More important, in my opinion, is the notion of value. This is something that the modern luxury industry has utterly struggled with appreciating in full. Part of this is because most luxury brands are parts of big corporate groups that demand profits. What does that mean? Well, for the most part it means demands to increase production efficiency (i.e. produce items more cheaply which typically tends to mean lower quality or use of less expensive materials) and to extract more profit from each sale (increase prices). The situation is different with smaller, independently owned companies that tend to have a higher personal stake in the quality and reputation of the brand and its products.
As stated above, luxury brands that make watches have focused on the high-end consumers who they feel are less price-sensitive, and they also needed to find growth over the last few years in otherwise stagnant markets. The way to do that is increase prices. With that said, the price of a gold watch versus its steel companion is typically very high. In many instances, if a watch is produced in both steel and gold, the gold version is priced two to three times as much as steel. Again, that isn’t because the actual increase in material value is that high.
Here is an example. A stainless steel Rolex GMT Master II with a two-tone ceramic bezel (the reference 116710BLNR) has a retail price of $9,895. In solid 18k white gold, also with a two-tone ceramic bezel, the price of that watch (the reference 116719BLRO) is $38,250. That is about four times the price, whereas the equivalent increase in value due to the white gold case and bracelet is not. This is just one example – and not actually as egregious as others, since Rolex timepieces tend to hold value a lot better, and also because a watch from a major brand on a solid gold bracelet priced under $40,000 could be considered competitive, considering prices on solid gold watches these days.
Look at the pre-owned market and you’ll see that steel or other non-precious material watches resell for closer to retail than do precious metal ones. The rule is that precious metal watches experience huge drops in value immediately after purchase. Consumers are increasingly concerned about massive levels of product depreciation which occurs from the purchase of a precious metal watch – and, in my opinion, that is one of the biggest reasons for the drop in popularity of gold and platinum watches.
I will further suggest that if gold and platinum watches cost less, and thus experience less depreciation, their popularity would increase with consumers because they would lose less value. When I talk about “value” being important to consumers, what I mean is that they want a timepiece which has a value closer to the price they are being asked to pay for it. Many have accused large parts of the luxury watch industry of being “greedy,” and one major reason for this is the trend of decreasing value when it comes to price as a function of inherent value in a product.
Consumers around the globe now almost universally price-shop online as well as check the pre-owned value of watches that they plan to purchase. Not only do consumers want to make sure they are not over-spending, but, more importantly, they want to feel that the “investments” they are making in purchasing a luxury watch will be an asset that they can turn back into cash. If you purchase a watch for $30,000 and can sell it for $25,000 a few years later, then a consumer will typically feel safe about it. Alternatively, if a consumer spends $30,000 on a watch only to realize the used priced of the watch is $10,000, then they are going to abstain from that purchase.
As I stated earlier, the appeal of gold and other precious metal or material watches still exists, but only if there is an acceptable value proposition. If more gold watches retain value like steel watches, then consumers will have no problems purchasing more gold watches again. Right now, the market punishes many consumers who choose to spend money on gold watches if they ever want to see value from them again. Consumers often voice that in retail stores watch sales people make promises either explicitly or implicitly about watches holding value. If those promises are not translated into real experiences, then the reduction in consumer confidence for gold and other precious metal watches, as we are experiencing right now.
My goal isn’t to admonish people for buying gold watches nor is it to suggest that the industry stop producing gold and platinum watches. In fact, I have a great deal of appreciation for these materials and the watches that are produced from them. I will, however, say that many timepieces which are produced exclusively in these materials will never find buyers in today’s market because of the low value proposition. New money in places such as China and Russia were responsible for a lot of the growth in exports of precious metal watches. Now that fortunes have waned and consumer education is up, this trend has ended. If the industry wants to make precious metal watches more appealing, then one of the only answers is to reduce prices. Yes, that has been a typical answer of mine to many problems in the industry, and I understand that it isn’t easy to digest for many brands. With that said, they did create an enormous problem of price inflation and unless they can create value where right now there is not much value, the industry and its pricing will have to contract.
