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PARIS — As economies nosedive and stock markets crumble, major watch brands are hoping their most expensive collectable pieces will help cushion the financial blow.
This story first appeared in the December 1, 2008 issue of WWD. Subscribe Today.
Executives are counting on the top end to drive business, as the truly rich prove less affected by recession than middle-class buyers. The same is not expected for the $3,000 to $5,000 segment, which executives expect to suffer the most. Already signs of that segment’s ill health have started to accumulate.
LVMH Moët Hennessy Louis Vuitton said weak sales of Tag Heuer’s lower-end watches were responsible for a 2 percent like-for-like decline of timepiece sales in the third quarter. Hermès said its third-quarter watch sales declined 13 percent, which analysts said didn’t bode well for the rest of the Swiss industry.
“The above-$25,000 segment isn’t totally immune to what’s going on,” said Larry Boland, president of Piaget North America. “But it is much less affected. The upper end of the market is the most resilient in recessionary times.”
Larry Pettinelli, president of Patek Philippe USA, said, “Collectors are certainly scrutinizing their buying. However collectors continue to pursue and are willing to remain on waiting lists for complicated timepieces. Market fluctuations less affect individuals who can afford a higher-level timepiece.”
Thierry Oulevay, president of Jean Dunand, which creates one-of-a-kind watches starting at $400,000, said, “Like the art market at the top end, the business for exceptional watches is still strong, despite a real slowdown. Watch collectors are simply becoming more cautious, more patient, before investing in a timepiece of this nature.”
With the rise of the economy, the number of small niche brands catering to collectors proliferated. The likes of Richard Mille, F.P. Journe and Greubel Forsey profited from demand from the newly rich around the world. Yet these brands, because of their small production, are hardly representative of the health of the market as a whole.
Mille and Journe, two of the best-known names among collectors, produce only 1,500 pieces a year. Waiting lists for their products are as long as five years. Greubel Forsey, an even smaller player, produces a mere 80 pieces a year.
The ultralimited nature of the most expensive Swiss watches explains why executives, for the moment, are relatively serene in the face of the financial storm. Many houses continue to struggle to fill orders placed a couple of years ago and it takes years to even develop a new movement.
“When we launch a new movement it requires five to six years of investment,” said Angelo Bonati, chief executive officer of Panerai. “The market was running faster than the industry in the last five years. Swiss watch exports were growing at double digits. The industry was not able to keep up.”
“We’re still behind in production,” said Boland, who noted that several of the watches Piaget introduced earlier this year have yet been delivered. “For those of us who have been in the industry for such a long time, we didn’t expect the boom to last forever. What’s going on today may give us some breathing room to catch up.”
Even if watch collectors are still spending, executives have noticed some slowdown, especially in the U.S. and Europe. They expect collectors to become more demanding in their buying patterns. Some believe styles will become less showy, which would represent a departure from the blinged-out, oversize watches that were hot the last couple of years.
“The economic downturn and subsequent cleansing of the market is eliminating the demand for ‘trend’ pieces,” said Pettinelli of Patek. “We find that interest is returning to classic styles. Buyers are beginning to think long term, asking themselves: ‘Is this piece going to be relevant in 20 years?’”
Marcia Mazzocchi, president for the U.S. at A. Lange & Sohne, said, “There is an ever-increasing demand for challenging complications featuring truly innovative technical solutions. Collectors are looking for exclusivity, timepieces that are limited by definition or production capacity.”
Retailers have also noticed demand for rarity. Andrew J. Block, executive vice president of U.S. jeweler Tourneau, said the chain has noticed a “dramatic uptick” in vintage watch sales.
“My feeling is that many consumers are picking up on the watch heritage factor as an investment,” said Block. “We’re not just selling to collectors. All types of consumers have picked up on the value proposition, even though some units are selling for more than new. We’ve also sold some dramatic pieces to collectors that went well above the original selling price.”
Speculation has yet to cool entirely among the most covetable limited editions. Panerai’s PAM 203, a watch released in a run of 150 that sold for 17,000 euros originally, today sells for as much as $100,000, or 79,492 euros at current exchange, only a couple of years after its launch.
Executives believe that as money pools dry up, however, the speculation game will cool.
“It’s the real collectors that want to keep the pieces that will be left,” said Bonati. “Speculators won’t find clients [to turn the watches].”
The crisis is even being felt at auction.
“The market seems to have stopped growing but definitely not weakened for the most appreciated brands: Patek Philippe, Rolex, Breguet, Omega and Vacheron Constantin,” said Osvaldo Patrizzi, who runs the Antiquorum auction business in Geneva that specializes in rare watches. “Collectors are looking for high quality and condition. They are paying greater attention to quality and service.”