Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High?

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High?

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles

How did watch prices get so high? The number one response from watch enthusiasts seems to be “greed” - though "maximizing profits" would be the politer way to say it. Looking at the recent history of watch industry growth, I don’t see evidence for pure greed. Instead, I see companies investing in what seemed to them (at the time) like sustained and unrelenting growth between 2005 and 2015. In this article, I will walk you through the increases in watch prices and why they have gone up faster than the rate of inflation. In the next article, I will explain why all of the sudden people aren't willing to pay those prices anymore.

While some enthusiasts may not care how much a watch costs and why (a scant few), many of us who follow the industry find it interesting to consider this complex question. This article is intended for those curious about the forces behind the watch industry and would like to examine them with a business and finance perspective.

Ariel Adams wrote an article back in 2010 on this topic as well. Both his article and mine cover valid but different points. While we do have some overlap, I focus on the topic mostly from a marketing and economic viewpoint. I recommend you read both for a well-rounded perspective. Here is part II of the Watch Pricing series.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles

Recap of the First Article

In the first article of this series, titled "From A Swiss Perspective, US Watch Prices Haven’t Increased That Much," I showed that when inflation and exchange rates are factored in, watch prices in the US since 1984 (for Rolex) have only increased 2.5x (if you are in the US) or 1.04x (if you are Rolex). Yet still, there have been price increases. The purpose of this article is to explore why? On my Watch Ponder blog, I like to investigate watch industry business questions like this (You can read my open letter to watch companies about prices here). While there are an infinite number of possible explanations starting at the retail level all the way up to macro economy, I'll offer a few that stand out to me.

Why You Can’t Blame Profits for the Price Increases

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles
Source: Swatch Group 2016 Semi-Annual Letter to Shareholders

Note: In the previous article, I focused on Rolex. However, they are a privately held company so their financial statements are not public outside of widely varying analysts' estimates. Therefore, I use the Swatch Group for this article as an example of the watch industry because they are the largest company and also publicly traded with published financial data.

The net income for the Swatch Group over the last 10 years averaged only 17%. The green line below shows the percentage increase/decrease year-over-year of Swatch Group's revenues, and the orange line shows the percentage of those revenues that were net income (aka final profit).

Why is this important? Because it shows that the Swatch Group is not increasingly growing their profit margins through price increases. The Richemont Group shows a similar trend. If the goal of the watch industry were greed through raising prices, the orange line should be rising every year. However, this is not the case - the recent price increases have not resulted in growing profits.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles
Comparing the growth of Swatch Group revenues vs. the percentage of net income yearly. Based on company financial data on Morningstar and Swatch Group 2016 semi-annual letter to shareholders.

Where did all the revenues go if not to profits? Much of the increased revenues fueled investments in growth - new factories, new equipment, and new staff. The chart below shows the amount Swatch Group spent each year investing in their own capital growth (i.e., equipment, buildings, etc.). Investments in buildings and equipment result in future fixed costs (power bill, phone bill, repairs, etc.) that a company must pay regardless of whether they sell any watches. You can read in more detail on this here.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles
Based on company financial data on Morningstar

One could argue the desire for growth is in itself bad, but most publicly traded companies in capitalist economies seek to grow because that's where future value is captured. Growth depends on a company's ability to produce more "stuff" (aka capacity), and then actually sell the increased volume of product. Most public companies growing sales by an average of 9% a year (as was the case for Swatch from 2010 to 2015) would seek to grow capacity.

In 2000 to 2014, expensive luxury watch sales (>CHF 3,000) were growing at very quick rates. Many luxury watch companies who couldn't keep up with the consumer demand made investments in growth such as new factories, boutiques, etc. A logical question to ask at this point is whether or not the consumer demand was both actual and sustainable? However, that is a different story I will cover in the next article.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles

The chart below shows how from 2000 to 2014, expensive luxury watch sales were growing at very quick rates and high-end companies like Rolex, Omega, Jaeger-LeCoultre, Patek Philippe, Audemars Piguet, and others accounted for the majority of the growth. It is no surprise that they sought to expand their ability to produce more to meet growing demand. Again, sales demand drives future growth investments.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles
Based on FH reported results

One could argue that the industry did not adequately prepare for the downturn of 2015 or beyond (more on that here). Perhaps, but that isn't a totally fair statement either. Few (if any) can accurately predict downturns. In preparation, many of the watch companies carry little to no debt, making them very unlikely to become financially distressed. In that sense, they have prepared themselves. In all fairness, very few companies or industries can see rapid shifts in the market before they happen. The judge of a company's performance during downturns is always time - only time will tell how well they can react to the quickly shifting markets.

What does this all mean? Well, so far in this article series, I have explained that the rising watch prices are in part due to exchange rates and inflation, but those only account for some of the price increases. Above, I explained that the price increases weren't purely a result of increasing profit margins. While the increased revenues went towards growth investments, those didn't cause the price increases - rather, the price increases made the further company growth possible.

The question remains - why have prices increased? While there are many explanations, I will offer a few anecdotal arguments.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles

Why Have Watch Prices Increased?

Brand Equity and Reputation Count for Something

A company's brand becomes equity for them when they have a good reputation and perceived demand. Companies such as Rolex, Omega, Patek Philippe, or Audemars Piguet have reputations for quality and fame that lead consumers to be willing to pay more for their version of a watch over an alternative. Functionally speaking, there are alternatives to these expensive watches that perform the same job and look similar for much less. However, customers choose these more expensive watches for any number of reasons that range from signaling wealth or interests, to quality or reputation. Moreover, it remains a fact that in many instances if a company increases the price of their products, at least some segment of the consumer population will deem those products to be more valuable.

This fact about "brand premiums" is not unique to the watch world. In virtually every luxury segment, consumers pay more because a brand has earned a positive reputation and leads customers to pay more over a functionally similar product. Customers have the choice to buy a cheaper alternative but choose not to. This is not because consumers are misinformed or incapable of making a rational decision. Rather, what seems irrational to those looking from the outside in seems completely rational to the one buying. This is not a secret or even a theory, rather a reoccurring phenomenon. Here is Investopedia's simple but very salient summary:

It’s well known that people don’t behave rationally, and considering the enormous consumer debt Americans have, consumers clearly don’t always act in their best financial interests. Luxury goods are a great example of how irrational we can be; a decent and sturdy handbag can be purchased for $50, yet people will still spend thousands to buy a brand name.

It is a completely rational purchase to the one buying. The luxury brand cannot be blamed for the price; rather, it is the consumer who makes the decision to pay more for the luxury alternative, which they could easily choose not to buy. In short, the brands that have built reputations can command higher prices because customers are willing to pay those prices. Which leads me to the next point.

Watch Pricing Series Part 2: How Did Watch Prices Get So Seemingly High? Feature Articles
This chart shows the rapid increase and then decrease of Swiss watch exports (based on data released by the FH Jan. 26, 2017)
Supply and Demand Allowed Price Increases.

The simple fact is more people want a Rolex Submariner at $200 than Rolex can make. More people want one at $5,000 than Rolex can make. At $8,000, people still buy 100,000+ Rolex Submariners every year. That is about 2.5x the total number of watches sold by most luxury watch brands every year. People keep wanting Submariners for many reasons, but I will rely mostly on the reputation of the brand as a driver for the majority of customers (I acknowledge individual reasons vary).

Unadjusted prices of a Rolex Submariner have gone up substantially, yet people keep buying the Rolex Submariner. However, the Sub is not an isolated example. Why did every other luxury watch company increase their prices too? Because they could. Just as a rising tide floats all boats, so did common performance and increased sales across the watch industry benefit all (or let’s say most) watch brands. Maybe you wanted a Rolex Submariner but the price was out of your range, so the next best alternative by Brand X became your choice. The demand for the most desired watch models demonstrates how the economic principle of substitution benefited "the alternatives" as many other Rolex Submariner substitutes have also benefited (and sold very well).

  • Word Merchant

    This can be expressed in pseudocode:

    while (count(customers) > 0) {
    price *= 1.1;
    sleep(years=1);
    }

  • IG

    I’d not buy a Submariner even at $200.

    • Word Merchant

      At $200, I’d fill my front room with them…

      • IG

        Do you live in a van down by the river?

        • Word Merchant

          No. So don’t worry, we’re not neighbours.

  • BNABOD

    bottom line 50% decrease in net income while everything else stays relatively steady. So operating expenses and personnel expenses got to go down eventually. got to retain the talent that is good and ask more of them. My industry is like that I am working twice harder now than I was 10 years ago and it is not getting any better (and no we were not slacking off 10 years ago but now it is getting amazingly intense to stay competitive). on the expense side you got to trim the fat. travel expenses, food, parties or whatever else they got going on has got to decrease and when it comes to advertising or sponsoring x y z then you got to be negotiating hard for the best price. a lot of this will also come down to outsourcing. call it what you want but if steel case is made in china and finished in Switzerland and the difference to your eyes is nonexistent and you still meet the Swiss law rule then you got to do it but QC and quality must stay there.

    • Larry Holmack

      My wife works in a very volatile industry, where changes in the economy can result in many workers losing their jobs ( the oil industry ). When oil prices dropped to under $40 a barrel, her division had to trim hundreds of jobs, and those that were kept had their pay cut by up to 30%. My wife now is doing way more work for less money, but she still has a job. He division would have gone belly up had they not cut expenses…..employees, travel, parties, expense accounts, advertising budgets….etc!! Their management saw that if they lowered their expenses and sold their services for slightly less than their competition, while offering the same quality they were providing before, that their sales would increase and their profit margins would also go up. All of this has proved true, and her division was the only division in the company that made money…and gave the company, as a whole, a profit this past year instead of losing money.

      Now will the watch industry do the same….who knows?

  • Framlucasse

    One problem is to sell “Swiss Made” watches mainly made in… China. And customers know this fact, more and more. The high prices are, in those cases, not justified at all. (I’m not talking about Rolex here, but a lot of others Swiss brands)

  • Mike V

    Enjoying your series. Your points regarding R&D, etc are well taken but I believe the Swiss watch industry has just gotten too greedy over the years sometimes increasing prices multiple times in a single year. Now they have pinned themselves into a corner where they don’t want to lower prices to diminish their brand but can’t increase sales until an adjustment is made. In the meantime inventory is abundant and a lot of the excess is finding its way to the grey market sellers who are offering huge discounts and thus the market is taking a back door approach to correcting and equalizing itself. Still, those of us that have been into watches for decades know the major brands have been screwing the consumer in recent years with their ridiculous price increases. Helmut Sinn who has been around the industry for a few days bore this out quite nicely in an interview with Worn & Wound that was published 3-7-13.

  • Tony NW

    The 67 Mustang bears nearly no resemblance to the 17 Mustang. You’re getting at least eight times more car – better performance starting, stopping, not needing tuning, cornering. Better safety, better mileage, better longevity. And, as you state, it’s gone up less than a typical car.

    So look at watches. No, not the -same- watch, but what consumers would buy. A super-accurate for 1960 watch cost far more than a superior accuracy, more reliable analog from Timex.

    What? Didn’t like that? Okay, televisions. Look at those. How much would an equivalent 19″ color TV cost? Not working for you? Okay, how much of a standard day’s pay is the basic men’s underwear from Sears now vs then?

    Very few commodities have stayed stable in their equivalent dollars; they have changed significantly at the same time as production has changed. Perhaps you should try a less dishonest question…

    How much more did a Rolex Submariner cost than the average basic Timex in 1960? How much more now?

    The trouble here is, you’re having to carve out the niche for “luxury” because that’s your only justification. The rest doesn’t stand up to business realities. Which will probably look different to you once you’re out of business school and actually living it. 😉

    • TrevorXM

      “How much more did a Rolex Submariner cost than the average basic Timex in 1960? How much more now?”

      Now a basic Timex watch is made in dirty coal-fueled sweat shops in China by people paid $300 a month. Your “less dishonest question” is about as dishonest as it gets. An honest comparison would be to compare another not-so-luxury Swiss brand (with a Swiss Made official label) with an in-house movement with Rolex. That’s when Rolex’s price increases over the years actually do become hard to justify rationally. Compare 1960’s prices of Rolex with other brands of the era that today are still made in Switzerland with in-house movements. That’s an honest question.

      • avensvvvvv

        All of those aspects should be addressed. It’s too bad the article talks about none; not even once about the “How”.

      • Tony NW

        Wow, Trevor, you an SJW much? China, huh? You can’t even be remotely honest on the topic! You do know that many Timex watches (including Versace) are manufactured in Switzerland, right? And most are in the Philipines, right? Or are you just spouting off?

        Regardless, that’s off-topic. It’s not a question of Rolex vs Rolex. It’s about analogous, not identical. You wouldn’t compare a 1978 Princess phone to a handmade-reproduction from now, would you? Well, perhaps you would, but the point is that the typical person wouldn’t. They’d compare it to the modern equivalent, perhaps an LG G5 in context despite the latter having web browsing, TV viewing, MP3 playback, email, etc. There is ZERO market for a Princess phone.

        How about you compare, e.g., the Rolex Submariner to the C.W. C5 Aviator Mk II, which is my favorite watch of the 20 or so I own and my daily driver. Both are automatics, Swiss made. The CW is, what, 1/20th the cost? And far better than the 1960 Submariner. (The Submariner didn’t get sapphire until around 1981, BTW.) So compared to the 1960 Submariner, the CW is the better SWISS-made watch, the more accurate watch, with better features (Sapphire, display case-back, more adjustable bracelet, SuperLuminova) and yet is far less proportionally.

    • Word Merchant

      A 67 Rolex doesn’t bear much resemblance to a 17 Rolex either. The improvement in quality of modern Rolexes over their bafflingly more valuable old versions is huge. I can’t honestly say it’s an 8 x improvement.

      • Beefalope

        No, but a 67 Rolex is a lot closer to a 17 Rolex than a 67 Mustang is to a 17 Mustang.

        Of course, a lot of that has to do with the fact that cars are far more complex than watches, but that being the case, the commensurate R&D for watches should be much simpler — and, therefore, cheaper — than for cars.

  • Mike Brown

    I don’t look at Rolex this way…..as many people, I thought Rolex was the most expensive watch in the industry when getting into watches ¯_(?)_/¯ and how wrong I was. Rolex was just the tip of the iceberg. Rolex has always had entry level and cheaper vintage models. Of course they get more expensive moving into the president and pearl master pieces. But clearly, there are many In-house brands who really are significantly spendier than the Rolex brand. Also there are many awesome tool watches like Oris, Sinn and many others who offer a lot for the money and are overlooked by many (humble and snob alike)! I do believe that luxury stainless steel watches (you know who I’m talking about if in the know), gold tourbillions, and new tech materials are a bit over priced. Even considering R&D. Therefore, I believe all houses/manufacturers should offer a 3 hand watch for very good price! ……And compete to make it a reasonable price! I do own a couple Rolex watches and some tool watches to boot. But I don’t boot them because they all are the price of a really good used car!

  • TrevorXM

    Another very well done entry to the series. The upcoming third and fourth instalments will be the most interesting, as I look forward to reading your opinions on the rift on sales we’ve seen recently and why significant price reductions wouldn’t change very much.

  • vmarks

    Part of the reason a Rolex is worth more tomorrow than the date of purchase is because we all agree that it is. Everything else used depreciates, including other watch brands’ products.

    It wasn’t always this way. What happens to the market when we give up on this collective idea that Rolex never depreciates?

    • imageWIS

      Not all Rolexes appreciate in value, look at the list price for a 1990’s Day-Date in yellow gold, and then do the inflation math, and then see what the market value is: it’s not good. SOME Rolexes have appreciated, but most of those approx. million watches made a year depreciate in value.

  • vmarks

    A 2.5x price increase above inflation adjustments is not “normal” or “small.” This seems to be glossed over as nothing to concern ourselves with in the article.

    • imageWIS

      in 1999, a 3970G cost US$77,300. In 2016, a 5270G cost US$164,433.00; That’s a 212.72% increase in roughly 17 years. Using the US Gov’s CPI Inflation calculator, $77,300 in 1999 would be $111,359.70 in 2016 dollars. From WHERE does the extra $53,073.3 come in? R&D costs for the in-house Cal. CH29? No. Extra gold? No (it’s negligible from the 3970 to the 5270), so from where does it come other than marketing, and to line the Stern’s pockets?

  • DanW94

    Interesting article, this coming from an admittedly business practice ignorant reader. Using the Swatch group as an example, presumably a number of their brands are taking full advantage of the Swiss Made 60-40 designation. By sourcing supplies and a degree of assembly in Asia thus bypassing the expensive European environment, shouldn’t this translate to lower production costs ((personnel, machines, building space, etc…) thus lower prices for the end consumer? It seems like this should be the case. If not, then they’re artificially inflating prices.

    • TrevorXM

      You make a very good point regarding outsourcing supplies. But if that’s so, isn’t there a case to be made that Rolex, being made entirely in Switzerland, is actually being priced more honestly than is commonly perceived? Myself, I would argue that Tudor is being closer to being honestly priced for a truly Swiss made watch. I find it very hard to square the difference in price between a Tudor and a Rolex.

      • imageWIS

        So much this ^^^. Rolex does have a slightly better finished movement, but in reality the price difference is based solely on marketing.

        • Jeffrey Chang

          People like to dismiss marketing as a fluff cost when in fact its a real cost that adds value to the watch. “Price of truly swiss made watch” is also dangerous. You cannot just add price of materials with hours of labor to make and come up with a ‘fair price.’

          There is this story I heard that I now paraphrase.

          A guy watches Picasso (or any master artist) doodle a picture on a park bench.

          Guy: Wow, that’s a great picture! Can I buy that off you?

          Picasso: Sure. $10,000.

          Guy: $10,000?! But it only took you 5 minutes!? How can you justify that price!?

          Picasso: Sure, this drawing took 5 minutes. But it took me a life time to learn to draw this in 5 minutes.

    • Hi Dan, that is a good question. Many of the companies wouldn’t be able to survive if they didn’t use the 60-40 rule. As noted, profit margins are very slim already, so to shift more production to Switzerland brings with it significantly higher costs.

      I pointed to an excerpt about American Watch production in 1876 where the Swiss observer notes that American watch companies would go out of business without the cheaper and more efficient mechanized production. That mechanized production didn’t undercut the existing Swiss watch prices (which were all made close to by hand at the time). Rather the mechanized production allowed the American companies to even have a Watch industry, Because cost of business and wages in America at that time was significantly higher than in Switzerland.

      This is a similar story for Switzerland today as wages, real estate, taxes, and other costs of business have increased significantly in the last 50 years. The 60-40 rule allows companies to continue to produce. In America today, to achieve the close-to 100% standard, very few companies can make a Watch fully in America due to the costs of production.

    • Tõnis Leissoo

      Dan, there are actually quite many countries between Switzerland and China. France, for example is making quite a bit of parts for Swiss watches. Also Germany. It’s not that black and white.

      • DanW94

        You’re correct, and this is just an assumption here, but I would think the cost of parts coming from the countries you mentioned are similar in cost to Switzerland, so not really significant savings there.

        • Tõnis Leissoo

          One example of where significant savings come from is not purchasing all the equipment, hiring professionals who can work with it and so on. Ceramic cases and other ceramic parts for example require very specific equipment that’s very expensive and of course huge in size. Ceramics is just one example. I think another good example is sapphire crystal. Should watchmakers all have proper equipment for making crystals In-house? And if we talk about the house then should it be one very big house? If it’s another house in another town then it’s not really the same house.

          • Beefalope

            Ok, buy why is it that Seiko can be more in-house than anybody — we’re talking true 100% integration — and yet offer better watches at lower prices?

          • Tõnis Leissoo

            Very simple answer: because Seiko is huge and most of their watches are not luxury. And are you sure that Seiko makes their own sapphires, boxes, manuals and everything else that goes inside the watch box?

          • Beefalope

            But Seiko is not the only one that is huge. Rolex, Richemont, LVMH and other watch/luxury good conglomerates also are huge.

            Seiko’s so-called non-luxury offerings — the $600 (grey market) Grand Cocktail Time watches — are better than most offerings from their Swiss counterparts that cost four or five times as much. The only thing luxurious about so many Swiss offerings is their price. Their luxury items — Grand Seikos and above — blow their Swiss counterparts out of the water.

            And I couldn’t care less about boxes, manuals, etc. I don’t wear the boxes. (And given that Seiko owns Epson, a printer company, yes, I’m guessing Seiko makes all that stuff.) So let’s say Seiko is 98% integrated. The point still stands.

          • Tõnis Leissoo

            Well, it’s a lot more expensive for Japanese to outsource from France. I’m quite sure that they would use much more outsourcing if they were in a middle of Europe. Unfortunately the entire term “in-house” is marketing bs. Even Dufour doesn’t make everything in his house. Swiss watchmakers created the Geneva Seal for purists. It’s much more than just “swiss made” writing. But I know for a fact that the same brand that has stamped all their watches with Geneva Seal is actually outsourcing some parts from France.

          • imageWIS

            Almost none of the boxes for ANY brand are made in Switzerland, I don’t care how elaborate the box is. Also, look at the box that came with a Ref. 2499 second series vs the box that comes with a Ref. 5270: the box of the 2499 is simple, elegant, and just large enough to encase the watch. The box of the 5270 is a massive, unwieldy wood box that holds the watch, and has room left over for at least two more watches.

            And that’s taking into consideration that the box of the 5270 is ‘small’ compared to the boxes I have seen from other brands… they are basically the size of small microwave ovens.

            So Patek and others are now adding more expensive accesories that accompany the watch that add no watcul value, but add to the perception of luzurry and it has allowed them to charge more by simply adding a nicer box, which again is NOT made in Switzerland (most of them are made in Asia).

          • Sevenmack

            Seiko doesn’t make everything in-house. The bracelets for Grand Seiko, for example, are produced by the same firm that also produces bracelets for Casio’s highest-end lines (including Oceanus). Even Seiko has limits on how much it can do in-house.

            By the way: One of the things I didn’t see in Aaron’s otherwise-fine article (which, by the way, will have a follow-up on why consumers are fighting back against price increases) is the role of in-house movement manufacturing (a result of Swatch Group’s efforts to kill off its competitors) in increasing prices. The cost of development, production, and servicing movements alone can account for a lot of those increases. So long as there are customers demanding that watchmakers produce their own movements (and punishing certain brands for not doing so), the prices will be high.

    • Beefalope

      You are seeing the savings brought about by relying on cheap labor, but those savings primarily are being passed on by micro-brands and discount brands. These brands are not bloated pigs like the Swiss watch industry.

  • Andrew Buckley

    The “science” of Economics is notoriously poor at explaining consumer behaviour. Swiss watch pricing has got out of hand and the industry is in (terminal?) decline. How do I know this? Because the grey market is awash with surplus stock that the greedy bastards in Switzerland are trying (and failing) to offload without trashing their brand values. I don’t need two pages of pseudo economic analysis to (fail to) explain this. I just use my eyes and (like the vast majority of my fellow watch enthusiasts) vote with my feet.

  • Pascal Fabre

    This article, from a journalistic point of view, is worth very little, as it only tries to _justify_ the industry numbers, without _challenging_ them.
    It’s too easy to get away with assumptions like the one that the industry invested on structures, without asking yourself if that is real or is only a way to mask profit.
    After all, much of the industry relies on outdated technology and it’s hard to believe they have to make huge investments to produce, for example, movements which have expired patents and that can be produced with little “technological” effort.
    To me, an explanation of “How Did Watch Prices Get So Seemingly High?” would be to break down the cost of the most popular product, the Rolex Submariner, and explain why it costs 7500 € where some companies (Steinhart) make practically the same item for 500 €.
    If you do that, and demonstrate that it’s down to investment, technology and not pure profit and (bad) advertising, well, that would be interesting, not this extension of the industry PRs.
    We already know they pretend us to buy on whatever they say, they don’t need “journalists” to do the same.

    • Beefalope

      It’s ABTW, which, like most (all?) watch publications, serves as a quasi–PR arm of the watch industry at large.

      • avensvvvvv

        Is there any website that has many in-depth watch reviews? Genuinely curious.

        For example I have never seen a review here in which the watch in question is disassembled. That’s the 101.

        • Marius
        • Yojimbo

          # of qualified watchmakers on this website I suspect is too low to be opening the caseback of an Audemar Piguet.

          I wonder why they don’t solicit interviews with more sellers and servicers of watches myself, there was a nice piece awhile back on a shop owner who is in the same city as me on here. There are so many notable personalities, look at on Dan Spitz who was both the lead guitarist in Anthrax, but also the man in charge of watchmaking, alternatively, at Chopard and Leviev after getting trained in the trade sometime in his mid-20s

      • Pascal Fabre

        Yep, this is becoming increasingly frustrating as I am a “normal” person, with a job and a passion for watches.
        Yet, coming here, I only see reviews of watches which cost more than…my car or even my house!
        And it seems perfectly normal to the reviewer… No one that says: “well, at 138.000$ this is outrageously high for a piece of metal and leather strapped around your wrist”.
        Recently ABTW has taken a turn for the worse, as the watches costing around 1000/2000 $ seem not worth a mention.

    • Watching Time

      Can you elaborate on the accounting treatment that would give Swatch an advantage by masking it behind capital investments? I’m not familiar with that accounting treatment. Usually it goes in the opposite direction since capital investments subtract from net operating profits. Perhaps massive future depreciations in capital? Honestly, I am surprised you learned this in high school. I feel ripped off — my teacher skipped over this.

      Would you be willing to break down the cost structure of Steinhart vs. Rolex? I Googled both and (surprisingly) both are not on the internet. I would be interested to know both as well.

      • Pascal Fabre

        There are countless examples of how you can mask profit in accounting, just ask an accountant clerk about it (sorry if the technical terms are not correct, but English is not my main language).
        I give you an example, taken from one of Ariel’s recent posts. “The industry” recently has bought back stock in order to sustain prices. That surely detracts from their profit and increases costs, right?
        As per the cost structure of Rolex and Steinhart, yes, you don’t find it on the net, but take their “basic” product, Submariner for Rolex and Ocean One for Steinhart.
        They are basically the same watch (if you take out PR cr@p by Rolex), Rolex sells at 7500 Euros, Steinhart at 380.
        Justifying the price difference mainly to cost structure and investment is quite dumb, as both watches are made with outpatented movements (which don’t require too much technology investments, right?) and in mass numbers.
        Let’s give another example with a simple piece: have you ever tried to purchase an IWC leather strap for the Big Pilot? It costs 470 €, and it’s just a piece of leather with 4 rivets (please add 150 € for the clasp).
        Now, common sense makes me think that the two examples above can be attributed to plain greed and clever marketing, trying to exploit the maximum from brand power.
        That is good for the companies as long as they find dumb people who buys their products, but trying to “justify” the industry behaviour with balance sheets and intricate economical analysis is trying to fool the reader, as the explanation is far more simple and straightforward. (Occam’s razor, anyone?)

        • Sevenmack

          The Sub and the Ocean One are only the same product in theory. In reality, Rolex uses 904L steel, which is less-magnetic and also more-expensive to fashion into cases and bracelets. Steinhart is using 316L, the more-common steel. That difference alone ends up justifying some of the differences in price. Rolex also has more-upgraded facilities with CNC machines (expensive to operate and maintain), which also adds to the price difference.

          Certainly marketing and brand positioning is a reason why the Sub is more-expensive than the Ocean One. But let’s not pretend that there aren’t substantial differences in materials and processes for producing both watches. I’m no Rolex fan, but I’m not going to ignore fact, either.

          • Pascal Fabre

            As I said: they are the same if you take out PR crap.
            Do you really think that using 904L instead of 316L or 316F will make all that difference in quality?
            As per the CNC machines, again, let’s assume that they are so expensive as you (or Rolex) say. Do they make all that difference in the end product?
            Irony follows, handle with care 🙂 :
            Chinese replica makers are able to replicate Rollies down to the last movement screw, and you can see the difference only with a microscope, so I guess those CNC machines are not worth their cost if it’s so easy to have the same result in a crappy outlaw factory with police chasing you down day in day out… 😀
            My opinion is that, as a watch lover, I must be a grown-up and fact-check everything, and not take for granted that every bit of “emotional” PRs justifies thousands of $, when the same product can be found for much less.
            And, again, I absolutely justify the Rolex practice of going up with the prices, as long as they can sustain their business (=there is people who buys their rethoric before their watches).
            But they won’t have me 😉

          • Sevenmack

            Apparently, you know nothing about the differences between 904L and 316L. The former is prized for its antimagnetism because it uses less iron and more copper. It is also less prone to corrosion than 316L, making 904L it a superior steel alloy. But 904L is also harder to fashion, which means it is more expensive to use. Believe me, those fake Rolex watches aren’t using 904L; they aren’t even made of 316L.

            Now youay not think the use of 904L justifies Rolex pricing and you may not even want a watch made of 904L. That is a matter of preference. But stop conflating your preferences with facts. It makes you look like an ignoramus who merely wants to ignore reality because it doesn’t suit your dogma.

  • Beefalope

    Amateur writing with information that anyone who’s ever paid attention during high school economics already knew.

    • avensvvvvv

      To me it’s quite obvious the author is trying to land a job at the industry. Clearly doesn’t have any experience nor insider info.

      I would even guess he doesn’t have experience nor studies on “finance, marketing , and international trade and investment”, as he claims he has. The second page of this article has no references and no sources whatsoever; alike high school writing.

    • Watching Time

      Honestly, I am surprised you learned this in high school. I feel ripped off — my teacher skipped over this. I get what your saying, but honestly, supply and demand dictate prices and until 2015, people were paying the prices. It’s only been since 2016 that sales have gone in the other direction (while prices have held the same). I agree, they need to adjust prices but I don’t see the article as a justification prices, rather an explanation. You’re underwhelmed by the watch vs. price, but apparently millions of others weren’t because they kept buying them. I totally get what you’re saying, it’s just that the market isn’t necessarily representative of you.

      • Beefalope

        Well, I was a dork in high school who didn’t get laid much, so I figured I had nothing else to do but pay attention in class.

        In any case, you’re right — I’m not at all representative of the market. In fact, none of us on here is representative of it. We’re watch nerds; most people aren’t. What sells watches to most people is the same thing that sells lots of things to most people: branding. Are the Swiss selling a bunch of mediocre watches to people at inflated prices? They sure are. Do most people care? Not in the least. Most people don’t even know. What they know is that they paid a lot of money for that Swiss watch, and they’ll assume it’s great.

        I realize all this.

  • Ricardo Cabza

    I purchased my Rolex 16610 Sub brand new in 1996 for $1,800, the Sub now costs over $7K, that is most certainly over the 2.5X listed in this article.

    • @Ricardo, The published price of a Sub 11610 in 1996 was a little under $3,350. Inflation adjusted that comes out to a little over $5,000 (read part/article 1 if you are interested in this further to include the inflation adjustments). Rolex historical prices located here: https://www.minus4plus6.com/PriceEvolution.php

      You are correct that prices have gone up regardless of inflation and this article only offers a few of the many reasons ranging from customers being willing to pay, costs of production, marketing spends, etc.

      Thanks for reading and your comment.

      • sygyzy

        I read part 1 a few times and still don’t understand where the additional adjustment is coming from, after you take $3350 and turn it to $5100. There’s another mystery adjustment that nearly doubles this?

    • Word Merchant

      If you looked dispassionately at your 1996 Sub vs a 2017 model are there other changes that might explain some of the additional price increase (e.g. better strap and clasp, ceramic bezel insert, movement improvements)?

  • Michael

    Seemingly?

  • cluedog12

    Is it possible to zero in on sales figures and growth for brands that sell through non-traditional retail channels? I’m thinking of all those Kickstarter micro-brands and hot boutique brands like Christopher Ward and Daniel Wellington. Nowadays it seems like new micro-brands are sprouting up like mushrooms. (That’s a good thing IMHO.)

    If customers are less than willing to pay for the rising costs borne by traditional brands, are they spending on non-traditional brands instead?

    • Tõnis Leissoo

      Pretty much 99% of those Kickstarter projects end up with near zero situations, sometimes even below zero. What they really do is dumping the prices and making customers feel that this is the fair price that they are asking and all major brands that ask more are just greedy. Of course, customers would like to have things with no margin but that’s not sustainable business for the brand owners/watchmakers.

    • @cluedog12:disqus that is an interesting question. It depends on which micro brands and which customer segments. Since all micro brands are privately owned, it’s hard to know exactly how many watches are being sold or their cost structure. Most of the micro brands (operating in the $600+ range) sell very few watches in comparison to the large brands. Many luxury micro brands ($1,000+) sell in the hundreds of watches (100-500). Even adding all those micro brands together, its in the tens of thousands of total watches sold. But exact numbers…I couldn’t tell you. So yes, some people are buying micro brands (and love their purchase), but it is a very small scale compared to the overall industry which sold 4.6M+ watches >CHF500 in 2016. In the case of DW, they are selling over a million watches a year. However, they are competing in the <$300 price range, where the overall Swiss industry sold 20.6M watches <CHF500 in 2016, of which 16.5M were <CHF200.

      For the micro brands offering watches in the $1,000+ range, as you pointed out, they generally do offer a good value for the price. They are innovative and offer new options to consumers, and usually with a strong watch-to-value. Most of this is in line with JCB's philosophy that a watch trying to gain market share must offer twice the value. Many micro brands offer this.

      However, micro brands have an advantage that only works in the short term and at small scale. For example, for many, almost 100% of the production is outsourced, so there is little overhead, but also little direct control over the production process (which is the "value proposition" that many large Swiss companies view as a competitive advantage i.e. in house parts manufacturing — might be valuable to some customers and not to others? In house movements have continued to garner a premium despite debatable added value). Were the brand to grow large enough to need more employees, offices, tools, etc, these would require significant investment which would add to the costs, and likely the price. There would be a lot of fixed costs they'd incur that they'd need to spread across the small number of watches until they were able to grow the brand enough to achieve very large scale.

      When narrowing this down to Kickstarter micro brands, they have an even lower cost structure because many (not all) have very limited overhead. The phones, internet, building, the owner's time, etc are all personal expenses that come along with the hobby, but are generally not costed to the production cost of the watch.

      I know thats more than you asked, but that is my perspective on it.

    • That is an interesting question. It depends on which micro brands and which customer segments. Since all micro brands are privately owned, it’s hard to know exactly how many watches are being sold or their cost structure. Most of the micro brands (operating in the $600+ range) sell very few watches in comparison to the large brands. Many luxury micro brands ($1,000+) sell in the hundreds of watches (100-500). Even adding all those micro brands together, its in the tens of thousands of total watches sold. But exact numbers…I couldn’t tell you. So yes, some people are buying micro brands (and love their purchase), but it is a very small scale compared to the overall industry which sold 4.6M+ watches >CHF500 in 2016. In the case of DW, they are selling over a million watches a year. However, they are competing in the <$300 price range, where the overall Swiss industry sold 20.6M watches <CHF500 in 2016, of which 16.5M were <CHF200.

      For the micro brands offering watches in the $1,000+ range, as you pointed out, they generally do offer a good value for the price. They are innovative and offer new options to consumers, and usually with a strong watch-to-value. Most of this is in line with JCB's philosophy that a watch trying to gain market share must offer twice the value. Many micro brands offer this.

      However, micro brands have an advantage that only works in the short term and at small scale. For example, for many, almost 100% of the production is outsourced, so there is little overhead, but also little direct control over the production process (which is the "value proposition" that many large Swiss companies view as a competitive advantage i.e. in house parts manufacturing — might be valuable to some customers and not to others? In house movements have continued to garner a premium despite debatable added value). Were the brand to grow large enough to need more employees, offices, tools, etc, these would require significant investment which would add to the costs, and likely the price. There would be a lot of fixed costs they'd incur that they'd need to spread across the small number of watches until they were able to grow the brand enough to achieve very large scale.

      When narrowing this down to Kickstarter micro brands, they have an even lower cost structure because many (not all) have very limited overhead. The phones, internet, building, the owner's time, etc are all personal expenses that come along with the hobby, but are generally not costed to the production cost of the watch.

      I know thats more than you asked, but that is my perspective on it.

    • That is an interesting question. It depends on which micro brands and which customer segments. Since all micro brands are privately owned, it’s hard to know exactly how many watches are being sold or their cost structure. Most of the micro brands (operating in the $600+ range) sell very few watches in comparison to the large brands. Many luxury micro brands ($1,000+) sell in the hundreds of watches (100-500). Even adding all those micro brands together, its in the tens of thousands of total watches sold. But exact numbers…I couldn’t tell you. So yes, some people are buying micro brands (and love their purchase), but it is a very small scale compared to the overall industry which sold 4.6M+ watches >CHF500 in 2016. In the case of DW, they are selling over a million watches a year. However, they are competing in the less than $300 price range, where the overall Swiss industry sold 21M watches in the less than CHF500 in 2016.

    • egznyc

      In answer to your last question, I’d say, most definitely. I believe that micro-brands are popular in part because they can offer more value for the price. I think there is also a significant subset of watch consumers who would prefer to buy something that few other people are likely to be wearing and don’t give a damn that nearly everyone they come across will never have heard of the brand.

  • Auto Correct

    I don’t think Rolex charges enough for their watches. I think they should at least double their prices. I’ll go off on a limb and say that IMO Rolex does R&D, manufacturing & QC better on a much larger scale than any other watch brand out there. If a brand like HUBlow can charge what they do for the guabage they spit out every month, why shouldn’t Rolex?

    • They charge plenty for being a non profit company.

  • sygyzy

    I am not sure why profits is a focus to figure out if watch prices have gone up? Isn’t that like saying someone making a $100k salary one year and $200k the next is not really making any additional money because he/she didn’t increase their savings account? It’s because they spent $100k on extravagant vacations and new cars. Rolex chooses to purchase buildings, buy new equipment, etc. Yes, this stuff is needed to run their business but you can’t say for certain that item A is to maintain the status quo (to produce watches) but item B is an “unneeded” luxury expense (dining clients, bonuses for CEO’s, etc).