It’s been close to an entire year since we were first plunged into a pandemic, a pandemic which has reshaped our lives and those of everyone around us. As is to be expected, the watch world hasn’t been immune, reacting and adapting in all sorts of different ways. Given how tumultuous the year has been, we wanted to take a look back at previous times of crisis, specifically financial crises, to see how the watch industry has reacted in the past.
At times like these, you might expect wild speculation that certain models will be discontinued, or perhaps rushed through, in order to generate increased cash flow. But this isn't always case. We asked a small number of people with an intimate knowledge on the inner workings of the watch market, what really happens when times of global financial hardship strike. In doing so, we aim to not only paint a clearer picture, but also to dispel the odd rumour here and there.
Patek Philippe has witnessed more global financial struggles than most.
During this brief retrospective we will be looking as far back as the mid-1800s, all the way to the most recent crises of the 21st Century. We’ll explore the various ways in which watch brands have managed to survive and thrive through times of difficulty. That being said, we made a conscious choice not to look at the Quartz crisis, due to the fact that countless articles have already dissected the subject in depth. The story of the Royal Oak and the Nautilus have been shared too many times. Rather, we’ll look at more unusual periods, such as the 1997 Asian crisis or the 2008 market crash. We’ll also delve into how the vintage and second-hand market behaved in these times, to see how these different sectors reacted to tumultuous circumstances.
The Crisis that Changed the Way We Buy Watches
From about the 1930s, when the wristwatch industry was becoming properly industrialised and production numbers were beginning to skyrocket, most brands followed a certain structure to get their product to market. The watches would leave the brand’s factory and would be sold, wholesale, to a distributor for a certain geographical market. They would then sell them onto the retailers – often jewellers at the time – who sold them on to the final customer. While today you might hear of the Audemars Piguet CEO for South East Asia or the Head of Rolex America, at that time, the distributors were completely independent from the watch companies. Often carrying multiple brands at a time, these distributors placed a roadblock between the manufactures and the end client.
This three-tier structure was surprisingly long-lasting. It survived until about the 1990s, and it was a financial crisis, according to industry veteran William Massena, that caused a 60-year-old way of doing things, to come to an abrupt end, with a currency crisis in Southeast Asia and the rise of the grey market, truly highlighting the inefficiencies of the system.
A look inside the Patek Philippe factory as industrialisation started to take hold, courtesy of Patek Philippe.
“The financial crisis in Asia in 1998 probably had a bigger effect on the watch industry than any other in history,” Massena tells us. This was due to the fact that it indirectly impacted the way we buy watches. During the 1990s, the Asian market was one of, if not the, biggest markets for Swiss watches. When the Thai currency crashed, there was sudden knock-on effect throughout the whole of the Southeast Asian region. Hardly any neighbouring countries were left unaffected and this caused a massive dip in the market for watches, along with other luxury goods.
This drop in demand led to a phenomenon known as transhipping, which is only made possible through the very structure that the watch world had run on, for the past half a century. Asian distributors could no longer sell their watches to their local retailers and so they began to flood the American market, as the US economy was in a much better shape. This sudden rise in the grey market (new pieces being sold at a discount through third party intermediaries) had not really been seen before in the watch world. It began to seriously worry brands who were starting to get priced out of their own market. While Rolex may be known for having end-to-end control over the production of their watches, the same could not be said for how their watches were sold. They would have to modernise their model or bow to the pressure of the grey market.
The Asian currency crisis of 1998 would put an eventual stop to this distribution system, courtesy of The Wall Street Journal.
That’s why, Massena argues, brands began to take ownership of their distribution channels and mono-brand boutiques began to pop up on high streets and in shopping malls around the world. Obviously, this was not a shift that could happen overnight, and some brands are still carrying this process out. For example, Audemars Piguet are still steadily moving-out of their authorised network of dealers and establishing (what they call) townhouses in major markets around the world. This follows on from what Richard Mille, a company Audemars Piguet has a 10% stake in, did when they moved to a boutique-only brand.
“The financial crisis in Asia in 1998 probably had a bigger effect on the watch industry than any other in history..."
Of course, not all brands have adopted this strategy. You will still find Rolex stocked in Goldsmith branches up and down the United Kingdom – when they are allowed to open again – and no one would argue that Rolex are not doing well. However, the majority of big brands, or those owned by large groups who have enough money behind them to do so, have pushed hard to cut-out distributors and limit the effects of the grey market on their pricing.
Looking to New Markets
While the Asian market crash of 1998 may have highlighted possible weak points in the way that distribution was structured, it could be said that another, much earlier international fracas, showed that the watch industry needed to expand. This happened with the European Revolutions of 1848, a significant period of upheaval on the old continent, that led to governments being overthrown and the status quo being thrown into question. This was certainly the case for a small, emerging watch brand, by the name of Patek Philippe...
Lamartine rejecting the red flag in front of the Paris Town Hall on 25th February 1848, painted by Henri Félix Emmanuel Philippoteaux.
Only trading in the aristocratic circles of Europe and Russia, a massive class-based shift was not good for business. According to John Reardon, the former Head of Watches at Christie’s and previously a Patek Philippe employee, this massive social unrest caused Patek Philippe’s founder, Antoine Norbert de Patek, to look to new horizons. “He aggressively hit the road and personally travelled to the United States to open it up as a new market. Putting his life at risk, he visited city after city and while carrying a trunk full of Pateks, he managed to make Patek Philippe the watch of choice in this quickly growing market.” This risky decision by Patek in the 1840s clearly paid off, as a century later America represented well over half of the watchmaker’s business.
A look inside Tiffany & Co between 1905 and 1940, courtesy of Tiffany & Co.
This kind of a move would be considered out of the ordinary for Patek Philippe today. Reactionary doesn’t seem to be their style. “In my opinion, the ownership and management of Patek Philippe do not think like any other watch company,” Reardon tells us. “When they say they think long term, it’s an understatement.” Even during the global economic crisis of 2008, the feeling within the company was one of serene calm and steadfastness. “When working at Patek Philippe during those years, slow and steady was the message from everyone around me. There was no panic, no immediate reactionary actions due to the ups and downs of the market, just the simple message to support the retailers, educate anyone willing to listen on what differentiates Patek Philippe, and the constant mantra ‘There will always be a Patek Philippe’.”
From looking back at the longevity of a company such as Patek Philippe, it becomes clear that they have learnt how to deal with times of financial hardship. Having not only weathered the uncertainty of 1848, but also worked through the Great Depression, two World Wars, the Dot Com bubble, and the crash of 2008, they have truly seen it all. This experience, paired with their sheer size and independence as a company, means that they are able to drill into their past when facing times of outside upheaval. “The plan is simple: make the best quality watches the world has ever seen,” as Reardon puts it. “Same as it was in the 19th century, 20th century, and now in the 21st century.”
"There was no panic, no immediate reactionary actions due to the ups and downs of the market, just the constant mantra ‘There will always be a Patek Philippe’..."
A Shift from Progress to Heritage
As we’ve discussed, watch companies – especially older ones – move very slowly, often with plans in place at least three years in advance. This glacial pace partially comes from the time it normally takes to develop a new watch. Designing a movement, settling on a dial and case layouts, along with everything else that goes into making a watch ready for market, takes a long time. Arguably, forcing brands to think so far in the future also restricts them from hasty reactions in times of crisis.
This is why Massena believes that if you want to see how large global events have affected the watch world, you need to look three to four years after the event. If we take the example of the 2008 financial crisis, the peak of which was arguably the collapse of Lehman Brothers in September 2008, then we have to look at what watch companies were bringing out in 2011 and 2012 as an indicator of how they reacted to this fiscal event.
The fall of Lehman Brothers has come to signify this tumultuous time in the financial markets.
“From about 2000 to 2008, there was a Golden Age in watchmaking,” Massena says. “There were loads of brands, too many some might say, and a lot of the big ones were doing a lot of new things.” You can take Patek Philippe’s Advanced Research program as a great example. There were a few years of development before the first innovation was released, with the Silinvar escape wheel. Then, we have semi-regular releases by Patek Philippe’s R&D department, until the 2011 release of ref. 5550 Perpetual Calendar. It then falls quiet for six years, until the latest release of the ref. 5650G Travel Time Aquanaut.
Why such a long break between these two references? It could be put down to market shifts, as the brand’s clients no longer craved this type of new release. However, if Reardon is to be believed, then Patek Philippe would have planned to pause this program roughly three years in advance, if not earlier. This means that we must look back to 2008 for the genesis of this decision. It could be that for a few years following the crisis, they decided to slow down their experimental research, to focus on more traditional and classic designs, which spoke to their clients more than cutting edge technology.
The gap between these two models, the Advance Research 5550p and 5650 would suggest a change in focus from Patek Philippe.
Separately, some have speculated that the release of the Patek Philippe 5970J in 2008 was a reactionary choice, made to quickly sell some watches. The reference 5970 perpetual calendar chronograph was first introduced in 2004, in a range of metals. At the time, the reference was, in many ways, the quintessential complicated Patek Philippe wristwatch. In 2008, Patek Philippe introduced it in yellow gold. Strangely enough, it was only produced for one year, making it the rarest of all the metals in the reference. Only 450 left the manufacture. This is unusual for yellow gold, as the rarest spot is usually reserved for platinum. A very short production run, atypical metal choices and curious timing.
Could it be that, in reaction to the crisis, Patek Philippe decided to quickly produce some yellow gold cases, modify some dials and introduce this new model? Was it an easy way to sell watches, giving consumers what they wanted, which was as classic and complicated as Patek Philippe could go? The thought is an interesting one, but it relies almost entirely on speculation, rather than evidence. Indeed, both Reardon and Massena would argue that the decision to produce the yellow gold perpetual calendar chronograph was part of a far larger plan that was triggered in 2004 when the first model was released.
It wasn’t just Patek Philippe that was investing in research at this time, Jaeger-LeCoultre were producing marvels such as this Gyrotourbillon, courtesy of Jaeger-LeCoultre.
Of course, it’s not just Patek Philippe that were susceptible to market forces. Massena also pointed to Jaeger-LeCoultre as a brand, that made a clear shift from developing new technologies to a heavy pivot towards heritage and brand history. In 2004, they brought out their first ever Gyrotourbillon, bringing a new complication to the world. They then go on to produce grand complications, like the Reverso Grande Complication à Triptyque, which came with six new patents for the company and was released in 2006. Then, in 2011, things seem to change. We see an anniversary model for the Reverso on its 80th birthday, which recreates the original design. To go from a complicated watch which displayed the movement of the Earth relative to the Sun to what was essentially a reissue, in the space of a year, is rather a stark change of pace.
Can we conclusively prove that these shifts in direction are because of the economic crash in 2008? No. Is there a way to definitely find out? Not really. It’s unlikely that any board member or executive who was in a position of influence at the time would admit to reducing research and complicated movement production, as a result of external factors. However, the trend seems to be a strong one. Patek Philippe, Jaeger-LeCoultre and even companies such as Ulysse Nardin went from releasing genuinely new watchmaking technology, to rehashing old favourites or adding new colours to the dial.
The tribute to the original Reverso from 1931 that was released in 2011, courtesy of Sotheby’s.
It wasn’t just big brands that had to change their path due to a market crash. The independent watchmakers that had sprung-up in the late 1990s, and early 2000s responded in their own way.
For those that weathered the storm, it was often the ability to react quickly to change, that made the difference. This led some brands to quickly release new products in order to capture new markets, where others were forced into difficult financial waters. If we look at the Daniel Roth and Gerald Genta brands for example, these were partially-owned by the Singaporean watch retailer, The Hour Glass. It's understood that due, at least in part, to the financial difficulties caused by the Asian financial crisis, both companies were sold to Bulgari in 2000. In the case of Daniel Roth, we recently looked at how this dramatically changed the direction of the company, as Bulgari took total control of the brand and all of its assets.
People Matter More than Money
Time for a change of direction, away from brands and towards the secondary market. As this is often one of the first things that observers look to, when assessing the health of the general watch market, we thought we’d dig a little deeper. While large financial crises can have a detrimental effect on many things, their impact on the secondary watch market isn’t quite as clear cut. Let’s have a closer look, using what is probably the best public data we can find, the sales generated by auction houses every year.
The auction markets are always a good indicator of the secondary market’s health, courtesy of Inside Hook.
There was some buzz created when The Mercury Project released their report on the watch auctions for 2020, reporting massive drops for every major auction house, bar Phillips. However, we must take this data with a large pinch of salt, says Wulf Schütz, a notable collector with a background in private equity, and the founder of vintage watch dealership Rare & Fine. “This report is quite superficial, as they include the Only Watch auction from 2019.” For those unfamiliar, Only Watch is a charity auction put on once every two years and was recently hosted by Christie’s. Brands create a one-off watch that is then auctioned off, to help raise money for the fight against Duchenne Muscular Dystrophy. At the most recent instalment, that took place in 2019, the most expensive watch to ever be sold at auction – a Patek Philippe Grande Complication – hammered at CHF 31,000,000. None of this goes to the brand making it or to Christie’s for hosting the auction.
Including these figures in this data set causes a massive skew, as that one auction with just 50 lots raised CHF 38,593,000. This is a significant amount of money by any measure, but especially when you consider that in the following year, in 2020, the auction business achieved CHF 316 million as a whole – without Only Watch. Including the Only Watch result in 2019 therefore deceptively dramatizes the drop in auction sales between 2019 and 2020. “There are non-watch collectors bidding at Only Watch, and you have to remember it is the only auction where the winning bid can be tax deductible” Schütz reminds us.
The unique Patek Philippe Grand Complication ref. 6300A-010 that sold at Only Watch 2019 for CHF 31 million, courtesy of Christie’s.
Now that we know that any comparative data between this year’s results and last years has to exclude Only Watch, we can begin to take a closer look at not only how the auction world has reacted to crises in the past. The world of collectable wristwatch auctions is a fairly young one, so we can’t look too far back, though we were able to rely on auction results compiled by Schütz which do go quite far. “If you look at last year’s auction results, you have to realise that we basically missed an entire season of auctions as everything was closed in the Spring,” Schütz points out. If you take that loss of possible big sales, the small dip between this year’s and last year’s numbers seems to be insignificant. In fact, if you look at the 22 most expensive watches sold at auction in 2020, you only need another one or two from that list to make up the difference. At a time where it became a lot harder to source watches than ever before, it is understandable that this year fell slightly short.
It would seem as though watches as an asset class have increased in interest and attention over 2020. “Everyone understands that you can’t stick your money in the bank as it won’t keep up with the rate of inflation,” says Wei Koh, founder and Editor-in-Chief of Revolution and The Rake magazine. “So, people start to look at other places to put their money. The stock market seems pretty volatile right now and don’t get me started on crypto, so what else is there? Art has always been popular but seems rather out of reach for many to access and the insider knowledge need is immense. Then there’s cars, but the problem there is the cost of storage and maintenance. Watches seem to be an obvious choice as they are easily accessible, and they are also a form of self-expression that you can have on your body all day long.”
Another important point that Schütz points out to us is that you can’t expect watches to behave like the stock market: “in the Dot Com bubble, or the crash of 2008 or even this pandemic, the stock market dips a lot, very quickly and then recovers slowly. Watches don’t do this.” Just like the Swiss watch houses, the secondary market moves at a slow pace most of the time. This is why in 2008, we see a record high year for watch sales and then we only see a dip in 2009, going from just over CHF 200 million, to about CHF 150 million.
Considered somewhat of a Blue-Chip watch, the rose gold double-signed Patek Philippe ref. 2499, sold at Phillips.
From that point on, we see a fairly steady rise in the total value of watches sold at auction, though there is still some fluctuation in the market over the next few years. It can be hard to attribute these to changes in the stock market or any other looming external factor. So, what could it be? According to some, the answer might be deceptively simple. People. The movement of certain key players between auction houses seems to have had a significant impact. For example, we can see a big jump for Sotheby’s in 2018, the year that Sam Hines joins their ranks. We also see a steady decline in Christie’s numbers after Aurel Bacs leaves in 2013. The effect that these few auctioneers have on the market, seems to be quite literally measurable within these figures.
Another of the major differences that has occurred over time in the auction world, is the average value of each lot. According to Schütz, the average auction in 2010 listed around 600 lots but would only sell half of them. In 2020, this number had dropped to between 200 and 300, with far more white glove sales taking place. If you put that into the context of the overall value of watches sold in each year, 2010 saw around $170 million of watches sold, while 2020 had $316 million.
Online auctions have dominated the market in 2020.
As is to be expected, there was a spike in the number of auctions held last year as houses pivoted to online sales. The total number of sales reached 189 from the four major houses, compared to just 66 the previous year, according to The Mercury Project report. Despite the higher number of sales, the trend towards fewer lots seemed to continue, as there were 10% fewer lots sold in 2020, than compared to 2019. This speaks to the difficulties in sourcing watches. With restrictions on travel for both auctioneers and prospective consigners, getting a watch into an auction proved tricky last year.
“In the Dot Com bubble, or the crash of 2008 or even this pandemic, the stock market dips a lot, very quickly and then recovers slowly. Watches don’t do this..."
What it Takes to Thrive
Many people have said it before, but in times of crisis, when it would seem like much of the market is struggling, it seems that there is real opportunity to be had. It can be through happenstance or planing, but the effects of fiscal hardship are never evenly spread. Koh believes the pandemic has shown the true colours of many watch brands. “There’s that saying, when the tide goes out you can see who was swimming naked. For those brands who were strong and innovative in terms of communication, relationships with the client and selling watches online, they had a really good year,” Koh says.
According to Koh, there have been a few brands that seemed to adapt really well and managed to not only survive the year, but grow in his eyes. “The first example that comes to mind is Cartier, with their Tank Cintrée that was released at the start of this year. It was kind of stealth dropped, so no one was even aware of it, except for the clients that managed to purchase it.” The release of the limited edition Cintrée caught the watch world off-guard, as images started surfacing without any official release, or the pomp and ceremony that we’re used to seeing from brands. Without the traditional option of an event to announce the release, Cartier went in the opposite direction, only further elevating the cult status and desirability of the watch. That’s certainly one way to adapt to uncertain times.
The Cartier Tank Cintrée that was quietly released at the start of this year, courtesy of Hodinkee.
Looking further back, it does indeed appear that taking risks and leaning into tradition can sometimes pay off in times of crisis. One such example is the release of the perpetual calendar reference 5548 by Audemars Piguet, which is worth a brief mention, even if we caveated that we wouldn’t revisit the topic of the Quartz Crisis. Launched in 1978, the reference 5548 was the world’s thinnest automatic perpetual calendar at the time, quickly becoming one of the manufacture’s signature models. As François-Henry Bennahmias, the CEO of Audemars Piguet, told us during a recent interview, “there were watchmakers at Audemars Piguet who decided to work on new watches without being told to. The boss at the time knew this approach was successful and fostered this sense of autonomy and creativity.”
At the time, the thinnest perpetual calendar in the world.
This contrarian attitude paid off, with the Quantième Perpetuel becoming highly appreciated by collectors. To put things into perspective, in 1984, only 1,066 perpetual calendars were produced in Switzerland. Of those, Audemars Piguet made 675. The stable revenue generated by this perpetual calendar allowed the manufacture to have a healthy financial lifeline over the next few years and to be able to invest in other projects. According to some, the gamble to release the Royal Oak Offshore was only possible thanks to the revenue generated by a watch which was, in every sense, its polar opposite.
The last twelve months have made all of us take stock and adapt our daily lives. The global reach of this kind of crisis is almost unprecedented, which in turn means that its effects have been hard to predict. Though it hasn’t strictly materialised into a financial crisis yet, for many commentators, it’s only a matter of time until it does. This begs the question of how the watch world will adapt.
Past crises have shown that all sorts of changes can take place. The way watches are sold can fundamentally change, as was proven when the 1997 Asian financial crisis pushed brands to take control of their distribution network. What about the watches they release? Manufacturers could choose to lean into tradition, sticking to what they do best, or take risks as a response to troubling times. As for the secondary market, it seems to behave according to its own, distinct rules. If we’ve learnt anything from the stories above, it’s that crises seem to come and go, restructuring the watch world incrementally at every turn. In many ways, tumultuous times can force much needed change, which push the industry forward.
Our thanks to William Massena, John Reardon, Wulf Schütz and Wei Koh for sharing their knowledge and insights of the watch market in these uncertain times.