Weekend Discussion: The once-hyped luxury watch market has collapsed. Are their implications for the secondary Cuban cigar market?

[El Presidente]

We have seen the much hyped  resale luxury watch market come back some 31% over the past 2 years. 

Are there any likely parralels with the secondary Cuban cigar market? 

 

 

 

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https://www.axios.com/2023/10/14/watch-prices-down-market-collapse-2023

Oct 14, 2023 -Economy

The once-hyped luxury watch market has collapsed

• Felix Salmon
   

Data: WatchCharts; Chart: Axios Visuals

Remember the hype about luxury pre-owned watches as an asset class? Turns out, they couldn't survive a rate-hike cycle.

What's happening: Since March 2022, the WatchCharts Overall Market Index has fallen more than 35%.

 

 

https://www.cnbc.com/2023/08/03/secondhand-luxury-watch-prices-slump.html

Secondhand luxury watch prices slump to near two-year low after a pandemic run

PUBLISHED THU, AUG 3 20231:54 PM EDT

Valida Pau@VALIDAPAU@PAUVALIDA

 

KEY POINTS

• Secondhand luxury watch prices are near a two-year low, falling more than 31% since their peak in March 2022. 
• Resale prices for Rolex, Patek Philippe and Audemars Piguet have seen particular declines in the last year, but are still well above levels from three years ago.
• Prices are likely to stabilize, fueled by strong demand from younger generations.

 

A tray of Rolex watches are seen on a dealer’s stand at the London Watch Show on March 19, 2022 in London, England.

Leon Neal | Getty Images

Prices for luxury watches are near a two-year low on the secondhand market, reversing a rally that brought timepieces like Rolex, Patek Philippe and Audemars Piguet to record highs during the pandemic.

The average price of a watch sold secondhand has fallen 31% since March 2022, according to WatchCharts, a luxury watch price tracker. At the market’s peak, the average price of a luxury watch sold secondhand soared to $45,108, with buyers paying up to five times the retail value for in-demand watches.

 

“It was an unprecedented time in history where people were home captive. You also had a little bit of cryptocurrency and bitcoin run-up,” said Paul Altieri, CEO of watch resale site Bob’s Watches. “What’s going on now is a happy, healthy correction.”

During the pandemic, many people who were stuck at home and flushed with stimulus cash took to luxury spending. With so many watch models unavailable at retail, enthusiasts flocked to the secondhand market.

“It was interesting that the price hike mainly happened among three family-owned brands: Rolex, Patek Philippe and Audemars Piguet. But we did not see this for most of the other brands last year,” said Tim Stracke, CEO of Chrono24, a German-based online marketplace for pre-owned watches. 

Now, individuals have been flooding the market with the very same inventories, dragging down overall prices. The downturn was particularly stark for iconic models like Rolex’s Daytona, Patek Philippe’s Nautilus and Audemars Piguet’s Royal Oak, according to Stracke. 

“When prices reach these super high levels, that also attracts a lot more sellers, so the supply of the most iconic pieces from the three brands tripled within just five or six months,” said Stracke. 

 

Market correction

Experts have been warning that a luxury watch bubble could burst along with cryptocurrency and other trendy pandemic booms.

The biggest brands have slumped in the last year, with average secondhand Rolex prices falling 12% from a year ago, average Patek Philippe prices falling 19% and Audemars Piguet falling 17%, according to WatchCharts.

But the recent declines appear to mark a stabilization.

The secondhand market is still well above price levels three years ago. Overall price is about 20% higher since August 2020, with average Rolex prices up 26%, average Patek Philippe prices up 94% and Audemars Piguet up 100%, according to WatchCharts.

The Rolex Cosmograph Daytona 116500 model, for example — among the most heavily weighted watches on the WatchCharts index, is currently listed at around $29,000, nearly double its original price. A Patek Philippe Nautilus 5711 Stainless Steel model will demand $103,357, on average, a threefold increase from its retail listing of $34,890, according to WatchCharts.

“There’s definitely been some landings in 2023, but we see that the prices overall have definitely stayed much higher than they were pre-pandemic. I don’t think it’s a burst of a bubble,” said Pierre Dupreelle, managing partner at Boston Consulting Group. “I think as the economy stabilizes, you can see the prices stabilizing or maybe starting to rise again.”

And the relatively lower prices may present a buying opportunity for a new generation of shoppers and collectors.

Millennials and Generation Z are developing an appetite for the luxury watches and status symbols. A recent BCG report found that 54% of Gen Z and millennial buyers said they had increased their spending on luxury watches in the past two years.

“I would love to buy another Rolex. Seeing the price of them fall kind of makes it less like a risky investment. You don’t want to pay more for something if you could just wait and pay less,” said Brian Burns, a millennial adventure guide and owner of a Rolex Submariner.

“Personally, I really appreciate the craftsmanship of watches,” said Chan Hirunsri, a 20-year-old student at Penn State University. “I bought a Grand Seiko SBGA407 in May when prices were relatively low, and I am waiting to explore Rolex.”

 

[MagicalBikeRide]

Lots of parallels IMO - including the quantity and accuracy of fakes 😂

[MrBirdman]

Maybe, except that prices on the secondary market have generally been under the retail for CC since the price hikes. Ominous signs for Habanos. 

[El Presidente]

8 minutes ago, MrBirdman said:

Maybe, except that prices on the secondary market have generally been under the retail for CC since the price hikes. Ominous signs for Habanos. 

That Cuban cigar secondary is chock full of pre 2020 purchased stock. There are great profits to be made at pricing below HSA retail. That trend has some way to go. 

The obvious difference between cigars and watches is that cigars are consumables and there is no Apple "smart cigar" on the horizon that will become a daily driver. 

Still, it shows how quickly a market can change. 

 

 

 

[SCgarman]

6 minutes ago, MrBirdman said:

Maybe, except that prices on the secondary market have generally been under the retail for CC since the price hikes. Ominous signs for Habanos. 

Let me know when I can buy a box of Monte4 for $200/box again. When/if that happens, then hope may abound. I'm not going to hold my breath on that one!

Rolex, Patek, AP. Something you aspire to buy once, wear it for life and pass down to your heirs.  Cuban cigars. A consumable product that doesn't last a lifetime, nor will your heirs want/appreciate them except in rare instances. A bit of an apples to oranges comparison. I have a solid gold Submariner bought before all the pandemic craziness started. Bought it to wear and enjoy, don't care about value. The $25K purchase price is money under the bridge. Just like the thousands $$ spent on the cigars.

[MrBirdman]

9 hours ago, El Presidente said:

That Cuban cigar secondary is chock full of pre 2020 purchased stock. There are great profits to be made at pricing below HSA retail. That trend has some way to go. 

You can say the same about assets in any inflating market. Ultimately the market price is the market price, regardless of whatever the seller paid for it. 

[El Presidente]

3 minutes ago, MrBirdman said:

You can say the same about assets in any inflating market. Ultimately the market price is the market price, regardless of whatever the seller paid for it. 

True, except that it is rare to see the exclusive supplier bump prices 100-300% in 12 months and largely /successfully attempt to control global pricing. 

It has been a unique set if circumstances.

Habanos will need to engineer /maintain scarcity in order that their house of cards doesn't risk tumbling down.

It might just be that the scarcity will be built in via Tabacuba's financial limitations. 

[MrBirdman]

3 minutes ago, El Presidente said:

Habanos will need to engineer /maintain scarcity in order that their house of cards doesn't risk tumbling down.

It might just be that the scarcity will be built in via Tabacuba's financial limitations

Agreed.

[BrightonCorgi]

I don't see the parallels between luxury watch market and Habanos.  External forces like tobacco laws help keep prices high.  Watches have no artificial barriers as such.  Watch brands are looking to increase production, not lower it like Habanos.

I'll use Rolex as an example as I the most familiar with their business model vs what Swatch is doing at the moment.

Prices will come down even further on Rolex over the next few years.  A new Rolex factory is coming online that will dramatically increase production.  Rolex bought Bucherer jewelry chain (Tourneau in USA) and plans to open Rolex factory backed boutiques (need watches for said boutiques).  Currently, Rolex only makes money on the wholesale & repair.  Soon they will make it on wholesale and retail.  They're expanding a pre-owned market and selling other brands too.  Want an Omega or Breitling?  Rolex/Bucherer got you covered.  They make money no matter what you buy and a lot more.

Rolex saw the gouging & poor customer experience their consumers receive going into many AD's.  The event of buying a fancy watch should be a lifetime experience, not "beat it, you're only buying one watch.  Spend 100K and we'll let you get in line for an Explorer" does not cut it. 

 

 

[Arabian]

6 hours ago, BrightonCorgi said:

Rolex saw the gouging & poor customer experience their consumers receive going into many AD's.  The event of buying a fancy watch should be a lifetime experience, not "beat it, you're only buying one watch.  Spend 100K and we'll let you get in line for an Explorer" does not cut it.

Speaking of AD's, I was watching a Kuwaiti watch enthusiast a while ago where he stated that you as a customer/ client build the relationship with sales person and not the AD in particular meaning once the sales person leave for another watch brand, your relationship with this AD is over. "Oh we don't see you as a big spender, you don't fit our targeted list" although the guy indirectly influenced many people to spend large amount of cash to purchase watches from this luxury brand. you can apply the same logic in the banking industry. I believe Covid ruined too many things. AD's damaged their client base along with the introduction of Bag Merchants (people who jump selling hyped items to another hyped items for quick cash)  you know something is wrong when those people auction regular production cigars. the CC industry needs an urgent collapse and I apologies for those who into it as an investment. 

[Chibearsv]

5 hours ago, Arabian said:

Speaking of AD's

Pardon my ignorance of acronyms, what’s AD?

[SCgarman]

3 hours ago, Chibearsv said:

Pardon my ignorance of acronyms, what’s AD?

Authorized Dealer. Retailer that sells Rolex, Patek, other high end watches. 

 

6 hours ago, BrightonCorgi said:

I don't see the parallels between luxury watch market and Habanos.  External forces like tobacco laws help keep prices high.  Watches have no artificial barriers as such.  Watch brands are looking to increase production, not lower it like Habanos.

I'll use Rolex as an example as I the most familiar with their business model vs what Swatch is doing at the moment.

Prices will come down even further on Rolex over the next few years.  A new Rolex factory is coming online that will dramatically increase production.  Rolex bought Bucherer jewelry chain (Tourneau in USA) and plans to open Rolex factory backed boutiques (need watches for said boutiques).  Currently, Rolex only makes money on the wholesale & repair.  Soon they will make it on wholesale and retail.  They're expanding a pre-owned market and selling other brands too.  Want an Omega or Breitling?  Rolex/Bucherer got you covered.  They make money no matter what you buy and a lot more.

Rolex saw the gouging & poor customer experience their consumers receive going into many AD's.  The event of buying a fancy watch should be a lifetime experience, not "beat it, you're only buying one watch.  Spend 100K and we'll let you get in line for an Explorer" does not cut it.

Many who want that elusive stainless steel Daytona find themselves playing that game. Spend six figures on diamonds and other junk jewelry you don't want/need, and the AD "might" have a Daytona for you back in their safe. Total BS shenanigans. Still going on now. All you have to do is peruse the watch forums. 

[vladdraq]

I always wanted a Rolex, but my latest buy stopped at the "famous" bullhead Citizen worn by Brad Pitt in Once Upon a time in Hollywood. No Rolex, but still smoking Cohibas. 

 

[BrightonCorgi]

2 hours ago, chasy said:

What’s funny to me is that you would think Rolex and others would want more first time buyers to get their watches. All I hear from AD’s is that the desirable watches go to the collectors with strongest purchase histories. You can’t sell someone his second Rolex until he has his first, no?

Bingo.

Well this goes to my earlier post.  Rolex does want them to be your first & every special watch purchase.  "A crown for every achievement" is their slogan and being told "sorry Charlie" at an AD when it's time for that crown is hardly the buying experience they want you to have. 

Several AD's will no longer be AD's when Rolex is through.  Rolex wants every buyer to have that experience.  An AD cannot charge over retail on a new watch purchase, but can charge whatever they want on a used watch.  I think Geneva is only official Rolex owned boutique at the moment.  All the Rolex stores you see around the world at not company owned like you see for IWC, Breguet, Vacheron, etc... 

Coming back to Habanos...  LCDH's are as close to an official Habanos store as it gets.   It's their franchise.  How many LCDH's of recent really have that first class buying experience?  Heck, how many even stocked with the current Habanos portfolio? 

[SCgarman]

49 minutes ago, chasy said:

100%. There are a couple watches both Rolex & Patek that I’d scoop in a second. There are numerous of each that I would never consider buying before I had the prior ones. I’ll spare you the specifics but what I’ve been told I need to spend for the privilege of buying an Aquanaut at MSRP is offensive…

On the bright side, this is horrendous customer service via AD’s. Usually markets find a way of correcting themselves - be it a snap back to equilibrium pricing or new competition. I hope it’s new competition. 😉

Mechanical watches may be a thing of the past eventually. I'm 57 and have worn a watch since being a school kid. My 17 year old daughter has no interest in watches. She knows my gold Submariner will be hers when I'm gone, but will it matter? Teens now have the time on their phones, when is the last time you seen a teenager wearing any kind of "analog" wristwatch? I think generational change regarding watches is slowly on the way. Food for thought 🤔 

[LLC]

12 hours ago, SCgarman said:

Mechanical watches may be a thing of the past eventually. I'm 57 and have worn a watch since being a school kid. My 17 year old daughter has no interest in watches. She knows my gold Submariner will be hers when I'm gone, but will it matter? Teens now have the time on their phones, when is the last time you seen a teenager wearing any kind of "analog" wristwatch? I think generational change regarding watches is slowly on the way. Food for thought 🤔 

They also have music and cameras on their phones but it is the younger people that drove interest in records and now film cameras. Everything comes back around eventually. 

[BrightonCorgi]

2 hours ago, LLC said:

They also have music and cameras on their phones but it is the younger people that drove interest in records and now film cameras. Everything comes back around eventually. 

Mechanical watches are going nowhere.  Anyone can tell the time from a dozen different ways at any given point. 

[Hammer Smokin']

Mechanical watches for function will be a thing of the past (already is). 

Mechanical watches for status symbols....will be around as long as humans. 

[99call]

9 minutes ago, Hammer Smokin' said:

Mechanical watches for function will be a thing of the past (already is). 

Mechanical watches for status symbols....will be around as long as humans. 

Correct ⬆️⬆️⬆️

The idea that these people are into watches to tell the time, etc is ridiculous.   

I love watches and I also absolutely despise watches.      I love the cutting edge precise engineering, the evolution of materials, the design, the heritage,  the craftspeople etc etc.       The people I know who are passionate about collecting watches, all have something in common......  none of them!!  and I mean NONE! care about any of these things.  All they want to know is:

- Does this make me look like I'm from old money?

- Does this make me look like I might have a yacht mored in Montecarlo?

If watches are going to die out......then thank god!.    The people that designed them, made them  etc... they all should be celebrated and revered,  the midlife crisis peacock types that are constantly parading them.............not so much. 

It all reminds me of the business card scene in American Psycho. 

[Fugu]

On 11/25/2023 at 2:58 AM, SCgarman said:

Teens now have the time on their phones, when is the last time you seen a teenager wearing any kind of "analog" wristwatch? I think generational change regarding watches is slowly on the way. Food for thought 🤔

Seems you're a generation behind... I'm of similar age as you and stopped wearing a watch (on a daily basis) about 30 years ago, when I damaged my then Swatch. Whereas my kids (granted a tad older than your's, late millennials if you will ), are much into wristwatches again today.

On 11/25/2023 at 10:36 PM, 99call said:

The idea that these people are into watches to tell the time, etc is ridiculous.

Of course not. But that's everything but new knowledge. The need for a mechanical for telling the time went away half a century ago with the advent of the miniaturised quartz clock. It's not just since invention of the smartphone that a mechanical watch does not work much as an "instrument" anymore. Remember, the mass-market compatible quartz clock already caused a (the!) huge hit to the mechanical watch industry in the 70s (mind you it was Patek Philippe being the first to successfully implement the technology in a wristwatch!). But eventually, mechanical survived it!

A luxury mechanical today is jewellery, nothing else. Satisfying one's appreciation for the art of fine mechanics and engineering, history, design and aesthetics, it's status symbol, can be asset, and means making a statement, .... perhaps.

There'll be booms and setbacks, but I don't see mechanical watches fall out of favour anytime soon.

That being said, there's indeed some - in certain areas - but no general comparable parallel with the secondary Cuban cigar market. The majority of cigars still is for smoking.

[99call]

8 hours ago, Fugu said:

in certain areas

For me, the charting of secondary cigar prices seemed to make some degree of sense up until about 2021, you could look at a specific box and go "ok, it's Pre-embargo, the cigar size is rare, the box is in good condition, etc etc". But more recently things have become a bit more blurry, and I think it has spooked the market a little bit. Sub categories like regionals, 2003-on discontinued cigars etc, are throwing up prices that have skewed the market. Add to that the huge increase in off-the-shelf prices, and you can forgive the end consumer for thinking WTF is going on here? I can buy a 10 box of 2009 ERDM Tainos for practically the same price as a 2019 box!!!!???, yes there is a lot of hype on the quality of the re-release, but still I think it has had a bit of a confusing factor on where people are seeing, and more importantly not seeing the value in the secondary market. 

[dominattorney]

Having been interested in rolex watches for some time and sitting on the sidelines, I don't see the parallel between the watches and habanos. I've bought one rolex but immediately sold it on when I realized I could make about a grand more than I paid for it. I doubt I'll buy another because no one watch speaks to me that much to justify the expense. 

I've had a soft spot for Tudors but having handled a few and hearing about quality control issues and awful servicing I couldn't justify the price tag. My solution was in the homage market in the form of the San Martin brand. The look scratches the itch and I don't worry about it breaking, getting lost, or stolen since replacement cost is a third of the servicing cost of the genuine article and about a twentieth of MSRP. I don't wear the same watch every day so the certified chronometer or high level time keeping isn't an issue for me. I hear people complain about a watch gaining or losing 4 seconds a day and I chuckle. 

The habanos on the other hand. I'll bitch about the price increases like all the rest of us, but there's no way I'll ever transition to 100 percent non cuban. 

[GoodStix]

The secondary market for whiskies (which had been strong) has seen prices fall off too.  Demand for luxury products declining?  Economies are worsening with more hurt to come, possibly much more.

[Frozen North]

I sold my 2004 Rolex Sub that I paid $6100.00 for in 04’ for $28,000.00 last summer. Suckers are born everyday. I’m sure the same applies in the CC market. It’s pure insanity in my opinion.

[Fugu]

10 hours ago, 99call said:

Add to that the huge increase in off-the-shelf prices, and you can forgive the end consumer for thinking WTF is going on here?

Sure, the secondary market in part seems overblown. But so are many primary market prices. That's indeed a particular special effect that adds to it. And, granted, with current releases such as la 'Victoria' or the continual flow of Chinese-Year releases, I fully agree - laughable. In particular the latter, glossed over standard production. But... most of these cigars will be smoked... still. Their scarcity over time is inherent. While in the luxury watch market... the more produced, the more is in the market. In many there isn't even any wear & tear.

But if you look carefully / buy selectively you can still find many Cuban cigars of fair equivalent value that likewise and as precisely "tell the time".