Crypto bros turn back time on their Rolexes, Patek Philippes

Inflation? What inflation? It’s gotten so much cheaper to get your hands on a Rolex.

After a boom and bust in the market for pre-owned watches over the past three years, there have lately been signs of stability, particularly for Rolex. Time may now even be running out for bargain hunters, though that will depend on whether crypto bros are finished offloading their collections and if a resurgent China compensates for slowing demand in the US.

Interest in watches exploded during the pandemic. Lockdowns led people to pour the money they would have spent on vacations into luxury goods. The result was a rush toward Hermes and Dior handbags among women, while the first choice for men was a Rolex.

With the supply of new watches constrained — Swiss asset manager Vontobel estimates Rolex produces about 1.1 million to 1.2 million timepieces a year, whereas Patek Philippe makes about 70,000-75,000 and Audemars Piguet about 50,000 — waiting lists to purchase new models from retailers grew, and many buyers turned to the secondary market instead, sending prices for popular styles to many multiples of their cost in a store. 

Add in roaring stock markets and cryptocurrencies, and by early last year, premier watches — particularly the three most hyped names, the Rolex Daytona, the Audemars Piguet Royal Oak and the Patek Philippe Nautilus — were behaving more like volatile Bitcoin than luxury assets.

Then markets gyrated, crypto slumped and interest rates soared, forcing many speculators who had used leverage to amass large collections over the preceding five years to sell. The volume of Rolex, Audemars Piguet and Patek Philippe watches on the secondary market roughly doubled last year, while financial and geopolitical uncertainty, as well as Chinese lockdowns, kept some buyers away.

Consequently, the most hyped names have lost 30 percent-40 percent of their value since the peak almost exactly a year ago. As the big three brands, Rolex, Patek Philippe and Audemars Piguet, account for about 70 percent of the secondary watch market, according to WatchCharts and Morgan Stanley, their declines had an outsized effect. Indexes that track prices, such as the Subdial50, have fallen to levels last seen about 18 months ago. The market for rarer timepieces, in which specialist players such as A Collected Man operate, proved more resilient.

But there are tentative signs of recovery, particularly for Rolex.

Research platform WatchCharts’ Overall Market Index has lost about 1 percent over the past month, and about 3 percent over the past three months. The latter is around half the decline in the final three months of 2022. WatchCharts’ Rolex Market Index is down about 0.5 percent in the last month, compared with a 1.3 percent contraction in the last three months. In other words, prices seem to have stopped their inexorable decline.

Yet for the secondary market to recover, two things must happen. First, supply of pre-owned watches needs to moderate. This will depend on whether leveraged holders have fully liquidated their watch positions. Second, demand must remain robust.

On the demand side, even though appetite for high-end goods in the US is slowing, Watches of Switzerland Group Plc, for example, is still adding more names to its waiting lists for new watches than it is able to satisfy. Then there’s the question of whether Chinese buyers will pick up the bling baton.

Although the secondary watch market is less developed in Asia, Chinese watch enthusiasts refraining from buying amid lockdowns likely contributed to the glut last year. With China reopening, and luxury goods groups already reporting brisk demand in the region, they may now jump back in.

Since the number of many popular Rolex models in the retail market is still limited, if more of the global allocation goes to Asia, that will cut availability for buyers in the US and Europe. This could prompt some shoppers to turn to the secondary market, particularly as Rolex SA has entered this space for the first time. It will begin issuing certificates of authenticity to authorized dealers selling its pre-owned watches. Other companies, including Audemars Piguet and independent family-owned Swiss watch maker H. Moser & Cie, are considering similar moves.

It’s worth remembering that in many cases, secondary market prices are still above their pre-pandemic levels and indeed higher than the equivalent for a brand new watch. In fact, even with price increases for luxury goods, buying a Rolex Submariner or GMT-Master II new in a store still feels like a bargain. But good luck getting your hands on one any time soon.

There are risks this newfound stability in pre-owned watches won’t last. It is vulnerable to a fresh lurch in stock markets and crypto and more aggressive interest rate rises, which could force another round of selling from leveraged owners.

But without a fresh financial trauma, the clock may be ticking on getting your hands on some of the world’s most coveted timepieces at what, after the frenzy of the past three years, looks like a more reasonable price.