Luxury Watches Selling Above Retail?
A trend was first highlighted a few months ago by The Watch Whisperer (TWW), our friendly watch collector and watch insider. He has referred to this trend on several occasions, and I thought it would be worth further investigation. There is a select band of watch brands and a few highly desirable watches within those brands that, if these luxury watches are sold at auction, command a huge premium over their retail price. This is counterintuitive for everything we buy, when we go into a shop and make a purchase we expect it to drop in value when we leave the shop. Why are these watches different?
Buying From the Manufacturer
Buying that beautiful luxury watch from the impeccable boutique should be a journey of delight. You have spent a long time researching exactly which watch to purchase and saved the money. There should be a wonderful opportunity to celebrate your acquisition with an enjoyable journey to the location of your choice at the time of your choice to make the purchase and stand in awe when it is placed on your wrist. But is that what happens? No!
For many of these luxury watches, there is no way you are able to purchase them as and when you wish without paying a premium, sometimes a massive premium. The TWW highlighted this and discussed this phenomenon at some length in our last blog, and in particular how the brands manage it. This caught my eye as I looked into this phenomenon I realized that it may not be restricted to just watches, so deserved a more detailed investigation.
Buying That Coveted Luxury Watch
Our conversations with The Watch Whisperer have provided some good insight into the process you need to go through to purchase your dream piece. First, you need to get on the correct waiting list for the watch you are looking to purchase. Maybe that is reasonable as there are production limits, but it is not a free for all to get on the waiting list, you need to qualify! So what do you need to do to qualify?
Qualifying, For The Opportunity, To Spend Money?
The Watch Whisperer has been a watch enthusiast for over 30 years, over that time he has developed a network of authorized dealers with whom he has done significant business. With a track record like that there is no authorized dealer who knows him who is not going to put him on any waiting list of his choice. But it is not just that he has purchased the watches from these dealers, he has always held the watches for a good period of time which helps the dealer’s reputation with the watchmaker. This reinforcing cycle between the dealer, owner, and manufacturer appears to continue over the long term and is crucial. TWW has seen anecdotal evidence that there is a relationship between the time the dealer has known you as a collector and the access you would have to the rare items. The longer the relationship more access you appear to have.
This does seem to be rational from the dealer’s perspective, they want to encourage those who are regular customers to come back time and time again. But how does this benefit the watch brand? Ultimately the dealer is a middleman and is at the whim of the watch brand and the customer, so what is the watch brand trying to achieve?
Less Supply, More Demand, Higher Prices
At the simplest level, restricting the supply of these watches in the market buoys values as demand outstrips supply. There are two sides to this though, it is not just that the watch brands reduce the supply into the market but when the watches are sold the buyers should be people who want to own the watches. The brands achieve this by working with the dealers and selling the watches to watch enthusiasts who are most likely to hold and enjoy the watches. Key for the brand is to avoid selling the watches to people whose only objective is to immediately resell or “flip” that watch at a higher price.
By restricting the supply and ensuring the watches are only sold to qualified buyers the watch brands are able to control, to a certain extent, the retail price and the price in the secondary market. Plus, and this is a big plus for the brands, these luxury watches will maintain their exclusivity.
Just One Please
The problem is, what if you just want that one beautiful watch? Or you do not have the patience or the money to develop a relationship with watch dealers over 30 years? At that point, the only option appears to be to go to the secondary market, either an auction or a specialist dealer.
Trouble arises here because if you have a relationship with an authorized dealer and have access to one of these luxury watches from your chosen brand, it is unlikely you will spoil that to merely flip it. The repercussions could be significant. Chances are that you would lose your ability to get onto any waiting lists with that dealer. How do they do track the watch and know you have flipped it? It is simple for the brand and the dealer to track each watch that is made and sold these days, especially with all the tracking features on each watch.
The effect of all this further restricts the number of any given luxury watch in the market. This ensures there is always a demand for the specific watch, whether at retail or in the secondhand market. The point to note is that even after you have managed to get onto a waiting list, the average time on a waiting list is currently over two years.
Is This The Goal?
Those who have been through a challenging and unknown process just to receive the opportunity to purchase an exclusive luxury watch will have invested a lot of emotional energy to be “allowed” to wear that watch. Is it this process that the watch brands are really trying to create for their customers? My suspicion is that the brands are trying to ensure exclusivity for these watches, which is driven by the customers’ mentality.
If we look at this from the customer’s perspective, the watch’s price is not a concern for most of them. TWW has noticed this; for most watch collectors at this level, if they want the watch, the money will be available. The challenge for the brand is to command something more than just the price of the watch. These customers are looking for something more than a merely expensive piece; monetary value is not sufficient. In achieving waiting list status and then waiting, the watch brands are creating something more for their customer.
It appears that the brands are putting up barriers to their customer, but there has to be something more. Where else do we see its phenomenon? Can we learn from another market? We had to dig further.
Luxury Watch Phenomenon – Hits Shoes!
Strangely we saw exactly the same situation in the shoe market. The best and most current example we found was the collaboration between Nike and Dior with their Air Jordan 1 x Dior creation. Just as there are watch collectors there are sneaker collectors, and in particular, Air Jordan collectors. When the collaboration between Dior and Nike was announced there was a lot of buzz about the new shoes and the collectors went into overdrive in anticipation.
Air Jordan – The Patek Of Shoes?
Air Jordan’s have been a shoe wear icon since the 1990s and these shoes continue to engage people the world over. The Dior collaboration was the first time one of the world’s leading fashion brands had collaborated with Nike on their most famous shoe. Launched on 1 July 2020 with a retail price of US$2,000 a pair, the Air Jordan X Dior was never really in stock. Only 8,000 pairs were manufactured, with 5,000 pairs reserved for Dior’s clients. As you can imagine as soon as these shoes were launched they were very popular on the online resale pages, and prices skyrocketed.
The similarities between watches and shoes start to emerge. The brand has restricted the supply of a coveted item into the market. This is further rarefied by making the vast majority of the product available to only a select handful of known customers. All we would need is for there to be a waiting list for the shoes for Dior customers and the structure would be almost identical. There seems to be a bit of a pattern.
More Than Just Supply & Demand
Price appreciation seems to be a symptom, there is definitely more than simply supply and demand driving this. But what is it? What is it that unites the buyers of high-end luxury watches and buyers of Dior x Air Jordan’s? It is obvious what the brands get from this situation, they are able to maintain the huge price premiums, manage demand, and ensure that those who own these items covet them, and are less likely to just flip them for a quick profit.
Let us go back and have a look at this from the customer’s perspective. Our customer has been through the hurdle of getting on the waiting list, then waiting to finally have the opportunity to spend their money. They receive the watch of their dreams from the authorized dealer, and soon as the customer leaves the shop, their watch could be worth double or more than what they have just paid for it. Who does not want to have that feeling?
This, I believe, is where we start to get close to the truth of how the brands are trying to manipulate the situation, they are using human psychology. It is quite genius to sell these products not merely as a functional item but also to create an emotional bond between the owner and the product – even before the owner has an opportunity to even purchase the item.
Our Human Frailty
What is that base human desire that Dior, Nike, Patek Philipp, Rolex are aiming at? It is very simple, it is driven by status and recognition. The waiting list, or rather the challenge to get on the waiting list is a hurdle for the customer to verify their status as being good enough to be on the waiting list. Once the watch is on the customer’s wrist, the watch is hard to purchase will have been well telegraphed in the correct circles, most effectively by the secondary market prices. The owner with the watch on his (or her) wrist will signal to the world their status as good enough to own one. This status is something that is very important to human beings, and is a very base level of our brains, hence the willingness for people to pay huge premiums in the secondary markets to get the watch of their desire to reflect their desired status.
Going back to the original question, Why do Luxury Watches Sell at Huge Premiums To Retail? It is easy, I call it the “Status Premium.” The difference between the retail price and the watch’s price in the secondary market is the monetary value ascribed by the market to the status needed to get on the waiting list and then wait and be selected for your watch. At this level of the watch market, the watch brands are selling a beautiful piece of engineering and social status.
For mere mortals who love watches and are looking for an alternative, what are the options? SNGLRTY was born out of that desire to create beautiful individual watches for those who do not seek the affirmation of the crowd but want to enjoy a creative journey with the watch on their wrist. If you want to experience a new way to purchasing your watch, please email us, and we will arrange a personal consultation with Daniel or me. Alternatively, if you are looking for more information, please visit our website, or check us out on Instagram, Facebook, LinkedIn or Twitter.
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