Inflated prices, generational shift and opportunities

I often come across inquiries from people who look to purchase a watch as an investment, and my answer is always the same. I let them in on this little secret: for the past 45 years, the watch industry and its distribution channels (distributors, agents and retailers) have quietly been inflating prices, and more drastically so in the last 20 years. In 2013, when I was acting as lead competitive analyst at Longines, I carried a side research on the evolution in price of the Omega Speedmaster Professional. Using official state records, I traced the cost or Swiss real estate (in red) and Swiss wages (in blue) from the 1970’s to the current day, and I used collectors information to account for the price of the Speedmaster (in green). Theodossios Theodoridis at created a detailed account of the price evolution between 2003 and 2015, but here is the chart from my research:

Why did I choose that model in particular? Because it has been kept on the Omega catalogue for the last 47 years, and they haven’t changed a single thing to what it is made of. If we compare price increase and purchasing power, we get this:

In 1970, a Swiss worker had to work 14.5 hours (almost 2 days) to afford a Speedmaster. In 1995 he had to work 4 days, and by 2013 he had to work 186 hours (23 days) to buy the very same watch. This, better than the rise of smart watches, is explaining why sales of traditional watches have slowed down. Customers can no longer make sense of the current inflated prices, and frankly I don’t blame them. The “bling” bubble that preceded the Subprime Crisis had at least the positive effect of motivating established brands to try bold and daring design ideas, which sadly they dedicated to the High End price segment. An iconic example of that era was the tentative revamping of the Wyler Vetta brand by Binda, with a design from the Zagato studio to reposition it from its historic Middle End segment to a new position in the High End segment. The attempt completely tanked, as the timing of their release was unfortunately compromised by the unfolding Subprime Crisis.

In the wake of the Great Recession, institutional brands decided to retreat and focus on traditional looks, leaving a creative void that crowdfunding entrepreneurs had the foresight to fill in. In the meantime, Millenials have been coming to the marketplace. This generation has grown up with omnipresent digital screens and has almost never felt the need to carry a watch on the wrist since that information was easily available from the phone in their pocket to the digital screen on the microwave oven, so it looks like they cannot make sense of the inflated price of established brands. My “Speedmaster standard” as explained above actually makes sense: like former generations, those customers see it as a reasonable thing to spend between 2 to 4 days of wages on a watch, which is considered by sales professionals as the ceiling of impulse purchase. Three months of wage seems outrageous, and the reality is that with the current state of inflated prices, most established brands have been placing themselves out of the consumer’s mental reach. So one of the ways for watchmaking entrepreneurs to address that is by placing their product within the consumer’s reach such as Daniel Niederer, founder of SevenFriday (example below), who basically took some pre-subprime concepts where institutional brands left off, but made them affordable by positioning his brand in the Middle End segment.

It also looks like the planned lack of boldness adopted by institutional brands in this time of recession is causing customers to look to the past for more choice.

Newstalgia, or when the old becomes the new new, seems to be a growing trend (example above from Henry London), but there are other examples like Dan Henry watches or Baltic watches. And genuine vintage watches are now the subject of a growing interest. Hodinkee just published this morning a shortlist of a few iconic vintage watches that in their opinion, are likely to increase in value. That is what I would bet my money on: Historical Perspectives. Ten Vintage Watches That Should Be More Expensive Than They Are, And Why.

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