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A Rolex branch in London
: British retail experienced the sharpest decline since the Corona crisis in December
Photo: Chris J. Ratcliffe / Bloomberg / Getty Images
For a long time it looked as if the luxury watch industry was defying the recent crises and wars.
First the isolation of China during the Corona pandemic, then the sanctions against Russia as a result of the Ukraine war and finally the historically high inflation: the market for luxury watches boomed despite all of these developments.
Just a few months ago, the industry had its sights set on new records.
The collective stock market crash in luxury watches now seems all the more astonishing.
The shares of the trading giant Watches of Switzerland, with brands such as Rolex, Cartier and Patek Philippe, have remained at a three-year low since last week.
On Friday, the London-listed paper fell by 36 percent.
The shares of the luxury group LVMH (Tag Heuer, Tiffany & Co., Bulgari) and Kering (Gucci, Saint Laurent) also fell by 2 percent in the middle of the week.
Things also went downhill for the Swiss luxury stocks Richemont and Swatch.
The global economic downturn appears to be reaching the wealthy after all.
The growth of the luxury watch industry is now slowing and sales are well below expectations.
After an unprecedented boom during the pandemic that caused many manufacturers to raise prices significantly, demand for luxury watches is weakening.
And the prospects currently look rather bleak.
Travel and fashion instead of luxury watches
The world's rich are apparently holding on to their money more than in previous years or spending it on other things.
Watch retailer Watches of Switzerland, which announced its sales and profit forecast last week, spoke of "changing shopping habits among wealthy consumers" and the difficult macroeconomic situation that is likely to further weigh on business.
Christmas business was particularly weak for the top seller of Rolex watches.
"The holidays have been particularly volatile for the luxury sector this year as consumers spend their money on other goods such as fashion, beauty, hospitality and travel," said company CEO
Brian Duffy
, 60.
Just over two months ago, the company said it was "stronger than ever" and forecast it would more than double its sales and profits by 2028.
Accordingly, investors reacted with shock to last week's profit warning.
Despite the growing jewelry business, the group still generates the majority of its business from expensive watches.
Rolex accounts for about half of sales.
Christmas business went better for the luxury goods group Richemont, as the jewelry brands Buccellati and Cartier offset the weaker watch business.
Reduced banker bonuses
The weak retail trade in Great Britain is also a problem, where luxury consumption has flourished for years thanks to the large influx of tourists from Russia and China.
Meanwhile, luxury watch retailers in the UK are “challenged”, said Watches of Switzerland, which is also based there.
In December, retail experienced the sharpest decline since the beginning of 2021, when the corona crisis and lockdowns had a negative impact on business.
The British economy stagnated in the second half of 2023 and slipped to the brink of recession.
Since then, British wage growth has slowed to such an extent that even junior investment bankers in the financial center of London have had their bonuses cut.
There is a lull in mergers and acquisitions in the industry, which is also reflected in the salaries of higher earners.
China is no longer the safe market it once was
Luxury watch companies are also concerned about the weak consumer mood in China.
The People's Republic is the largest market for luxury watches.
The mixed economic data for 2023 from the People's Republic sent a whole series of luxury stocks plummeting on the stock market last week.
Although the country achieved its own economic growth target last year, the real estate market remains weak and people's spending mood is weak.
The unclear outlook for the Chinese market means that luxury companies can no longer rely on their Chinese business to compensate for declining sales in other markets.
Other ways to invest are more interesting
In addition, high interest rates are depressing demand for expensive watches.
Since the central banks have raised key interest rates enormously to combat high inflation, bonds, fixed-term deposits, etc. have become more attractive again.
While luxury watches were in demand as an alternative investment for years at times of low interest rates, this has been reversed due to the interest rate turnaround.
The fact that the value of a luxury watch no longer increases after purchase has been evident in the secondary market for several years.
Since March 2022, the prices for used watches have been collapsing rapidly.
According to the Watchcharts index, which analyzes transactions by the top ten luxury watch brands, the secondary market fell 12 percent in a year.
Used Swatch watches lost the most in value with an average decline of 18 percent in 2023, as did Audemars Piguet.
Patek Philippe models fell on average by 15 percent and Rolex by 8 percent.
When it comes to new sales, however, manufacturers and retailers such as Richemont subsidiary Jaeger-LeCoultre cheerfully increased prices despite the consumer crisis - sometimes up to five times in 13 months.
After all, there were enough reasons for this with inflation and shortages of suppliers and skilled workers.
Rolex has also significantly increased the prices for its new watches in many markets for 2024.
It will probably not be the last increase this year.