When I was asked, back in February, about my outlook for the luxury watch market I replied, "I think 2020 is going to be filled with a lot of uncertainty." I understated the situation. It might be plausible to describe the present level of uncertainty as monumental. There is no need to go through all the unprecedented events punctuating this year but an open question remains: how is the watch market fairing?
I make a habit of checking auction results as much as possible in order to answer this question. Many market indicators are unavailable to watch industry observers. Prices with authorized dealers are, by and large, fixed. We can't see them go up if demand is healthy or drop if demand slackens. If prices are too low for a particular reference then there is a shortage, waitlists grow and we hear grumblings but we have no measure of how bad it is because the lists are secret. If prices are too high then we begin to see watches appear on grey market outlets at steep discounts. Or, manufacturers claw back excess inventory and destroy it, another indicator shrouded in mystery lest the public learn who is making the undesirable pieces.
Auctions are different though. Expert price expectations for a given lot are there in writing. The price outcome is completely flexible depending upon bidding strength. And the outcome is also publicly available. This week we are fortunate to have an important signal of market conditions supplied by Sotheby's "Important Watches 2020" auction which offered 218 timpepieces
In prior writing about auctions I have presented a more impressionistic sense of results. This time I decided to crunch the numbers in a more formal manner. First a caveat, though. The Sotheby's auction was online. I do not believe a public preview was available. In a normal year, this would make the auction a bit of an outlier. This year it is quite possible that the lion's share of auctions will follow this path due to the pandemic. In what follows I also will not discuss the role of lot condition as a factor in determining outcomes. Condition is a subjective topic and not as quantifiable. I may be able to remedy this issue in the future.
First the forest before we discuss the trees. Of the 218 lots, 60 went unsold. At 28% this strikes me as a fairly high number. During the Phillip's "Game Changers" auction held in New York in 2019 100% of lots on offer were sold. Nevertheless, the Sotheby's sold lots totaled $3.9 million, yielding approximately $975,000 in revenue under a 25% buyer's premium. The sold lots barely outperformed the house's expectations. If we take the midpoint of the published estimate lot values then, on average, lots exceeded that midpoint by 15%. But we must interpret this result cautiously given the noticeable number of lots which did not sell.
Collectors and enthusiasts often want to know which brands are the most desirable. First, I'll offer a breakdown of the brands represented in the auction. Over half the lots were Patek Philippe and Rolex references, with the catalogue containing 57 examples from each brand. Omega, Cartier, Vacheron Constantin and Graff were presented in more than a handful of lots. Four or five examples each of A. Lange & Sohne, Audemars Piguet, Breguet and F. P. Journe were also on offer.
There were many brands with a small number of lots that "batted 100%" (ie all the brand's lots sold). The list of these brands is below. Of note is Audemars Piguet and F. P. Journe with 100% sold out of 5 and 4 lots, respectively.
As the saying goes, heavy is the head that wears the crown. Rolex and Patek faced a high bar for sell through given how many lots were on offer from each. They did well, only 23% and 25% of the lots from these brands did not sell (performance which was stronger than the auction as a whole). Omega performed similarly in terms of lot sale percentage. The figure below shows the "lot failure" rate for each brand.
Collectors and enthusiasts are often interested in knowing which brands are "sleepers" or perhaps unexpectedly valuable. In the figure below I present the average by which a lot's sale price exceeded the midpoint of the estimated value range. Piaget, Jaeguer-LeCoultre, F. P. Journe and Audemars Piguet are noteworthy performers under this measurement (there was one Piaget lot sold for more than double the midpoint of the estimate). It is interesting to note that Omega outperformed Richard Mille, Rolex, Patek Philippe, Vacheron Constantin and Lange under this measure. But none of these well-known brands exhibited price outcomes which far exceeded expectations.
Of similar interest is whether a particular brand is losing its allure. This could represent a buying opportunity should such brands "rebound" in the future. In the graph below, Breitling and Heuer stand out as highly regarded manufacturers with a number of well-received recent references (often leveraging the brand's "back catalogue") and each shows a great deal of potential. Yet in the Sotheby's auction they fell short of the house's expectations. The same could be said of Bulgari, which has been highly praised for recent references of the Octo Finissimo. Yet in the Sotheby's results this brand was undervalued.
I will offer one final figure from the Sotheby's auction. In the graph below the share of lots sold runs along the horizontal axis while the vertical axis displays the percent by which the price exceeded the midpoint of the house's estimated value. The outcome for each brand is marked by its name in the graph, I only include brands with two or more lots in the auction. Generally speaking the northeast quadrant is the most desirable neighborhood for a brand since it represents strong price performance and consistent selling. This figure is meant to represent two dimensions along which a brand performed. For example, there are six brands which sold all lots: F. P. Journe, Audemars Piguet, IWC, Panerai, Richard Mille and Heuer. Journe and AP are perhaps the top brands under these measures since they overperformed by a fair amount and also completely sold. Heuer underperformed but also sold 100% of its lots. Depending upon a collector's priorities, Heuer may actually be preferred to Ulysse Nardin since the former is more likely to sell (even though the latter performed better compared to the auction house estimate).
The Omega, Patek, Rolex triad represent an interesting proposition. Rolex and Patek are nearly identical in their performance and sell rate but Omega offered a better performance at the cost of a lower selling rate. Once again, Piaget is an outlier. The one lot from this brand performed better than all the others but there is a lot of risk that a Piaget reference may not sell.
In conclusion, the Sotheby's auction results provide an important window into the state of the watch market. My assessment is that the preowned and vintage segments have definitely cooled off in recent months but sought after brands are still selling. In many ways watches are part of a larger slowdown in luxury products. At a recent gemstone auction the top lot, a 3-carat blue diamond with an estimated value between $4 million and $6 million failed to sell, along with half of the other lots. It remains to be seen if this trend will continue. As I complete this post the Phillips Geneva Auction: XI is set to begin in less than 24 hours. We will no doubt learn more once the hammer falls (or doesn't fall) on the 218 lots offered there.
News recently broke that watch brand Rolex was on the receiving end of a €91 million fine levied by French authorities. A view of Rolex's offices in France. Source: Google Maps. Generally, the headlines ascribed this fine to Rolex's alleged practice of prohibiting online sales of its watches. However, I've looked closely at the situation and I don't think those headlines are completely accurate (although they're probably what French authorities would want you to believe). I came to this conclusion after reading a Google translation of a 134 page report issued by the French Competition Authority on December 19, 2023. Generally speaking, such documents do not make for engaging reading. However, for those who know how successful Rolex has been at maintaining a comparatively high level of corporate secrecy, the French report provides a compelling and rare insight into some specific aspects of the brand's business. It is these insights which lead me to conclu
There comes a moment in the servicing of a watch that is probably easy to miss among the hundreds of steps required to remove a movement from a case, inspect the parts, repair anything amiss, lubricate all the pieces, and put the whole thing together again. A watch that Rolex's investigator bought at Beckertime for approximately $4,500. The lawsuit refers to this as "Counterfeit Watch One." That moment is when a watchmaker takes the dial and reattaches it to the movement. There is nothing particularly unique when it comes to the tools required or the tasks involved in this step. Instead, what is unique about this moment is that the watchmaker holds in their hand a mark that is not the property of the watchmaker and it is not exactly the property of the watch's owner. In the case of Vacheron Constantin, that mark is a Maltese Cross. For Audemars Piguet, it is the brand's initials. When it comes to Rolex, the mark is a widely recognized crown. If the reassembly
Among many avid watch collectors, the term "in house movement" seems to elicit eyerolling disdain. Pieces of an assortment, including balance spring, from a non-Swiss movement. There is a sizeable perception that "in house" is, in fact, nothing more than an unnecessary marketing ploy designed to tease more money out of the wallet of buyers (by way of definition, an "in house" movement means that the mechanism inside a watch was predominently manufactured by a brand itself, kind of like "we make our own bread" at a restaurant). I'll confess that I'd begun to think similarly, that is, until I read a 66 page report posted by the Swiss Competition Commision on May 10, 2023. Yes, this is the kind of thing an economist finds interesting on a weekend, or at least this economist. Before we get into the details of this report, in the interest of full disclosure I should say that the original document was in a different language: lawyerese.
There were many brands with a small number of lots that "batted 100%" (ie all the brand's lots sold). The list of these brands is below. Of note is Audemars Piguet and F. P. Journe with 100% sold out of 5 and 4 lots, respectively. 
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