end of the day. I also think this is the reason we like to collect things. Which brings me back to the topic of watches. Without doing it on purpose we collect things maybe out of status, but for sure out of social behaviour. Wanting maybe to belong to an intellectual part of society. A like-minded group of connoisseurs that appreciates fine and rare things. There is nothing wrong with that. Maybe also as a game to distract ourselves from our daily lives and work.
But when things are tough, like they are right now, the luxury of collecting anything takes a different meaning. Instead of dreaming about the next purchase, I simply concentrated on being content with what I had. And upon reflection I realized in times like these that my collection activities lost some relevance. Frankly I was more focused on managing my daily life which involved how I would survive this quarantine period and focusing on my mental health. Suddenly the fact that one of my Rolex watches had a ‘Swiss only’ signature and was period correct lost all relevance. There were far bigger problems out there. Without a doubt my perception of what luxury means has shifted slightly.
Eventually this crisis too shall pass. I just wonder how the Post Covid 19 world will look like for the watch industry. Especially for vintage watches which for me stands for social interaction. Sharing, meeting, exchanging, touching, viewing, inspecting them with friends, collectors, dealers auction houses, retail shops. To me this is pretty much the opposite of social distancing. I think the vintage market will have a tough time in 2020 but eventually will find a way to figure this out. And for modern watches perhaps this crises is exactly a needed wake up call. Maybe Baselworld and Watches of Wonder (formerly SIHH) should be held every two years anyway instead of annually? A chance for watch brands to really think before they release something in the future?
Often in times of crises, good things materialise. Some of the greatest companies in the world were created and thrived from times of chaos (Google and Amazon as a few examples) as they are forced to be creative and innovate. Maybe this crises is exactly what the watch industry needed, to take a deep breath. Step back. And really ‘wow’ the consumer in 2021.
