‘The feast is over’… Watch prices rise too high and consumption decreases [김범수의 소비만상]

‘The feast is over’

The number of people looking for luxury watches is decreasing. The ‘open run’ phenomenon, where people rush to the watch store as soon as the department store opens, is now becoming a thing of the past.

As the number of people looking for watches decreased, sales of watch manufacturers such as Swatch Group and Richemont Group also decreased sharply. Just last year, it was common to say that just buying a luxury watch would help you save money, but this year it seems to be the exact opposite. There is no climate crisis in the watch market, so let’s find out why the atmosphere changed overnight.

High-end watch brand Breguet‘s new product ‘Classic 5177’ black.

◆’Open Run’ and ‘City Tech’ are now a thing of the past

As the novel coronavirus infection (Corona 19) pandemic broke out, the world, including the United States, released money to prevent liquidity deterioration. In the aftermath, the global stock market and virtual currency market experienced a boom.

One of the first places people who had some extra money after making good financial investments went to none other than department stores. The sweetest thing you can buy with extra money is not ice cream, but luxury goods.

As the preference for luxury goods grows, the demand for watches, a representative example of the luxury goods industry, has also rapidly increased. This was demonstrated by the ‘open run’ phenomenon, which demonstrated the miracle of even people whose lungs collapse after running just 50 meters can run at full speed to the watch store when the department store door opens.

It was considered natural to earn several million won just by purchasing and reselling watches such as Rolex or Cartier, regardless of the model, and the demand for watches from other famous brands also increased.

The open run phenomenon was not unique to Korea. In nearby Japan, the demand was relatively low, but in China, demand for luxury goods soared, to the point where it became the world’s largest demand place for luxury goods. The situation was similar in the United States and Europe.

As a result, at least in luxury watch stores, the saying ‘customers are slaves’ rather than ‘customers are kings’ spread. Even if you buy a watch with your own money, even people with herniated discs will bend their backs 90 degrees and say thank you as long as you sell them. As a result, some employees working at luxury watch stores experienced stiff necks as if their cervical discs had ruptured.

Eventually, over time, supply and demand will eventually find equilibrium. As domestic consumption has declined, the number of people looking for luxury watches has decreased, and even if they have money, they have come to a great realization that they buy watches while ‘voicing regrets’. That realization was also the ‘non-possession’ that the monk Beopjeong came to know when he saw the orchid.

An employee who works at a luxury watch store in a department store in Seoul also said, “If you look at the number of customers recently, it seems to be back to its original state, no different from before the coronavirus.” He added, “The Rolex store still maintains a reservation system, but like in the past, popular models are sold as ‘stars in the sky.’ “It’s not as hard to get as it sounds,” he said.

Even when there is nothing special to do, the reporter often visits luxury watch stores while visiting department stores in downtown Seoul. Even when I felt it myself, I could clearly see that there were fewer customers in the store. The kindness of the staff increases in proportion to this, so I don’t know whether to laugh or cry.

Omega Speedmaster (left) and Cartier Ballon Bleu.

◆Watch brands that have raised their prices are asking, ‘What should we do?’

What is it that gains momentum when demand is overflowing, but causes a sharp reaction when there is a recession? It’s the price.

After COVID-19, luxury watch brands literally raised the prices of their products ‘dramatically’. Most watch prices have increased by more than 50% before and after Corona.

The Omega Speedmaster, known as MoonWatch, could be purchased for around 7 million won in Korean currency before the coronavirus, but has now risen to a whopping 11.6 million won.

The price of Cartier Ballon Bleu, preferred by women, is also close to 10 million won for 36mm. In the reporter’s mind, as of five years ago, the price of the Ballon Bleu was around 6 million won.

Watch brands are said to have reflected the inflation rate, but their pricing policy went beyond ‘row when the water is high’ and was like ‘let’s split the boat of the goose that lays the golden egg.’

Of course, last year, the U.S. stock market rose by an average of 11% per year, and the inflation rate was around 4.12%. Compared to five years ago, the U.S. stock market has nearly doubled, and apartment prices in Seoul, Korea have also risen by more than 50%. Oh, KOSPI didn’t even rise 20%.

However, there is no comparison between an apartment, which is ‘food, clothing, and shelter,’ and the stock market, which is a huge financial market, and a watch, which is a ‘luxury good.’ Although watch manufacturers say they have taken inflation into account, prices in the U.S. have only risen by 20-25% over the past five years.

Moreover, as China’s income level rises, the demand for luxury goods has increased rapidly. The country that buys the most luxury goods in the world is China, not the United States. No matter how much Koreans complained about luxury goods being expensive, luxury brands had nothing to regret because there was demand from Chinese people.

Reflecting this, representative watch brand groups Swatch Group and Richemont recorded their highest sales ever. Swatch Group owns brands that we are familiar with, such as Breguet, Blancpain, Omega, Longines, and Hamilton. Richemont owns Vacheron Constantin, Jaeger-LeCoultre, IWC, Cartier, and Officine Panerai.

Swatch Group’s sales, which were about 5.595 billion Swiss francs (about 8.923 trillion won) in 2020, jumped to 7.888 billion Swiss francs (12.5804 trillion won) last year. During the same period, Richemont Group’s sales surged from 13.144 billion euros (19.68 trillion won) to 20.616 billion euros (30.87 trillion won).

Rolex, it goes without saying. Rolex, the symbol of luxury watches, is said to be the first to be purchased by those who have earned money. Last year’s sales were 10.1 billion Swiss francs (16.11 trillion won), the highest sales in Rolex history. It seems like Rolex is the only watch brand that surpasses the sales of luxury brands.

But the outlook for these watchmakers is bleak. Due to China’s domestic economic downturn, Chinese people’s demand for luxury goods has decreased noticeably. Not just China. If you look around right now, it’s hard to find anyone who has purchased a new luxury watch. It’s not rare, but compared to last year, you can see that it has definitely decreased.

Reflecting this, Swatch Group’s sales from January to June of this year were 3.445 billion Swiss francs, a 14.3% decrease compared to the same period last year. During the same period, operating profit also plummeted from 686 million Swiss francs to 240 million Swiss francs.

Richemont Group’s sales in the first quarter of this year were 5.27 billion euros, down 1% from the previous year. The situation appears to be better than Swatch Group, but that is not necessarily the case. In the first quarter of this year, sales in Asia (excluding Japan), Richemont’s top sales region, fell 19%, and sales in China plunged 27%.

When a party is over, cleaning up follows. The bill is a bonus. The analysis is that it is somewhat unrealistic for demand for watches to suddenly increase as a long-term global recession is expected.

Watch companies say they are maintaining sales by promoting various marketing strategies such as launching various limited editions and collaborating with other brands, but what can be said for sure is that even if watch prices rise, they have risen too much. This is also the reason why more and more people are looking for used watches while taking the risk rather than buying a new watch that costs over 10 million won at a department store.