A note of caution on the current Rolex market

[1665fan]

Originally Posted by blargle

I wonder who in this thread are professional economists/investors? Probably 0 judging from the comments. OP is correct, this is not going to last.

Nothing lasts…..but if nobody knows how long or when the end is near it’s all a waste of time……back to YAaaaaaaaaaawn…..

[Chester01]

I was around in the recession of the early 90’s early 2000’s, 2008, and the Covid economy. I don’t recall Rolex prices ever crashing, simply slowing down and not increasing so fast. Remember it’s never the Rolex crowd seriously impacted by economic downturns and the data show (see Piketty and others) that indeed they come back stronger after a crash/downturn.

[zengineer]

Predicting an eventual drop in prices is not exactly going out on a limb...if you want to wow us then tell us when and why.

It's wrong to expect it simply because of the shape of a curve on paper. Will supply somehow increase?... Rolex isn't Crocs, they won't necessarily attempt to meet demand like a publicly traded company might be compelled to do.

Will demand somehow decrease?...Probably not any time soon. Buyers dropping $35k on a statement watch aren't likely impacted by a 10% increase in grocery prices and will in fact probably gain net worth if inflation drives up real estate (and watch) values.

So yes...of course we should be cautious, but because paying way over retail is always risky and not because of what went on with tulips or beanie babies decades ago.

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[zzenrocker]

Those posting about living through many cycles, and Rolex just powering ahead are being disingenuous. Yes, Rolexes have always been popular (I wear my Dad's 1970 Oyster), but up until ~2017, if you wanted one, you just went down to the AD and picked one out. That's decades of stability, that played out over many, many economic ups and downs. It is the current market that is the abnormality, not some kind of "new normal". The current market is highly correlated with other contemporary asset bubbles, and has the added risk of being a fashion item, the popularity of which can change in a flash.

Trees don't grow to the sky.

[Chillychow]

Since we're looking at data graphs, here is something I've been watching for some time - demographics as it relates to income class size. As mentioned, there has been 'bubbles' forming on multiple asset classes, not just luxury watches. From a birds eye view, there appears to be a massive amount of disposable cash entering just about every investment category. From the stock market, to real estate, collectibles (anyone see what a LeBron rookie fetches these days) and art, record prices just keep on coming. My take is that although low interest rates do play a part on making cash super cheap, the real shift in society is the amount of people around the globe who now fall into the 'upper middle class' and 'high income class'. Both of these categories have had shifts in the 100's of millions of people which has created significant demand increases with assets that go hand in hand with prosperity. This IMO, is the core change we've seen in the Rolex market and I don't see it changing to the negative anytime soon.

[Driver8]

It's been quite interesting to see the responses here.

There's been the somewhat predictable cross-section, ranging from interest and decent contributions, to yawns from those no desire to consider or believe anything other than the status quo continuing forever, and that's absolutely fine - all discussion and contribution is good!

I just want to reiterate that as an economist, I'm interested in following the behaviour of the market, effectively in real time, compared to the classic bubble model. I'm not attempting to predict when things will change, or to what extent, and I'm fully aware that one graph is a very simple take on what is a complex situation. As I said before, on a personal level I honestly couldn't care less what the market does, but on an academic level I think it's interesting to see that the market has broadly followed the model to-date... and the fact that it really looks like we're at the 'Greed' / 'Delusion' stage.

Then again, who knows? Maybe Rolex prices will rewrite the economic history books, and continue upwards forever at an exponential rate, leading to £1m turquoise OP's by this time next year!

[thenewrick]

I think watchdealer and YouTuber Khalil said is most likely accurate.

Demand has essentially tapered off at the grey market price levels. And demand is infinitely there for retail until the two shall meet.

But grey prices aren’t increasing beyond inflation levels going forward. Private owners will hold stock and grey’s will hold steady as well. So we’ll likely see less flipping and more watches going to collectors and fewer going to grey. And grey prices will plateau for several years as they can hold inventory as long as they have capital to bring in other goods.

TLDR: infinite demand at msrp for 3-5 years. Grey prices increase on average 3% per year. More watches being kept by collectors and less flipping.

[itsinthebag]

I've always wondered how much of an impact greys selling to other greys drives prices? Obviously there's a lot of end market demand, but based purely on the yt videos, it seems like these guys are mostly selling to each other to squeeze any profit they can, and then they use that to justify higher prices to end market consumers. Also, I've noticed a bunch of c24 listings are inflated to adjust for the 6.5% chrono seller fee

[m j b]

Great post by OP. Interesting comments from most of you guys. LOL

I have to disagree with @thenewrick. I don't think most grey market dealers can afford to hold a multi-million dollar inventory that doesn't move. Most of them have likely borrowed money to buy stock, and if it doesn't sell, they need to dispose of it.

[thenewrick]

I think as far as pricing at greys goes, the fly by night jewelry resellers that started in the past few years will be the first to cut prices because of debt and flimsy nature of their business. The ones who have been around 20 years and sell lots of AP and Patek etc will just hold stock steady and be much slower to discount.

Because many of these dealers are buying at very high costs themselves it won’t make sense of an established business to crash their own prices and ditch inventory at first sign of a dip. But the guys buying on very slim margins on credit will have to.

[blargle]

Originally Posted by Chester01

I was around in the recession of the early 90’s early 2000’s, 2008, and the Covid economy. I don’t recall Rolex prices ever crashing, simply slowing down and not increasing so fast. Remember it’s never the Rolex crowd seriously impacted by economic downturns and the data show (see Piketty and others) that indeed they come back stronger after a crash/downturn.

This is exactly why I believe the next crash will hit the brand a lot harder.

$10,000 is not out of reach for most people, whether you work at McDonalds or Walmart, getting access to that kind of credit (and well beyond) is very doable. Back in 2008, I saw plenty of nice watches, but usually strapped to the wrists of men in suits. Now, I see all kinds of Rolex watches in all kinds of places, on all kinds of people - the gentlemen who served me pizza today was wearing a SS sub.

You talk about 'the Rolex crowd' not being seriously impacted by economic downturns, firstly this is incorrect, many of my colleagues lost a lot more than their watches in 2008. Secondly - given the social media effect on aspirational luxury goods, feeding ridiculous demand from people who do not have sufficient liquidity to own these watches, should the crash come, the market will be flooded, supply up, demand down, price =

Just the 2c of a dummy who has spent his life on WS, but nobody can tell the future what will happen :)

[Jonathanhumes]

If you want it, buy it. If you keep it, I'm sorry....who cares? I buy watches to wear and enjoy, if I wanted investments, I'd look elsewhere.

[ac_eddings]

What goes up must come down.


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[dtwer]

Originally Posted by ac_eddings

What goes up must come down.


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Not necessarily when it comes to inflation over time. A brand new Ford Mustang can be had in 1965 for less than $2,500, which is roughly $22,000 in today's money. I doubt we can get a Mustang at $22,000 today.

With the high inflation these days, the Rolex watches at MSRP is increasingly deemed a steal for most buyers. Expect the price to go only up, not down.

[Chester01]

Originally Posted by blargle

This is exactly why I believe the next crash will hit the brand a lot harder.

$10,000 is not out of reach for most people, whether you work at McDonalds or Walmart, getting access to that kind of credit (and well beyond) is very doable. Back in 2008, I saw plenty of nice watches, but usually strapped to the wrists of men in suits. Now, I see all kinds of Rolex watches in all kinds of places, on all kinds of people - the gentlemen who served me pizza today was wearing a SS sub.

You talk about 'the Rolex crowd' not being seriously impacted by economic downturns, firstly this is incorrect, many of my colleagues lost a lot more than their watches in 2008. Secondly - given the social media effect on aspirational luxury goods, feeding ridiculous demand from people who do not have sufficient liquidity to own these watches, should the crash come, the market will be flooded, supply up, demand down, price =

Just the 2c of a dummy who has spent his life on WS, but nobody can tell the future what will happen :)

Originally Posted by blargle

This is exactly why I believe the next crash will hit the brand a lot harder.

$10,000 is not out of reach for most people, whether you work at McDonalds or Walmart, getting access to that kind of credit (and well beyond) is very doable. Back in 2008, I saw plenty of nice watches, but usually strapped to the wrists of men in suits. Now, I see all kinds of Rolex watches in all kinds of places, on all kinds of people - the gentlemen who served me pizza today was wearing a SS sub.

You talk about 'the Rolex crowd' not being seriously impacted by economic downturns, firstly this is incorrect, many of my colleagues lost a lot more than their watches in 2008. Secondly - given the social media effect on aspirational luxury goods, feeding ridiculous demand from people who do not have sufficient liquidity to own these watches, should the crash come, the market will be flooded, supply up, demand down, price =

Just the 2c of a dummy who has spent his life on WS, but nobody can tell the future what will happen :)

I hear you but Piketty’s data is very clear the folks in the top 10 percent have done better that’s right better and not worse over time after those downturns. Im happy to review your data if you have something disputing his findings? You may have seen a Rolex on a dude serving you pizza, and that dude may have been an owner. Perspective is the vast majority of the entire world lives on less than 10 bucks a week.

What we don’t know is how many folks are using credit to buy Rolex watches. Likely some people may be reaching, but those have been the folks that have always been hurt weather they splurge on cars, jewelry, or houses they can’t afford.
They are not folks in the top 10 percent the folks that make up the bulk of the Rolex crowd. I don’t think the bulk of the folks rocking Rolexes these days are people living pay check to pay check and on credit.

Bottom line every recession and market downturn has winners and losers, and the data is clear, folks in the top 10 percent will be just fine and that’s been a clear trend in the literature. Folks reaching, yes they will be hurt, as they always are and were in 2008 when the real estate boom went bust. This time perhaps they will be hurt by luxury goods-it’s always something. This is really nothing different if you look at the trends.


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[conradwu]

So... diamond hands prevail?

[blargle]

Originally Posted by Chester01

I hear you but Piketty’s data is very clear the folks in the top 10 percent have done better that’s right better and not worse over time after those downturns. Im happy to review your data if you have something disputing his findings? You may have seen a Rolex on a dude serving you pizza, and that dude may have been an owner. Perspective is the vast majority of the entire world lives on less than 10 bucks a week.

What we don’t know is how many folks are using credit to buy Rolex watches. Likely some people may be reaching, but those have been the folks that have always been hurt weather they splurge on cars, jewelry, or houses they can’t afford.
They are not folks in the top 10 percent the folks that make up the bulk of the Rolex crowd. I don’t think the bulk of the folks rocking Rolexes these days are people living pay check to pay check and on credit.

Bottom line every recession and market downturn has winners and losers, and the data is clear, folks in the top 10 percent will be just fine and that’s been a clear trend in the literature. Folks reaching, yes they will be hurt, as they always are and were in 2008 when the real estate boom went bust. This time perhaps they will be hurt by luxury goods-it’s always something. This is really nothing different if you look at the trends.


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dont disagree, my overarching point however it is my view that many more people now who are not in the 10%, compared to 2008, own a Rolex, which could lead to oversupply should a recession occur, given that those outwith the 10% are likely to need to improve liquidity quickly in a downturn

it would be very telling to understand what % of rolex buyers are re-sellers looking to jump on the hype train, instagram kiddies maxing out leverage to impress their equally leveraged social circle, but this data doesnt exist. Vast swathes of the population cant afford houses, so they go for luxury goods, form over substance, and all that, hence I believe we are sitting on a bit of a powder keg BUT

i have no idea, just as we all dont, just have a 'feeling', but we shall see :)

[Chester01]

Originally Posted by blargle

dont disagree, my overarching point however it is my view that many more people now who are not in the 10%, compared to 2008, own a Rolex, which could lead to oversupply should a recession occur, given that those outwith the 10% are likely to need to improve liquidity quickly in a downturn

it would be very telling to understand what % of rolex buyers are re-sellers looking to jump on the hype train, instagram kiddies maxing out leverage to impress their equally leveraged social circle, but this data doesnt exist. Vast swathes of the population cant afford houses, so they go for luxury goods, form over substance, and all that, hence I believe we are sitting on a bit of a powder keg BUT

i have no idea, just as we all dont, just have a 'feeling', but we shall see :)

Indeed. The other factor is what role the gray market could and would play in such a downturn. I mean there would be much incentive to keep supply pinched both from Rolex and the gray market who could be left holding the bag with much inventory.

Now it’s not my area, but the duration and depth of the downturn would matter here as well. I mean statistically speaking the downturn we had in 2008 was deeper than anything else prior other than the depression and there were fundamental systemic things that both contributed to those.

Now, i mean ok there is lots of money out there and some inflation, but that can be brought under control, though would take some discipline to do. The biggest headwind may be the wealth gap, as data suggest the divide is as large as it was in the Gilded age, though then again plenty of tycoons made a ton of money during that era.

Not sure where I’m going with this but it’s interesting to ponder.


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[sechsgang]

Originally Posted by nollie85

ALL I repeat ALL asset prices have increased dramatically.

* Real Estate in pretty much the top 20 countries have skyrocketed. We are seeing 20%+ growth in many countries just in 2021 alone. Some real estate I'm looking at here in Brisbane and Sydney have doubled!!! Literally doubled from their 2019 prices.
* High end cars are insane. Some ppl asking $300k+ for a G63 AMG. Dont even start talking about Porsche and Ferrari.
* Luxury items like certain bags and other fine things in life are also surging.

Pretty much any asset that has some value has gone up. Heck even basic Toyota Corolla cars are costing the same used as they are brand spanking new.

Governments around the world have printed trillions and trillions of dollars recently. Everyone is cashed up and your $500 back in 2020 is not worth $500 today. Much much less. Hence the growth in all asset prices.

Todays price will be the normal price going forward.

This. Sorry guys, aside from some massaging and shifting here and there you're seeing a new plateau of values being created. No one is turning down a Pepsi/Batgirl/Daytona/Sub that they are offered, especially if they don't already have something remotely like it, and if ONE person does, it's not going to happen after 2 people. At some point some of the TT models MAY become avail again, but then again...this may have just brought too much attention to even the pieces that used to sit.

[GGGMT]

Originally Posted by sechsgang

This. Sorry guys, aside from some massaging and shifting here and there you're seeing a new plateau of values being created. No one is turning down a Pepsi/Batgirl/Daytona/Sub that they are offered, especially if they don't already have something remotely like it, and if ONE person does, it's not going to happen after 2 people. At some point some of the TT models MAY become avail again, but then again...this may have just brought too much attention to even the pieces that used to sit.

This.


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[ugoblue]

The watch market seems to be somewhat correlated to Vinyl records. I know it may sound a bit silly at first, but both are drive somewhat by Millenials having interest in a somewhat nostalgic analog device. A downtick in vinyl, might portend a generational shift away from interest in similar nostalgic and less practical collectables.

[Sandpit]

Originally Posted by blargle

dont disagree, my overarching point however it is my view that many more people now who are not in the 10%, compared to 2008, own a Rolex, which could lead to oversupply should a recession occur, given that those outwith the 10% are likely to need to improve liquidity quickly in a downturn

it would be very telling to understand what % of rolex buyers are re-sellers looking to jump on the hype train, instagram kiddies maxing out leverage to impress their equally leveraged social circle, but this data doesnt exist. Vast swathes of the population cant afford houses, so they go for luxury goods, form over substance, and all that, hence I believe we are sitting on a bit of a powder keg BUT

i have no idea, just as we all dont, just have a 'feeling', but we shall see :)

Could be onto something here. I personally think it's no coincidence that consumer credit debt is at record levels and watch sales and prices are up.

It's all fun and games until it's time to pay the bill.

[Flint]

Originally Posted by Jonathanhumes

If you want it, buy it. If you keep it, I'm sorry....who cares? I buy watches to wear and enjoy, if I wanted investments, I'd look elsewhere.

Agree

[TexasRedNeck]

Originally Posted by ugoblue

The watch market seems to be somewhat correlated to Vinyl records. I know it may sound a bit silly at first, but both are drive somewhat by Millenials having interest in a somewhat nostalgic analog device. A downtick in vinyl, might portend a generational shift away from interest in similar nostalgic and less practical collectables.

Interesting take. Don’t think my kids have ever seen a record. Or 8track. They laugh at cassettes and have disdain for CDs


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[dnuggett]

Originally Posted by zzenrocker

Trees don't grow to the sky.

No, but a bear will sh!t in the woods.

[dnuggett]

Originally Posted by blargle

This is exactly why I believe the next crash will hit the brand a lot harder.

the gentlemen who served me pizza today was wearing a SS sub.

Don't be fooled. Unless he owned the pizza joint, that sub wasn't real.

[SubMillennial]

Originally Posted by ugoblue

The watch market seems to be somewhat correlated to Vinyl records. I know it may sound a bit silly at first, but both are drive somewhat by Millenials having interest in a somewhat nostalgic analog device. A downtick in vinyl, might portend a generational shift away from interest in similar nostalgic and less practical collectables.

No way it's millennials driving this trend. It's the 50+ crowd by a long shot. At least if the Rolex facebook group is to be believed...

[mpatel1080]

Originally Posted by Chester01

I was around in the recession of the early 90’s early 2000’s, 2008, and the Covid economy. I don’t recall Rolex prices ever crashing, simply slowing down and not increasing so fast. Remember it’s never the Rolex crowd seriously impacted by economic downturns and the data show (see Piketty and others) that indeed they come back stronger after a crash/downturn.

You are right, MSRP will not crash. During all those other times you could walk into an AD and buy the watch you want with a reasonable wait at MSRP. Or you could get a hard to find grey market watch for a 20 or 25% premium. The grey market has gone crazy with speculation and it will crash...eventually some of these grey sellers (and individuals who are speculating) will need money and will have to start selling at prices that people will actually buy at.

Also you can read into Rolex breaking tradition and making a statement to yahoo news...they know that this situation is hurting their reputation and hopefully they will increase production and crack down on grey selling by ADs. Both AP and VC are selling largely boutique only at this point and the experience is much better than what people are experiencing with Rolex.

[macrowatch]

Originally Posted by SubMillennial

No way it's millennials driving this trend. It's the 50+ crowd by a long shot. At least if the Rolex facebook group is to be believed...

There was a good report (from Jeffries I think) that was estimating 25% of all high end luxury purchases from Rolex to Chanel was fueled by Crypto profits. And that demographic of course skews younger. Not saying the 50+ aren’t splurging, just giving some color to less obvious trend changes.

[macrowatch]

Originally Posted by ugoblue

The watch market seems to be somewhat correlated to Vinyl records. I know it may sound a bit silly at first, but both are drive somewhat by Millenials having interest in a somewhat nostalgic analog device. A downtick in vinyl, might portend a generational shift away from interest in similar nostalgic and less practical collectables.

Fun stuff. Thanks!