Prices for Rolex, Audemars Piguet and Patek Philippe fell more quickly in the three months to the end of September than during the previous quarter, dashing hopes that the falling value of second hand watches, which began in the Spring of last year, has found a floor.
A report from Morgan Stanley, using data from Watchcharts, shows prices dropping in Q3 by 5%, quarter-on-quarter; faster than the 3% of Q2.
The Watchcharts index tracks secondary market prices for all major watch brands, but is heavily weighted towards what it calls the big three manufacturers: Rolex, AP and Patek Philippe.
The latest report says that prices for the watches that have saw such overheated demand until early 2022 from these brands have fallen furthest over the ensuing year and a half.
However it notes that brands from Richemont, Swatch Group and LVMH have also seen falling prices and Girard-Perregaux was the worst performer after a spike in prices for its Laureato earlier this year fizzled.
Morgan Stanley tells its investment bank clients that tracking the price evolution of second hand watches is interesting for equity investors as, in general, it provides a good barometer of a brand’s desirability and thus future pricing power/growth trajectory.
Rolex, Patek Philippe, and Audemars Piguet account for around 60% of all transaction values on the secondary market; far higher than the 39% global market share they have for new watches.
From Q2 to Q3, secondary market prices for Rolex declined by 4.6%, Patek Philippe was down by 5% and AP dropped by 5.2%.
Prices ended September lower by 12% for Rolex, 16% for Patek Philippe and 20% for AP than a year ago, when values had already dropped dramatically since their May 2022 peak.
However, while continuing price falls are challenging for secondary market traders, they are a long way from snuffing out demand for new watches.
The report finds that the big three’s second hand second hand watches were still selling on average for 27% over retail prices in Q3, which will always maintain a floor under demand.
Watches of Switzerland recently told analysts that every one of Rolex’s models still has waiting lists and that the lists are getting longer rather than shorter.
Unlike the primary market for new watches where prices are fixed regardless of supply and demand, the secondary market responds perfectly when these economic forces get out of balance.
The volume of watches for sale on the secondary market — the supply — is therefore just as important as demand.
Supply roughly doubled over the course of 2022 as dealers tried to dump inventory.
That dumping eased this year, and inventory for sale is stable, according to Morgan Stanley.
Vacheron Constantin is an exception. It saw supply fall by 12% in Q3, suggesting it is likely to see prices stabilise or rise.
The watch market is returning back to “normal” from its Pandemic sugar high that collectors were on with so much easy money flowing. This is great news for collectors. I and millions of others have always believed that watches are not investments, and true collectors want to buy a watch to wear — not put in a safe! When I go to my local AD to discuss what a current Rolex is truly worth, my guy suggests that if a Rolex was worth over list price then Rolex would raise prices to match prices on the grey market. In other words, he advised me to be patient, and wait until my preferred Rolex is available as Rolex increases production to catch up with demand. Time will tell.