Watches - Feature Article

Why do luxury watches cost what they cost?

Let us begin by unpacking this question. Whilst many can justify the expenditure for a luxury watch, either to themselves or their partner, it is an alien concept to others. Luxury items are just that, they are not necessities for anyone and they are not necessarily for everyone. These are the things that some desire and work hard for, the well-deserved treat at the end of the twisting passage of life’s challenges.

Why do people spend on luxuries? According to Thorstein Veblen and his theory of Conspicuous Consumption, the acquisition of luxury goods and services is to publicly display economic power of the income or of the accumulated wealth of the buyer. This theory denotes that us humans will choose luxury products to improve societal standing, rather than satisfying our own needs.

One of the brands that comes to the fore when speaking of luxury is that of Rolls-Royce. Rolls-Royce have been creating fine motor cars since 1904 and in that time they have built a reputation for extreme luxury and class. To do this they have had to see further than the normal car maker. An example of this being they only use bull hides to avoid stretch marks, and the farms contracted to supply said hides are contracted by Rolls Royce to not use barbed wire as it can damage the hide. This attention to detail, far overseeing what we could, is not what would happen when your new BMW comes with its leather interior. This is the same meticulousness that is evident in the watch world.

Justifying the cost of a timepiece to a non-watch person can be a challenge, however if the history and provenance of the specific brand is explored it becomes somewhat softer. Lets take a look at the great watch Maison of Audemars Piguet. AP is one of the best-known producers of luxury watches, they were founded in 1875 and by 1899 they had produced their first master complication pocket watch, something that is still an extreme challenge with today’s technology and learning. They have a place at the top of the pile through incredibly intricate, expensive and slightly different watches. The power of the brand is similar to that of Harrods. You go to Harrods for the crème de la crème of shopping experiences, nothing is out of the realms of possibility. This is relatable to watch brands, we have learnt growing up that Rolex, Bentley and Hermes are the best in their fields as their history and achievements tells us this reinforced by people sharing their real life experiences.

Manufacturing is another reason to the expense of high end watches. The amount of time and energy involved in creating an idea to take the watch to the next level is unbelievable. According to Octavio Garcia, former Creative Director at Audemars Piguet, a new project can take up to 18 months from beginning to end. Every single part is scrutinised and tested in order to make it the best it can be, whether that be through the materials used or the production methods. Sometimes completely new elements and materials are invented. Once this first stage of the idea has been completed, then research and development comes into play and it is not uncommon for watch houses to spend hundreds of millions of dollars on this. These watch movements not only have to wow but they have to wear, hundreds of miniscule parts working in tandem to make the watch run. In order for a watch movement to function correctly it must be lubricated and kept clean, this is recommended every couple of years but rarely does it get this service, yet is still expected to work.

Once these movement parts have been produced, alongside a newly designed, produced, and tested case and bracelet it is time to complete the project. This requires a highly skilled watchmaker and they are few and far between. Watchmaking isn’t seen as a particularly desirable job and you have to dedicate huge amounts of your life to learning the trade. Omega’s famed 321 Calibre they have dropped in the Speedmaster has its own calibre room in the workshop, with the same watchmaker responsible for producing each individual movement. This adds provenance and therefore expense.

Of course, this is all done using premium materials such as gold and platinum, not to mention any precious stones that may adorn the watch. So, in order to create a luxury timepiece it takes a lot of time, plenty of qualified manpower and some serious material costs. This in turn equals a high priced end result.

For many years the humble watch was only accessible to the higher echelons of society, in some respect this is still apparent today, but it has changed with many different luxury watches being available on the market. Sure, you can go to the Rolex boutique in London and buy what you see in the store, but they control what you see. Only those who have a high spending account, or who are VIP will gain access to the models that are truly desired by what hype has created. This is of course supply and demand. Watch companies influence this by creating waiting lists of sometimes years for the most sought after watches, and do so further by restricting the amount of product released at once. This in turn creates a secondary market place with a premium paid to remove the waiting list and then this is a justification for the watch houses to increase their original RRP. The cycle of supply and demand in the watch world.

Into this cycle we are also able to add the phenomenon of discontinuation. By ceasing production of a specific model, the price on the secondary market will naturally increase. An increase in prices on the secondary market means the new release can be priced higher than the previous. A prime example of this being the Rolex Submariner Hulk and its recent discontinuation.

The lower end of the Swiss watch industry has been hit pretty hard in recent years. This is partly due to the introduction of the Apple watch but also due to the disparity in pricing. People are becoming wise and spending more money, but less often to protect their investment. The data from the Swiss Watch Industry shows the export values of 16.7 Billion Swiss Francs in 2010 to 20.5 Billion Swiss Francs in 2019 alongside the exports falling by 5.5 million over the same 10 year period. This was mostly made up of the brands providing at the lower end of the financial spectrum; sub 500 Swiss Francs. Of course, the rise and fall of the Swiss Franc can hold some accountability as can the worldwide Covid-19 pandemic forcing people to prioritise their spending. This strife being experienced by the bottom end of the market only strengthens the top end and reinforces the upper tier of watchmaking positioning.

Luxury watches are more than just a piece of jewellery that sits on your wrist and tells the time. Dependant on the watch in question they are a commodity and I’m not just talking about solid gold. A stainless steel Patek Philippe 5711 has risen from its retail price of £23,440 to over £65k as of January 2020. Now if you were able to purchase a 5711 and make over £40,000 from pretty much nothing would you not? These wearable commodities far outstrip any interest offered by the Bank of England, if you can get a hold of them that is. This investment comes at a high price, a relationship needs to be built with an Authorised Dealer or a Boutique. This relationship building costs a lot of money and time and dedication to be able to request certain models. This relationship building money needs to be reimbursed to the client and therefore the secondary market exists and subsequently the initial price becomes more justified.

Longevity is another discussion to be had regarding the pricing of these objects. A Rolex submariner with a ceramic bezel and the almost bulletproof 3130 caliber with the Parachrom hairspring (such as the one available at Xupes under the reference W007851) will outlast its wearer and probably go up in value along the way.

In conclusion, if you are not in position to be able to comfortably afford the offerings of Patek Philippe, start the search somewhere else and aspire to be at that level if that is what you want. The definition of expense can be argued; the initial cost of a luxury watch is high but the whole lifetime of wear and potential for gain on initial investment can easily cancel this first expenditure out. Remember; luxury doesn’t always mean great expense, it can come in many different guises.

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