In this blog post we take a closer look at the supply side of the Swiss watch market and the role of Covid-19 during the last 12 months. Based on that we try to assess the impact on the availability of some of the most coveted models in 2022.
It goes without saying that any projection on supply or availability is speculative as for most high-end brands no official production numbers are available. Nevertheless, we try to make an educated guess based on publicly available information in combination with day-to-day experience of living with the pandemic in Switzerland during the last year.
When we talk about supply in the Swiss watch market we have to keep in mind the dimensions. First, on a global scale Switzerland is a tiny country. It makes up 0.42% of size of the United States and most people outside Europe would not even be able to locate it on a world map.
Second, the watch industry itself makes up less than 2% of the Swiss GDP. Although watchmaking remains the ultimate symbol of Swiss know-how and precision, it is not significant from a pure economical perspective.
Third, high-end watch producers are relatively small companies. Rolex, currently the number one brand in terms of market share, is a giant with an estimated 8000 employees. Audemars Piguet has 2000 and Patek Philippe 1600 employees around the globe.
This is the setup that determines the output during normal years. As we know the global pandemic continued in 2021 and had a negative influence on physical production. In particular, from January 18 to June 28, 2021 there was a home office obligation here in Switzerland.
Sure, this was not uncommon and not a big deal for most corporate functions of a watchmaker, such as marketing, finance, administration, IT, etc. Physical production was exempt from the obligation but due to social distance and maximum on-site capacity it is safe to assume that production was severely limited during this period.
The official term is short-term working and it is an arrangement that employers can use if they are hit by endogenous factors. In spring 2021, an authorized dealer confirmed that Rolex along with other producers are in fact on short-term working. This may sound odd given the global shortage of some of their models. But if normal production is prohibited you have to accept the situation.
To sum up, if we assume that production during the first half of 2021 was reduced by 50% (a realistic estimate in my view) the annual effect would be about 25% less output in 2021. When will this impact the market? If we assume that 6 to 12 months pass between the start of production of a watch and when it hits the AD, supply will be very low during the first quarter and most likely the second quarter of 2022.
As per December 20, 2021 the Swiss government has again introduced a home office obligation. As a consequence, we expect another shortage later in 2022.
What does it mean for secondary prices? Well, the most coveted models from Rolex, Patek and Audemars will remain to be a scarce good in the near future. Hence all other factors remaining the same, secondary market prices are not likely to go down across the board in 2022.
What is your view on supply and secondary market prices in 2022? Please leave a comment in the section below.