The effects of economic crisis on the watch market
The watch market is the most speculated market among the ones concerning luxury goods: with a current worldwide value of $7 billion it is expected to grow to $9 billion by 2025 due to a favorable increase in customer’s trends and the rising disposable income of the worldwide working class.
Despite the large numbers and positive tendencies over the past decades, the luxury watch market had and will have its downs in terms of sales and exports which are primarily linked to economic crisis. In this article we will briefly analyze the effects that economic recessions have on the luxury watch market.
When an economic recession is registered, demand for luxury goods decreases as customers have other more essential priorities, meanwhile the offer tends to increase as people may need to sell their luxury goods, hence in most cases a decrease in sales is recorded. Watch exports are closely linked to sales volumes and hence behave similarly. In fact, according to the Federation of the Swiss watch industry, the year after the 2008 economic crisis, recorded a fall of over the 22% (compared to the previous year) in Swiss watch exports[1]. This ultimately leads to a decrease in the business's values: for example, the brands of Swatch and Longines this year have both lost about a third of their value because of covid-19 that lead to a decrease in sales[2].
In the last two decades online sales have played a major role in the watch market, especially in the secondhand market. In fact, after an economic recession the ones hit harder in this market are those relying on physical stores. This shows the importance to have a well-established online presence by watch dealers and outlines the evolution of the luxury watch market that is directing increasingly towards ecommerce as Chrono24, the biggest online platform to buy or sell watches, points out “we believe that the key shift will be toward online transactions”[3]
Let’s talk about watch prices now, in the short term the market price of most common watches (for example: Rolex sport watches) generally registers a fall in price primarily due to an increase in offer, which is a direct consequence of a decline in demand. Gold watches usually record a great loss in market price as well, because their value is directly linked to the price of gold: for instance, as the gold price in 2008 fell of over $300 per ounce, the value of these watches recorded a decrease in price of about 25%. Nonetheless, over the long term (the following 48 to 56 months) most watches returned to their pre-crisis market value as gold prices raised and offer-demand ratio stabilized back again. 1Lastly, the value of rare watches (by which we intend those that surpass the value of $100k) is in general not affected by economic recessions, because the demand and offer proportions of these goods is not affected.
[1] http://www.fhs.swiss/eng/2010-02-04_747.html
SOURCES:
https://www.statista.com/statistics/940452/luxury-watch-market-value-worldwide/
http://www.fhs.swiss/eng/2010-02-04_747.html
https://www.grandviewresearch.com/industry-analysis/watches-market
Autore: Matteo Marletto, M&A Junior Associate