Rolex vs. recession - How crisis-resistant are luxury watches really?
The last two years have looked anything but rosy economically. We saw falling markets, rising interest rates and record inflation in Europe. A real bear market broke out.
Suddenly, the question arises, what do you actually invest in when virtually everything is falling in value? Are luxury watches like those from Rolex a way to invest your money in times of crisis? How crisis-proof are the timepieces from the brand with the golden crown?
In times of crisis, when everything falls, the prices of luxury watches are particularly affected. After all, the luxury market itself is very susceptible to crises. The Rolex company, however, manages to survive crises very solidly because it takes a long-term approach and is able to weather difficult times well. Thus, the past shows us that Rolex watches survive crises relatively well.
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How should the price increase of the last few years be classified?
First of all, the question arises as to how the massive increases in the value of Rolex came about in the first place.
In principle, these are made up of two factors.
On the one hand, there has been a true bull market in recent years, in which almost everything has skyrocketed. Interest rates were extremely low, money was very readily available. This was an ideal prerequisite and aroused investment lust. People were very speculative.
As a result, virtually all markets actually climbed, and not just that of luxury goods.
At the same time, luxury watches experienced an enormous media presence, among other things through the ever-growing social networks.
This was one of the main reasons why a real hype broke out around luxury watches especially those from the Rolex brand.
This hype then increased by itself, so to speak. Because the high demand made it increasingly difficult to get hold of watches, and the more difficult it was to get hold of a Rolex, the more desirable the brand appeared to the outside world.
So, in principle, these two factors played together the enormous hype and the optimal market situation. The result of this was the enormously high prices for Rolex watches on the secondary market.
Now, it is important to note that just because the prices of luxury watches of certain brands have gone through the roof in recent years, this does not mean that luxury watches are generally a crisis-proof investment.
On the contrary, when times get bad, luxury is the first thing to go.
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The current situation and outlook
To illustrate this, let's take a look at the current situation.
Europe has experienced a massive recession in the past year. The average inflation rate in the EU is 7.1%.
In October of last year, there was a record-breaking 10.6% inflation rate in the EU. This was the highest inflation rate in the history of the European Union.
At the same time, interest rates have risen, which means that money is no longer as readily available. Investors are no longer as willing to take risks and invest.
We have recently experienced a real bear market. In recessionary phases, when everything is falling, luxury watches also struggle.
The luxury watch market experienced its biggest slump back in May of last year, when the prices of the coveted models plummeted by around a third.
In the meantime, the markets for luxury watches have recovered somewhat, just as the rest of the economy is apparently slowly doing again.
However, this proves that luxury watches are not really crisis-resistant. Because as already mentioned luxury goods are not existentially crucial. In case of doubt, they are the first things to be given up when times get tough.
This is also reflected in the luxury watch market.
However, we do not want to assume the worst and hope that the markets will continue to recover and the bear market will come to an end.
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Rolex - the exceptional case
Now, you would think that Rolex, as part of the luxury watch industry, would also be so crisis-prone. And yes, Rolex watch prices also plummeted last year.
However, there is one crucial point that differentiates Rolex from the other brands.
Rolex is so big that the company can steer the market.
It should also not be forgotten that the company belongs to its own foundation. There are no shareholders or shareholders who could be in a conflict of interest with the management of the brand. There is no pressure for concrete sales targets or short-term profit maximization. This allows the brand to act in the long term.
Rolex is its own master. The company not only significantly influences supply and demand, the company also does not have to adapt to short-term trends, such as selling off remaining stocks cheaply to become more liquid.
This way, Rolex can determine the quantities itself and adapt to the current market phase.
Therefore, it will not happen that Rolex watches suddenly become slow sellers because, for example, far too many were produced. This would ruin the performance of Rolex watches.
Moreover, Rolex is said to be extremely liquid, which allows the company to sit out crises comfortably.
Such phases can ruin companies. However, Rolex can simply wait out critical times, as mentioned. This is probably also one of the reasons why the watches are relatively crisis-proof.
Thus, Rolex is a model student in recessions and difficult times.
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In addition, the company can always be sure to get rid of its current production of about one million watches guaranteed.
China alone accounts for about one-third of the luxury market's total demand. Rolex could sell all of its models in Asia without selling a single watch in Europe or the U.S., and the company would still be profitable.
So Rolex watches are relatively crisis-proof. Of course, Rolex prices also fall during difficult market periods. But if you take a look at the big picture, you'll notice that Rolex watches actually don't perform that badly.
After all, over a period from the late nineties to 2016, Rolex watches have risen steadily. While the volatile Dax has suffered sharp downward and upward swings compared to the Daytona's price, the Daytona, for example, has actually remained stable against all crises and has even risen.
Of course, this is not a guaranteed proof that the Daytona will survive every crisis. This is only to show that Rolex actually differs from other luxury brands in terms of crisis management.
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Conclusion - No one is safe from crises, but Rolex watches are less at risk than others.
So Rolex watches can definitely be value carriers in times of crisis. However, one must not forget that the price is determined by the market and the price of a Rolex is only as high as someone else is willing to pay it.
Should there ever be a really strong crisis like a world economic crisis or hyperinflation, the prices of Rolex watches will also be strongly affected.
Rolex watches are nevertheless a luxury good.
When people are in a bad economic situation, the first thing they save on is luxury goods. Accordingly, the demand for Rolex watches would also plummet and prices would drop.
On the other hand, we know that the Rolex brand has its own long-term strategy and is able to maneuver its own brand well through crises. Thus, it will not happen that the wristwatches from the brand with the golden crown suddenly catch dust in the shop window.
But you can also be pretty sure that the eternal waiting times and utopian gray market prices can't go on forever. Rolex is planning to expand production anyway, which means price drops are almost guaranteed.
So it's quite conceivable that one day the concessionaire will call again and tell you that you can buy a Rolex watch immediately.
Scource cover image: Unsplash
About the author
Alexander Weinberger
For me, the most fascinating thing about watches is the interplay between precise craftsmanship and artistic development. In a watch movement, hundreds of small parts have to be put together precisely so that they form a large whole.
