Has Swatch Encountered Diminishing Returns?

They say a picture is worth a thousand words, but I'm not sure it is worth a thousand points of data.

My Mission to Mars MoonSwatch and Fifty Fathoms homage by Steeldive.

The pictures from the last 10 days or so suggest that Swatch has delivered another blockbuster by way of their most recent "collaboration" with Blancpain, this one officially known as the Bioceramic Scuba Fifty Fathoms (SFF). Social media served up numerous photos of queues outside of Swatch stores ahead of the SFF launch on September 9. Plenty of aspiring owners waited long hours for their chance to buy the newest accessible riff on a design that typically commands a price in the five digit range. I'll admit that the photos convinced me that Swatch has a replicable formula for developing watches that are so in demand they can be flipped for a sizable premium.

As I've done before, though, I prefer to ask the data what, exactly, is going on with the release of this timepiece. And the data definitely tells a different story, particularly when we compare and contrast the Scuba Fifty Fathoms (henceforth SFF) drop with the MoonSwatch drop that preceeded it. One thing we'll see is that the recent Swatch releases are consistent with a principle economists refer to as diminishing returns. But let's start with the beginning.

I used an eBay seller tool to gather the selling price for MoonSwatches and SFFs that were flipped during a period of time spanning the official drop date. I've previously shared that asking price can be very different than actual selling price, so I was careful about using data on the actual price paid when a sale was successful. I crunched the numbers a bit and put together the graph presented below. This graph allows us to compare secondary market outcomes during the two launches.

Horizontal access is days from release, M=MoonSwatch, SFF = Scuba Fifty Fathoms.

Let's beging with the bars, which show the number of each watch sold: grey for MoonSwatch and orange for SFF (for real, Excel chose these colors on its own). The data tells us that flipping behavior was somewhat similar for MoonSwatch and SFF in that both watches were sold on eBay before the official launch date. Also, both watches saw the largest number of preowned sales on the launch date itself.

From there, the sales volume similarities end. Total eBay sales of SFF were much smaller in number than sales of MoonSwatch. There were 702 MoonSwatches sold over the nine days in question and only 208 SFF sold (70% lower than MoonSwatch flipping). Moreover, the trend in preowned sales volume was different for the two releases. For the SFF, sales constantly dropped over the days after the launch wherease for the MoonSwatch, there was an increase in sales in the third day after the release.

Now, it would be one thing if SFF sales volume was smaller because buyers love the watch so much they were not even willing to sell it on eBay. But pricing patterns suggest this is not what happened. The lines in the graph show the flipping premium, that is, the percent by which the sold price on eBay exceeded the retail price of each watch. The MoonSwatch premium peaked at 500% the day after the launch and then gradually decreased to a still-impressive 281% at the end of the sample. In contrast, the highest flipping premium for the SFF, at 229%, was lower than the lowest premium earned by the MoonSwatch. Moreover, the peak SFF flipping premium appeared two days before the watch was released (far earlier than the peak MoonSwatch premium). The lowest SFF premium, at around 80%, occured in the last two days of the sample.

The data is fairly clear: fewer SFFs were flipped on eBay and the return for reselling the newest Swatch "collaboration" was noticeably lower than the return to flipping MoonSwatch (I ran a formal test and the difference in returns is statistically significant). The data here is consistent with the principle of diminishing returns. This principle states that as more of an activity is undertaken, there is a smaller increment of benefit from repeating the activity. In undergraduate economics classes, we sometimes give the example of drinking a beer: the first one is really enjoyable but the tenth in an evening is typically not as fun (and may actually harm you).

In this case, it certainly appears that buyer reaction to the second Swatch collaboration was more muted, notwithstanding all those photos of long lines at boutiques. To be fair, it could be the case that flippers have decided not to use eBay to resell watches this time around, but I have no reason to believe that would be the case.

A natural question would be: why was collector response cooler this time around? I think there are a number of plausible explanations. First, it appears watch prices have continued to slide in recent months, so SFF may just be a victim of circumstances. Second, unlike MoonSwatch, there was a bit of a collision between the SFF offering and some of the "brand values" embraced by Blancpain. The OG Fifty Fathoms is much beloved by the ocean exploration community and Blancpain has responded by partnering with a number of ocean initiatives connected to ecology and sustainability. Right or wrong, the SFF is perceived as a plastic watch (Bloomberg coverage of this issue is absolutely amazing and suggests that Swatch's own patent describes bioceramic as a plastic). We know that the ocean environment has been heavily damaged by plastics. I wouldn't blame any collector who felt that SFF contradicted Blancpain's environmental commitment, thereby diminishing receptiveness to the new design. This type of issue did not crop up in the case of the MoonSwatch (although, to be fair, as I've written with co-authors, pollution is also a problem in outer space, but this problem has less to do with plastics).

At the end of the day, Swatch has managed to pull off another release which did generate a lot of excitement and, yet again, deliver a watch earning a premium on the secondary market. The difficulty of pulling off this kind of product launch should not be underestimated, and Swatch should celebrate their successful sequel. Nevertheless, some careful consideration is owed to the fact that the return to releasing a collaboration with an exclusive luxury brand appears to have diminished. At some point, the return may become low enough that it may not be in the interest of the Swatch Group to continue this strategy, at least in the short run. Only time will tell.

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