Prices are down as coveted pre-owned timepieces are back on shelves after crypto crash spurs investors to sell. Here’s all you need to know about the secondary market right now
After a year of frenzied demand and unprecedented growth, the ultimate flex watches in the secondary market are finally cooling off a bit. Pulled down by the recent crypto crash, while the top models from Rolex have recorded a slide of nine percent in prices since the peak in January 2021, hot sellers from Patek Philippe and Audemars Piguet too have seen a dip over the last three months. Now this is not to say that the market is headed for a crash—the unicorns are still selling way above retail—but the price corrections have definitely opened doors for despondent enthusiasts waiting to get their hands on some of these coveted timepieces. “I think it's always a good time to buy a watch if you find something that’s within your budget, but right now it's a very good time to buy watches if you're looking to pick up something in steel. A lot of people are selling their watches because they lost a lot of money in crypto or in stocks. This is the new influx of buyers who came into the market just over the past few years. They weren't OGs or purists who have been in the game forever. Nevertheless, you are now getting deals that you couldn’t have imagined a few months ago,” says Austen Chu, Founder and CEO, Wristcheck.
According to a recent report by Morgan Stanley, four out of the top six watch brands – Rolex, Patek Philippe, Audemars Piguet and Omega – posted price reversals in the second quarter of this year. While Patek Philippe has seen the sharpest drop, at 10 percent, since the peak in April, Omega is down by nine percent and Audemars Piguet by a marginal six percent. Based on cumulative data from WatchCharts, the report attributes this performance divergence to “watch investors”, who are only “interested in watches that are rare, highly sought-after, historically significant, from a reputable brand - or some combination thereof”. So as the secondary market started to see more of these trophy watches – the Nautilus 5711 A, Daytonas, Royal Oak Jumbo – trickling back into the supply pool, the prices underwent an obvious correction. “The best is yet to come. I see more corrections on the cards. The cool off is significant and a lot of people who were in it for the long term have burnt their fingers. APs have cooled off. Most Vacheron Constantin Overseas models are back to retail levels. I’d pick the lowest price of a new watch on Chrono 24 and take 15 percent from it, that’s the real price of a particular watch right now,” says Kairav Engineer a.k.a. @watchcollectorindia. “Talking of investment-worthy timepieces, anything rare like vintage Daytonas, four-digit Submariners, complications from Patek Philippe, Audemars Piguet and Vacheron Constantin, limited production Speedmasters like TinTin, Alaska Project, Snoopy and rare pieces from Cartier, like the Crash, would continue to dominate the market,” he says.
Fuelled by a perpetual imbalance between demand and supply, the second-hand luxury watch market got a huge boost last year, thanks to the new rich making the most of their crypto and stock gains. As per Morgan Stanley, the brands experiencing the greatest shortages (and longest waiting lists at authorized dealers) performed the best from the beginning of 2021 to the end of Q1 2022. Watches priced at over $100,000 rose by a staggering 105 percent from January 2021 to the peak, while those trading between $50,000 and $100,000 were up 79 percent over the same period, while the volume segment for watches priced between $5,000 and $10,000 was up a more modest 13 percent.
The clamor for ‘soon-to-be-discontinued’ blue chip models from Patek Philippe, Audemars Piguet and Rolex in the first quarter also contributed to the inflation in the secondary market. Interestingly, this fascination for unicorns from top-tier brands helped fuel the growth of steel watches from brands like Girard Perregaux and Czapek, as well. According to Morgan Stanley, Vacheron Constantin went from a -16 percent discount in 2021 to a +23 percent premium in 2022 — primarily led by the growth of its Overseas collection. “We believe that demand for the Overseas collection was driven primarily by collectors looking for alternatives to the Patek Philippe Nautilus and Audemars Piguet Royal Oak. As prices for those watches continued to increase over the course of 2021 and early 2022, collectors turned to the Vacheron Constantin Overseas collection as a better value proposition for a stainless steel, integrated bracelet sports watch from a high horology manufacturer,” it states. A. Lange & Söhne also registered a modest increases in its value retention from 2021 to 2022 (-24 percent to -16 percent). While a vast majority of Lange models continue to trade below retail on the secondary market, the stainless steel reference of the continues to trade at more than double its retail price and the white gold reference commands a secondary market value 27 percent higher than retail in 2022.
Overall, it seems counterintuitive that shortages at authorized dealers for these leading brands brought more of these watches back on the secondary market for cash out. However, in the big picture, that’s how the current polarization in the watch market works. “If you are in the business of buying and selling watches, you probably have to keep a very close eye on things, but if you're a collector, you buy pieces when they come up for sale at a price that is fair, given what else is out there in the market at the time. Otherwise, you can drive yourself crazy trying to time the market perfectly," explains @nycwatchguy. “A few things are definitely true though – cash has gotten more expensive, people have lost a lot of money in the stock and crypto markets and there is a general sense of fear that times are going to get tougher in the coming months. When that happens, people tighten the purse strings on the consumer side, while dealers have less liquidity and their cost of capital goes up. The natural result of these macro conditions is for everything other than the most rare pieces to come down in prices in order for the supply and demand curves to intersect. If you're looking to buy a Roger Smith, this is still probably the cheapest price you're going to pay for one, as those watches are only going to continue to go up. If you're looking to buy a basic Royal Oak, my guess is that we probably haven't seen the bottom of the market just yet, but you're also not going to see one at retail any time soon either,” he says.
Collectors vs. Investors
In the last couple of years, the watch world has seen the rise of a new generation of collectors exploring a balance between enjoying watches as collectibles and expecting a good return on their investment. While purists may often dismiss these newcomers as another category of "flippers," there are reasons to believe that these people don’t always intend to sell a watch when they buy it or even if they do sell their watches, it’s to get the hobby going. “There are two types of watch buyers—one that cares tremendously about value, retention and value appreciation—and you can’t blame these guys. While they have always been villainized for doing what they do, I actually feel they're just being rational about their hard-earned money, especially if they are self-made people. Then there are the other kinds of buyers who look at watches as purely a passion and not something that they would make any money out of. This kind of dichotomy is also seen in the world of art, cigars and wine, so there’s no reason why the watch market can't have both,” says Chu.
Given the fact that there are more and more millennials exploring the secondary watch market now, it would be interesting to see how this space grows in the coming years. More than 30 percent of buyers at the spring-summer auctions at Christie’s and Phillips this year were millennials. “What sets the millennials apart is that they are typically interested in everything – iconic sports models as well as historically-important vintage pieces, quirky 90s complications, and niche, contemporary brands. They’ve grown up watching blogs and social media and they’ve become extremely mature at a young age. I don’t think future returns should be what motivates a watch purchase, but I always encourage clients to consider rare pieces when they are offered in very good condition – even when the price is strong – because you just don’t know when the opportunity will present itself again, or what the price of that watch will be. Exceptional pieces always command exceptional results,” says Arthur Touchot, International Head Of Digital Strategy at Phillips.
The Steel Sports Watch Craze: Has It Jumped The Shark?
The steel sports watch frenzy isn’t a recent phenomenon anymore, especially for a handful of models from Rolex, Audemars Piguet and Patek Philippe. However, one can trace back the origin of this hypermarket to 2017, when Phillips auctioned Paul Newman’s Rolex Daytona for a whopping $17.8 million. Over the last two years, this category has surpassed all expectations, thanks to certain models like Patek Philippe’s Ref.5711 Nautilus endowed with a Tiffany Blue Dial. This highly-coveted variation of the Nautilus went under the hammer for $6.2 million at a charity auction hosted by Phillips in December 2021.
But how long will this bubble last? “I think the stainless steel sports watch hype is gradually dying down. Not because people are less interested in it but also because there are a lot of dealers who hoarded too many of these and are just offloading them now. A lot of newcomers need liquidity and they are also selling off these pieces. So it's just basically washing out the people who shouldn't have been here in the first place. But I feel this downward trend will stabilize and the category will gradually rise again because, at the end of the day, steel sports watches are still very popular. It was maybe too hyped and now people are getting more rational about it,” says Chu.
It’s not just the ‘rarity’ of these timepieces that makes them all the more desirable in the secondary market, it’s also the fact that these iconic, easy-to-wear watches from brands like Patek Philippe, Rolex and Audemars Piguet also give the most "street cred" amongst the average consumer, says @nycwatchguy. “The Royal Oak, the Nautilus and the Daytona are some of the most ‘affordable’ (I use that term knowing full well that things are relative and $15K for a watch may seem ludicrous to 90 percent of the world's population) watches at retail, and therefore, the watches that everyone wants,” he says. “Should these watches be traded for 5X retail? Probably not. But I also don't believe that any of them will ever trade at retail ever again either. There is a happy middle ground, in my opinion, that creates a healthy economy for these luxury goods - the secondary market price needs to be higher than retail so that there is always an urgency from people to buy at retail, but not so high that people get turned off from the hobby altogether. My gut feeling is that this number is somewhere between 1.5X and 2X retail for the majority of watches. Once you cross double the retail price, that thing better be a pretty rare piece (or discontinued) in order for prices to hold up. I think what we're seeing in the market is a correction from a 4-5X retail run-up over the past few years for these models, back down towards a 2-3X markup, and my hope is that things settle down somewhere in the 2X range,” he says.
What’s Next
As per market analysts, despite experiencing its first sustained downturn since COVID-19, the secondary watch market remains strong relative to equity or crypto markets. Genuinely rare watches, whether vintage or modern/contemporary, will be as strong as ever. However, the future for hype sports watches in steel is still speculative. While the level of growth in the secondary market since 2021 may be ‘unsustainable’, there is still a strong baseline of value to be found in “investment-grade” luxury watches, says Morgan Stanley.
“I don't agree with the premise of secondary market growth being unsustainable. The entire universe of high-end watches (Patek, Rolex, AP, RM, the bulk of the Richemont brands, and all the indies) put together is less than 1.5M units a year, of which Rolex makes up a million of them. There are 56M millionaires in the world. If more than 3 percent of them wanted to buy a new high-end watch this year, they wouldn't be able to get one at retail. The good news about the watch market is that it's not very easy to increase production. You need trained watchmakers, which are already in low supply, to do so. On top of that, the secondary market has mostly been dominated with sketchy dealers and low-tech online marketplaces for years. We are just starting to see the next generation of secondary markets that are trustworthy, optimized for online checkout, and truly global. As a result, I expect that the secondary market will continue to grow. This doesn't mean that there won't be volatility in prices over time, but generally speaking, I think we are in the very early innings of the watch market becoming more mainstream,” says @nycwatchguy.
The perpetual scarcity of a few highly-coveted models from a handful of brands has also propelled the growth of the independents. Not so long ago, most of these incredibly innovative and well-finished timepieces from independent watchmakers were selling at 50 percent under retail on the secondary market. The pandemic, however, encouraged collectors to look beyond the run-of-the-mill brands and explore a fresh perspective on watchmaking offered by the likes of MB&F, Moser, Urwerk and De Bethune. “Social media has been the great equalizer for these brands, and now with their ability to reach consumers at very little cost through platforms like Instagram, the world can see how much cooler an MB&F is compared to a Nautilus. And by the way, there are probably 1000X more Nautiluses in the world compared to Legacy Machines. I think watch collectors are going to continue to get smarter and realize that buying an indie is a more fulfilling purchase than a mainstream brand, which will only continue to increase demand for these watches, with no ability for supply to match it,” says @nycwatchguy.
The huge demand for the independents is natural. While H.Moser & Cie makes less than 1000 watches a year, the production at F.P. Journe, De Bethune and Grebuel Forsey are limited to a couple hundred. “They are so exclusive as compared to Rolex, which makes a million watches annually or Patek Philippe, which makes 70,000. I think the future for these independent brands is really bright, even though not all of them are designed to everyone's tastes. It's an acquired taste,” says Chu.
Editor's Note: We cited the most recent Morgan Stanley report on the secondary watch market for Q2 of 2022 as it is perhaps the most credible resource out there. However, in our own experience, we believe prices have fallen more across the board (for all brands) within the same period.
