So, although lockdown remains largely in force, there starts to emerge some glimmers of light at the end of the tunnel. How will this unfold in “watch world?” I am curious how behaviours will change and what this might mean for collectors, dealers and manufacturers.
Each day, I get up around 7.30am. I make myself the same breakfast most mornings. Porridge. Blueberries or cherries. A square of 70% cocoa, left like a depth charge in the porridge to melt. And several glugs of double cream on top so that once the chocolate has melted, it merges into the cream to form this fabulous sauce. It works best with fresh cherries. But blueberries are good.
Most days, during breakfast, I will look down on my wrist and see this
Over the last decade, I would guess that I have had that for breakfast 95% of days. After breakfast, I will finish my mug of coffee and then do a 30 minute meditation. After that, I will put on my running kit and go for a run – either 2, 3 or 4 miles depending on the day. Once back, I will take a bath then get dressed and make the 15 metre journey to my office where I will look at the various financial markets that I trade. I might spend anything from 30 minutes up to all day in my office.
This was a typical day for me before the Coronavirus pandemic struck. Oddly, very little has changed since. My days recur with the same patterns as before. I keep scratching my head expecting huge changes to occur, and for my life to be somewhat different. Well, of course, I am not going out to restaurants now. Seeing Arsenal lose again is an experience that may have to wait somewhat longer. Taking a trip into Claridge’s to have breakfast in London is an occasional treat that will also need to be put on hold a while longer. But, by and large, I don’t really notice much different.
As an economist, however, I look at the numbers and see the greatest economic shock since the 1930s. There has been nothing like this. And, when I look at the various financial markets, I see the most bizarre things.
A few weeks ago, there was a day where you could buy a barrel of oil, take delivery of the oil and also receive $35 from the seller. OK, that is like ordering a nice watch, getting a call from the AD who tells you the watch is ready to be picked up and he will also pay you a nice cheque to take delivery of the watch! Does that sound absurd? It is absurd. But it happened. A seller of a barrel of oil had to not only deliver the oil but also pay the buyer $35 for each barrel.
Over the last 70 or so years, the rate of US unemployment has varied between 2% and 11%. In recent years it has typically fluctuated in a 3% to 5% range. As recently as February 2020, it was 3.5%. By April 2020, it was almost 15%. And its going higher.
Equity market price volatility reached a level that I have never seen before. There were a few days where it looked like the financial sector would melt down. In economic terms there has been nothing like this in the memory of anyone alive today. Not even the 2008/9 financial crisis is close.
In 2019, the US equity market rose 29% or so. Right now, despite all the utter upheaval in the global economy, the US equity market currently stands just 8% below where it closed in 2019. Notwithstanding all the devastation to so many businesses, it is just 8% below its 2019 peak (which itself was an all-time high).
However, and herein lies the rub, under the surface the picture tells a specific lesson. If one looks at the energy sector, then as a sector it is down 37% so far this year. The financial sector has fared badly too, being down 29% year-to-date. The real estate sector is down 16%. But there have been some stunning winners. Information technology, in particular, has been a big winner. Interactive media, wireless telecommunications and other related technological industries are up very significantly over 2020.
The gap between the winners and the losers has been extraordinary. And I suspect this is what will unfold in the watch world. Now, I don’t really do predictions, but it seems to me that the various performance of different equity market sectors can be paralleled into the watch market. And by this, I am not referring to how well different watch brands will fare, but rather how the watch industry will evolve.
How will manufacturers react to what has happened? What about the dealers (some of who’s Instagram accounts consistently tell us that the formerly “hot” watches are still rising in value?) What about the flippers, who saw easy money to be made hoovering up any steel Nautilus knowing that there was an easy buck to make? And what about the collector who used to meet up regularly with friends and other collectors to see each others’ collections and enjoy a good meal and the occasional grappa?
It is becoming a joke on Instagram, seeing many dealers trying to pretend that hot watches are still “hot.” Fact is, prices are 30% or more lower in price
There is one thing that occurs to me and that is, despite the fact that my days seem remarkably similar, I know that the world has now definitively changed. As is suggested in Darwin’s “Origin of Species”, it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself.
Some dealers are saying that if you are quick, you can grab one of these for $24k. Well, if you check Chrono24, there are almost 700 of this reference for sale. Price is comfortably below $20k
In all likelihood, the watch industry is about to discover that it needs to evolve. Basel is already an example of one such change. Basel became a watch dinosaur.
What will be next? I suspect that there will be a radical change in how manufacturers interface with consumers. I suspect that this period of enforced closure will allow manufacturers to re-evaluate how they intend to cultivate clients. Patek Philippe have always placed a great deal of emphasis on the relationship between itself and its clients. In recent years, the hype and speculation that has revolved around its iconic steel sports watches has brought a new element into the equation. Let me state quite clearly, in my opinion, it has been a very negative thing for the brand. The scale of hyping and flipping has sucked a new type of player into the equation. How Patek Philippe approaches this particular issue will be very interesting to see.
I believe the next era for Patek Philippe will be shaped by many things, including how this particular relationship evolves.