The secondary market for luxury Swiss watches has experienced a continued decline, according to a recent report by Morgan Stanley in collaboration with WatchCharts. The report analyzed various industry metrics, including pricing trends, inventory levels, and absorption rates, to offer insights for investors and watch enthusiasts assessing the market’s stability after the speculative bubble burst in March 2022.
Persistent Price Declines
In Q2 2024, the secondary market for Swiss luxury watches saw a 2.1% quarter-over-quarter price decline, marking the ninth consecutive quarter of falling prices since Q2 2022. The WatchCharts Overall Market Index showed a yearly performance of -9.4%. Notably, the big-name brands faced significant declines: the Rolex subindex fell 7.1%, Patek Philippe dropped 10.6%, and Audemars Piguet shed 12.4%.
Broad-Based Weakness Across Brands
The decline affected nearly all brands, with none exceeding an average market price of $3,000 showing positive performance in Q2 2024. LVMH brands underperformed the overall market with a notable 3.6% drop, while Richemont brands also faced significant challenges earlier in the year.
Reduced Speculation for Rolex
Signs indicate reduced market speculation for Rolex, which may be easing primary market demand. Gray market inventory has decreased, and waiting times for specific models have shortened. For instance, the wait time for the Rolex Submariner dropped from 105 days in 2023 to 68 days in 2024, and the GMT-Master II’s wait time was halved from 180 days in 2022 to 90 days this year.
Decline in Value Retention
Since April 2024, all nine brands tracked in the report saw a sequential decrease in value retention. Continuous drops in secondary market prices have affected the perceived value of these luxury watches. As of July 2024, Rolex watches traded at an average of +19.6% above retail, compared to +21.4% in April 2024. Patek Philippe’s average value retention fell to +30.7% from +33.3%, and Audemars Piguet’s dropped to +10.9% from +14.9%.
High Inventory Levels
The secondary market inventory value for the Big Three brands remains significantly higher than in 2021, reflecting the aftermath of the speculative bubble burst in March 2022. Despite a decrease in gray market Rolex listings since the beginning of the year, the volume and total supply of pre-owned watches have steadily increased, now more than 350% higher than in Q1 2021.
Weak Absorption Rates
Absorption rates, or inventory turnover, for the Big Three brands are significantly lower than 2021 levels. Rolex and Patek Philippe, in particular, have seen worsening trends, with pre-owned Rolex watches taking an average of 67 days to sell in the first half of 2024 compared to 18 days in 2021. The median inventory age for Patek Philippe rose to 173 days from 67 days, and for Audemars Piguet, it increased to 166 days from 46 days.
Expansion of Rolex CPO Program
The Rolex Certified Pre-Owned (CPO) program, launched in late 2022, continues to grow, with around 5,500 active listings from at least 61 authorized retailers worldwide as of July 2024. This expansion signifies Rolex’s strategy to capture more of the secondary market and provide a controlled resale environment. The overall secondary market is estimated at $25 billion, with Rolex holding a 44% market share, amounting to $11 billion in secondary market value. The total value of Rolex CPO inventory, estimated at $125 million, represents about 1% of the total secondary market.
Disappointing Sales Reports
Recent sales reports from major industry players like the Swatch Group and Richemont indicate continued challenges. The Swatch Group’s global sales dropped 10.7% to CHF 3.4 billion in the first half of 2024 due to economic and political issues in China, Hong Kong, and Macau. Richemont reported a 27% decline in revenue from China in its latest quarterly update, with its watchmaking unit experiencing a 13% revenue drop.
Outlook
While the secondary market for Swiss luxury watches shows signs of a slowing decline, it has yet to stabilize. The ongoing downward trend in secondary market value, rising primary market prices, reduced speculation, worsening value retention, low inventory turnover, and high inventory age suggest that secondary prices are unlikely to stabilize soon. This instability could lead secondary market buyers to exercise caution, pose prolonged inventory challenges for retailers, and result in less favorable value retention for consumers.
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