Is the watch market bubble about to burst?

A lot of the watch gang has gotten on the bandwagon that watches are an investment. However, collectors of watches and those who have been behind the scenes say they simply are not. The authorized dealers and persons who have been watch aficionados for years know that this increase in demand for high-end timepieces like Patek, Rolex and Audemars Piguet will subside. The second hand market for these watches will eventually take a drastic downturn. We think it is going to happen much sooner than later. Here is why we think so.

To break it down, let us take a look at a few factors that will cause these changes. First, major watch brands are cracking down on the grey market. Two, watch brands are making a lot of watches now, more than ever and they are trying to fill the demand as best they can. Lastly, the secondhand data is showing a shift in the market. Let’s start with how watch brands are cracking down on the grey market.

History of Grey Market Watch Dealers

The grey market is a system of second hand watch dealers. A decade ago, it was a small group of sellers that would buy and sell watches. They would acquire watches from the common public on trade-ins and they would also at times purchase groups of watches from authorized dealers that had some inventory that was sitting and unable to move at retail prices. Something really began to happen around 2016 with this group of secondhand jewelers. Maybe the internet, eBay or Chrono24 caused these dealers to be able to access the consumer market easier. Frankly, there is a lot of speculation but things began to change. The volume of watches they were buying and selling obviously skyrocketed. With this increase in volume came new sellers of all variations to the world of watches. Some are truly transparent and safe to transact with and some are just crooks who would sell their own mother for a dollar. Either way watches such as the Rolex Daytona or the Patek Nautilus went from just under retail price to now multiples of its original MSRP. 

How Watch Brands are Now Responding to Gray Dealers

This surge in pricing controlled by dealers caused the watch brands to sit up and take notice. They have begun to do things to cause these secondhand dealers less access to their product. One major change is reducing Authorized Dealers and going to a boutique model. Audemars Piguet and Patek are moving very strongly towards this model. They are ending the relationships with jewelry stores and just opening locations in highly populated areas. Rolex also has begun doing this too. Watch brands are tracing their watches much better, by purchasing watches on the secondhand market, and seeing which authorized dealers are letting these watches go to grey dealers to be resold at a high profit. Also, secret shoppers have been hired by watch brands to actually go through the process of buying watches. They are grading the stores on how they acted with these secret shoppers. If you do not do well, they simply send you less and less watches until they simply end the relationship. It may seem extreme but if they do not do these types of actions it could get worse.

What Rolex Authorized Dealers Shared...

From the relationships that I have acquired over the last decade, I am hearing that Rolex Authorized dealers (the ones that follow the rules to a “T”) are getting more watches. They have been informed by Rolex, that they are producing more watches than ever, and as COVID begins to be better controlled, they may be able to create just a few more watches. I have also heard that Audemars has been able to increase their production slightly, but I do not have a read on Patek. Rolex is keeping to a time honored tradition of quality and attention to detail. Their watches are not fast to produce and they recently were quoted about their production. They said “Our current production cannot meet the existing demand in an exhaustive way, at least not without reducing the quality of our watches – something we refuse to do as the quality of our products must never be compromised.” However, we have it on good authority that they produce in excess of a million watches each year.

Lastly, one very surprising move by Rolex ADs is that they are informing the customer (or purchasing person) that if they intend to sell the watch once they receive it, they will be black listed. I have heard ADs say this many times in recent years.  This is smart in my opinion. It may cause the buyer of the watch to decide to not sell their watch to a grey dealer or on a platform like Chrono24. I think by doing this it will help slow this perpetual mess of inflated watch prices.  

Rolex Explorer II Prices

We are definitely already seeing these changes in the market but I wanted hard data to back it up.  I decided to look at three watches that have been very popular and see their charting on Chrono24.com. The first one is the Rolex Explorer II 217650, with a white dial. The market does show a pretty sizable run up, to an average sale of around $13,700. For the last six months though, it really hasn't moved up, if anything slightly down. Also, I was able to find almost perfect versions on the site for just over $11,000. You can see the pricing plateau on this chart very clearly. 

Rolex Datejust 41 Prices

The second watch I decided to look up was the Rolex Datejust 41. I see the market on this watch has flexed up a lot over the last 24 months. What is not shown super well by this chart is again that I am seeing a huge difference in pricing with some models being almost near MSRP on the secondhand market. I think this model is particularly interesting due to its size. It is a perfect model for the current tastes of the male buyer and with other sports watches being so hard to get this is an obvious option for someone to fulfill their wants of having a larger sized Rolex.

Patek Philippe Calatrava 5227R Price

Next up we look at the Patek Philippe Calatrava 5227R. This incredible watch really has not changed much in price over the last eight years. It retails for $37,850 and sells on the secondhand market for about $32,800. This is considered to be the quintessential Patek and it has seen a move of 5-7% over the last three years so I would say that it is at the top of the second hand market.

There will always be outliers like the Patek 5711 or Rolex Daytona that will get possibly multiples of their original price tag, but for the most part I feel the market is softening. Look at what has happened recently with Tudor. At one point all the collection was selling for a premium as much as 25% over MSRP due to no one being able to get one. Tudor recognized this and began meeting the demand better, in turn the secondhand market now moved to just below MSRP, even for the Black Bay 58. We know this is all just an opinion of what could happen, but there are forces attempting to better manage what is happening in the watch market. With so much focus on driving it down, we have to believe that eventually it will budge.