Luxury Watches: The Rise of the Independents

Luxury watches: the rise of the independents

At the dawn of the digital revolution brought by smartwatches, few would have bet on the future of the levers-and-wheels-and-springs mechanical watch. Yet, after the Quartz Revolution of the 1970s, traditional mechanical watchmaking found itself fighting - and we can now say, winning - this second epochal challenge to its survival as well.

New generations have begun to become familiar with mechanical watches, and this is evidenced b the sales figures for luxury watches, which globally are setting new records every year.?

Having overcome the pandemic, export figures for Swiss watches compiled by the Federation de l'Industrie Horologere Suisse FH show fewer pieces sold than in previous years (nearly 16 million pieces, while almost 26 million pieces were sold in 2016) but a turnover that is as much as 10 percent higer than the previous year's (which had alreadybeen an all-time record), totaling nearly CHF 25 billion.

High-end is shifting to luxury

The trend is easy to see, and it is affecting the watch industry as a whole. Whereas in 2016, the average Swiss watch - whether mechanical or electronic - cost about CHF 72, today it costs CHF 153, or more than twice as much. And this trend has heavy repercussions on the supply chain and, more importantly, on the propensity of enthusiasts to buy watches since, historically, their value has consistently increased.

These factors help explain, albeit only in part, the development of the second-wrist market, and the continued emergence of new manufacturers worldwide, companies aiming to grab slices of this ever-expanding market.

As the Swiss Maisons' price lists continue to grow, a niche in the high-end segment of classic watchmaking is being freed up, and this not too coincidentally coincides with the explosion of the phenomenon that has been called, often disparagingly, "microbrands."

Selling becomes 2.0

Similarly, the sales dynamics of watch brands are changing due to the irruption of the Internet and its unlimited potential. So much so that numerous Maisons, including high-end ones, have begun to experiment with new techniques of connecting to the public and selling their products through the network of networks, going so far in some cases as to eliminate the traditional distribution structure carried out through local importers and distributors. This is all the more true for most smaller independent Maisons, which often, for reasons of economy and flexibility, rely on fully digital distribution of their timepieces.

But this is not only the case for companies: the same revolution also applies to people, who now take advantage of endless possibilities to purchase their favorite watches through the web on the most diverse sites and channels. Among the many, we can mention buying and selling portals, such as, for example, Chronext and Chrono24, and auction sites, which in addition to entities that work exclusively online, count the world's most renowned auction houses, such as Phillips, Christie's and Sotheby's among others.

And where there is value-and in high - and in mechanical watches, there is a lot of value - you might find the services of these companies. So, cross-referencing this data, should we be facing a full-blown bull market, with purchase prices of Haute Horlogerie specimens setting new upward targets all the time??

True, but only up to a point.

Bubbles eventually deflate?

The unanimous opinion of industry experts was that second-wrist watch market valuations had long since reached and exceeded a dangerous threshold, where the value of pieces was vastly overestimated, creating a dangerous speculative bubble also fueled by intense technical as well as generalist media venues extolling the performance of particular brands and models, pitching them as an "investment for the future."?

Emblematic cases of this trend are the performance of Rolex's Professional line and specific models of other luxury Maisons, such as Patek Philippe. In the case of a particular model such as the Nautilus, this buying fever had turned into a veritable whirlwind about two years ago, when enthusiasts and would-be investors were buying Patek Philippe Nautiluses at any price -especially after the Maison's announcement to discontinue the famous steel reference 5711. The Genta-designed timepiece, launched in its first version in 1976, was to disappear after its swan song, the last blue-dial edition of 170 pieces made for Tiffany.

And in late 2021-early 2022, this speculative bubble on watches reached its peak, with an episode that has gone down in watchmaking history. One of the last Patek Philippe Nautilus models for Tiffany was auctioned at Phillips in New York and sold for $5,350,000, with a final price, including auction fees, of $6,503,000 - the ninth-best result for a watch auction in history. As a note, all proceeds were donated to fund the Nature Conservancy's activities.

But in March 2022, after the international economic freeze due to the outbreak of the conflict in Ukraine, the run-up in prices of certain watches - until yesterday, the market's leading players - had started to slow down.

A realignment of street prices of historic Maisons

The latest year-end watch auction by Sotheby's, one of the main events observed by watch experts, highlighted the significant trend affecting the global watch industry that sees a softening of demand from the "usual suspects."

The results for mid-December 2022 were unequivocal: all of the more than 150 lots of high-end watches submitted were awarded at a valuation above the minimum price, reflecting the public's continued interest in fine watches. But there is another element to consider.

Among the beautiful timepieces offered by more or less well-known brands, the best performances occurred on watches from the most innovative Maisons. However, without wanting to take anything away from anyone, the brands that everyone has been talking about for long years in that elusive niche known as "watch investing" only rarely reached the maximum valuation proposed by the auction house, and the auction price often slightly exceeded the minimum valuation.

Among them, we find the recent protagonists of major speculative flare-ups, which had skyrocketed their valuations during 2021. Let's talk, for example, about two among the objects of desire of recent times: a Patek Philippe Nautilus 3800/1, valued from $30,000 to $50,000 and closing just above the maximum valuation threshold, or a Rolex GMT Master II Root Beer in steel and gold, valued from $10,000 to $20,000 and closing just above $12,500.

Even a Richard Mille RM27-03 CA-FQ Rafael Nadal, a timepiece auctioned with a minimum of $1 million and a maximum valuation of $1.4 million, closed at "only" $1.2 million. Mind you; we're not talking about a debacle of listings, far from it. But it does come to mind that the big brands, which used to sail calmly in the great sea of the secondary market, are instead arriving in areas where the wind is not blowing as it used to.

The outstanding performance of outsiders

Does this cooling of prices apply to everyone?

The answer is no: there are exceptions to the rule that make us think that the rule itself is changing. We are talking about an amazing Maison like Aventi, and its A15 Wraith Saphite Paraiba, a watch that combines a Swiss tourbillon movement with a case made of a proprietary material, Saphite?. It is even more transparent than sapphire crystal, with a delicate blue Paraiba color.

This timepiece started from a base valuation of $25,000 and reached $70,000-almost three times the minimum lot price against a maximum valuation of $50,000.?

Another watch that did even better was an IWC Kanjar yellow gold and malachite jewel-watch specimen, which surpassed the proposed maximum valuation of $12,000 to reach an adjudication price of nearly $36,000, three times as much.

If this were an isolated case, we might consider it an exception, but as we have seen, it is not just that. Appraisals of lesser-known watches, perhaps produced by independent boutiques, are beginning to fascinate the public, which is looking for in the offerings of lesser-known brands that freshness of proposals that the more celebrated Maisons struggle to match

More value, more choice, fewer boundaries

This is one of the significant snowball effects caused by the global expansion of watchmaking. Beyond the historical borders of Switzerland, there is a whole world moving and creating independent projects outside the big institutional circuits. As a result, a swarm of enthusiasts is turning to this market to find different proposals and originality of content.?

It seems that the traditionalism of so many institutional companies is being crushed by watch enthusiasts, who want, through this change of perspective, to break out of the rigid traditional sales structure organized by Maisons, authorized dealers, and certified service centers that distinguished the worldwide commercial presence of watch manufacturers.

The world is changing, and today it is now possible to find distribution solutions that are alternatives to those practiced until now and involve a more direct and intimate relationship between the Maisons and the end buyer.

And the same results highlighted year after year by the prestigious Grand Prix d'Horlogerie de Genève testify to us that the world of watchmaking is becoming more and more widespread and diversified, especially after watches from the East of the world have taken home prestigious awards, as demonstrated recently by CIGA Design, a Chinese company whose Blue Planet won a category award during the 2021 edition. And how can we not mention another international player such as MING, an independent Malaysian watchmaker that sells out within minutes of its new model releases after opening for purchases on its website: in fact, MING has no "physical" distributors and sells directly to the public.

Watch enthusiasts become key players

Evaluating a market as complex as the luxury watch market is difficult, if not impossible, but all the indicators we have examined suggest an increase in the specific weight of buyers versus sellers. That is, the power of consumers around the world is becoming increasingly significant.?

More and more people are starting to look for something besides the infamous waiting lists that make people wait for a specific watch for months or even years. And because of this, they are looking for alternative ways to buy it - or even a different timepiece that more closely meets their style and personal choice needs, with an ever-increasing global reach.?

This steadily widening horizon empowers watch enthusiasts who can now get more and more from companies in terms of watchmaking excellence and better terms-and they are starting to demand it.?

And many of these manufacturing companies - and we're talking about disruptive and transgressive companies like MING, Aventi, FP Journe, and many others - are helping to redefine the contours of global watchmaking, bringing it closer and closer to the customer, with a paradigm shift that seems to suggest a very different watchmaking development path for the future-and probably, with other brands that will be among the most searched for on Google and Bing in the coming years.

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