Rolex prices plunge, luxury watches will become the latest ‘bubble’ to ‘explode’ because of China?

Tram Ho

Bubble deflated

The greatest use of a watch is to tell the time. Among the types of watches, wristwatches are always in the top 5 choices that come to mind first.

In addition to telling the time, some luxury wristwatches are still considered a store of value. However, according to the chart below, their use of “store of value” is proving less effective.

This chart is produced by WatchCharts, a website that tracks the resale prices of high-end wristwatches. Prices are falling sharply.

Giá Rolex lao dốc, đồng hồ xa xỉ sẽ trở thành bong bóng mới nhất vỡ tung vì Trung Quốc? - Ảnh 1.

Resale is a form of reselling the item you have purchased at a higher price than the official listed retail price to make a profit. Resale items are often high-fashion items, especially “limited” items, not mass-produced.

In the past 12 months through mid-January, of the 49 brands that WatchCharts tracks, Rolex was the worst with an average drop of 15%. Tudor, the brand of a subsidiary of Rolex, fell the second largest (11.5%).

The situation could be even worse. The 28% drop from the peak means that expensive watches still outperform bitcoin. Bitcoin price fell 51.9% in the same period. However, the S&P 500 index fell just 12%, spot gold fell 1% and US Treasuries fell 4.9%.

China is the cause

There are many reasons why the price of high-end watches has fallen sharply compared to other luxury items. Part of the reason is China, where a strict zero covid policy has led the rich to shift to increasing cash accumulation.

In addition, high-end watches are also a “victim” when the cryptocurrency bubble burst, as digital millionaires massively sold off this luxury item and caused the supply to skyrocket. The final reason, last month Rolex just launched the official resale channel.

The price drop should come as no surprise to those who watch this market regularly. Demand is still short of supply, causing prices in all markets from direct retail to tier 2 and tier 3 to plunge.

Most importantly, a deep understanding of Rolex is essential. The brand holds about 42% share of the global used luxury watch market, according to statistics from Morgan Stanley. Patek Philippe and Audemara Piguet are right behind but at a great distance, accounting for 28% of the total.

All three companies are private companies and do not publish much data on business activities. However, a rough estimate is that Patek Philippe and Audemara Piguet sell around 100,000 pieces per year. Rolex is on another level, with numbers up to 1 million units and is about to break ground on a new factory.

This leads us to pay special attention to China, as among the major markets this is where Rolex prices are the least distorted. Omega and Longines (both owned by the Swatch Group) are the two most resale brands here.

Moreover, sales in the Chinese market are particularly bad. A few days ago, Swatch announced that its business situation did not meet expectations in 2022 despite selling more than 1 million MoonSwatch units. Cash flow declined rapidly while inventories rose to a record.

CEO Nick Hayek said that the Chinese market is recovering, but currently the supply of Longines and Omega watches is too much. For high-end watch manufacturers, dealing with large amounts of inventory is a very difficult task.

Meanwhile, scarcity is something that luxury watchmakers desperately need. According to a report on the Swiss watch industry in 2022 by Deloitte, almost 30% of brands have stopped producing many models to create scarcity. Last year Patek Philippe halted production of its best-selling sports watch line, causing prices on the secondary market to spike. However, then a new version was released for twice the price of the old version.

The December report of the Federation of the Swiss Watch Industry (FH) said that exports to almost all markets decreased compared to November, in which the mainland China and Hong Kong markets were particularly bad. , down 22.6% and 19.8% respectively over the same period in 2021.

Giá Rolex lao dốc, đồng hồ xa xỉ sẽ trở thành bong bóng mới nhất vỡ tung vì Trung Quốc? - Ảnh 2.

Export situation to other markets (% growth over the same period last year)

Taking the last 3 years, the numbers are even worse. While the European and US markets are gradually recovering to pre-epidemic levels steadily, China has posted negative growth for 2 consecutive years.

Giá Rolex lao dốc, đồng hồ xa xỉ sẽ trở thành bong bóng mới nhất vỡ tung vì Trung Quốc? - Ảnh 3.

For a more in-depth look, let’s look at each price segment. According to FH classification, the high price segment is from 3,000 Swiss francs (about more than 76 million VND) – Cartier or Breitling brands. Mid-range segment from 500 francs (nearly 13 million VND) or more – Tag Heuer or Rado brands. And the lowest segment costs from 200 to 500 francs – brand Tissot.

By value, exports of the high-priced segment increased by 13.3% in December, lower than the 15.7% rate in November. The mid-range segment decreased by 14.3% after moving sideways in November. In the lowest segment, export turnover decreased by 25.7% and 30.3%, respectively.

Giá Rolex lao dốc, đồng hồ xa xỉ sẽ trở thành bong bóng mới nhất vỡ tung vì Trung Quốc? - Ảnh 4.

Growth of export turnover by each price segment.

Since 2017, the Swiss watch industry has followed a trend: the number of exports has decreased but the value of exports has increased. The chart of RBC Capital clearly shows this (dark blue column is export volume, light blue is export value).

Giá Rolex lao dốc, đồng hồ xa xỉ sẽ trở thành bong bóng mới nhất vỡ tung vì Trung Quốc? - Ảnh 5.

2017 is also a milestone for the Swiss watch industry. That was the year that Paul Newman’s Rolex Daytona sold at auction for $17.8 million, becoming the most expensive Rolex watch of all time.

This event reinforces the belief that luxury watches are a superior asset because they will always increase in price, plus tax advantages and ease of shipping abroad. A few years earlier, the introduction of the Apple Watch made the already meager watch market even more difficult, so the Swiss watch industry turned to focus on serving the collector’s hobby. emerging rich.

So is the weakening of the Chinese market a sign that this strategy is no longer working? Ignoring the mutant factors, there are still quite clear signs of recession. The Chinese market has reopened since December, but those who want to buy luxury watches to assert their class and resellers have not yet reappeared.

The global market performed better than China mainly thanks to Rolex. Currently, certified, used Rolex watches are still being sold for more than the retail price. However, the “Rolex bubble” deflates just as quickly as it inflated.

If this adjustment spreads into a recession cycle covering the entire industry, the main cause is China.

Consult the Financial Times

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Source : Genk