The Real Reason No One Can Buy A Rolex or Patek Right Now - A Breakdown of the Shortage 2021

in recent history there has been a boom in demand for certain luxury watches from the likes of rolex patek philippe and ap so much so that having the money to buy is no longer all that is required in order to obtain a coveted watch in a traditional circumstance increased demand for a product usually creates better outcomes for the majority involved but in the world of luxury watches it's a bit more complicated than that and as a result it's created an unprecedented marketplace with both positive and negative effects so in this video i want to try to explain a bit more about what is currently happening with the demand of certain luxury watches and at the end talk about both the positive and negative implication for all those involved so this is the patek philippe nautilus reference 5711 over the past five years this watch has become one of if not the most coveted watch in the world the 5711 had a retail price that gradually increased basically yearly over the past five years but those in the know understand that retail price doesn't tell the story because you haven't been able to walk into any authorized dealer of patek to get one leading to secondary market prices that skyrocketed to more than double this value but right at what appeared to be the height of demand protected something that completely contradicts the law of supply and demand they discontinued the blue 5711 making way for a new green dial variant a variant that retails for thirty four thousand eight hundred dollars but in the summer of 2021 a rare double sealed example sold at auction for a whopping 376 000 or 470 000 when factoring in buyer fees a number that even without those fees is 11 times the retail value what is happening with secondary market premiums to many can be best described as insanity but like that nautilus example people are voluntarily partying with their money in exchange for these highly demanded models so why and how has this happened in order to understand the different market dynamics within the world of luxury goods i think it's important to address one of the cornerstones of economics first supply and demand in a typical market that can be deemed healthy supply and demand should be in a constant exchange establishing pricing equilibrium however this quest for equilibrium is rarely sustained since supply and demand is a fluid idea as there are many factors that will impact the market simply put if there is an influx of supply that overshoots demand products will sit causing prices to go down so products can sell at a healthy frequency with the inverse if supply slows down prices tend to go up a reasonable degree since consumers are willing to pay more since there is not as much to go around and in a market where there is a return to be made producers typically are going to rush to make more of that product or will raise the price to an appropriate degree to continue to move products and increase their return this is how general products or commodities experience supply and demand but in the field of luxury it's a bit more complex although selling as many products as possible and maximizing profit is a key element of every business top luxury brands care about one element just as much and that is maintaining exclusivity luxury brands like patek philippe or in another product category like hermes with their bags protect their image as luxury when they can make their products exude craftsmanship exclusivity and prestige if you get to the core why most people buy luxury products sure there is appreciation of the high quality craftsmanship but at the end of the day a huge draw for luxury products to many is to show off and to have a product that not just anyone can have and although the hype culture perpetuated by social media has contributed to this idea this concept is not anything new in the late 19th century there was an american economist named thorstein veblen who began analyzing the spending habits of high earners during the industrial revolution this time from 1870 to 1900 is commonly referred to as the gilded age given the rapid surge of economic growth in the united states by looking at the surging consumerism during the period and elevated focus of class structure he coined a term known as conspicuous consumption conspicuous consumption refers to the expenditure on or consumption of luxuries on a lavish scale in an attempt to enhance one's prestige as a byproduct of the consumption of luxury goods as a way to achieve status there was an interesting phenomenon examined with these goods that contradicted the regular rules of supply and demand unlike typical goods there were particular luxury products that saw an increase in demand as the price went up as the repeal to consumers was not value but being symbols of status with the higher prices these products were deemed more desirable since the money required to own one only heightened the term used to describe these products is veblen goods although instances of bevel and goods are incredibly rare some of the leading examples in a modern context are with luxury watches from brands such as patek philippe rolex and audemars piguet these three brands are the best examples of maintaining exclusivity in the world of watches and one of the leading reasons why they are the best at it is that they are privately owned [Music] identifying the reason for the rise in demand for specific luxury watches is difficult because it can't truly be attributed to just one factor but having a pulse on demand and maintaining gradual and thoughtful growth is crucial the world of luxury goods is operated mostly by a few conglomerates such as lvmh the largest luxury group in the world that operates brands such as louis vuitton hennessey and dior richmond a brand that owns cartier mont blanc and several prestigious watch manufacturers and the swatch group owners of a wide portfolio of watch brands from tiso omega up to brigade there are more but you get the idea the common trait for all of these conglomerates is that they are publicly traded companies with shareholders and are driven by reporting the highest quarterly earnings they can to increase their stock price with brands being incentivized in the shorter term to increase earnings producing and selling more product is going to be encouraged this idea of creating more products does result in higher sales but also given the way brands sell through primarily brick and mortar retailers the sale is recorded when the retailer makes an order instead of when the product actually hits the end consumers hands this as a result can lead to over production where products are being made more than the market requires them causing a downturn in demand this process of overproduction works as good as repellents on the types of consumers that desire to own the most exclusive products if they are easier to get they simply don't want them this is even more sensitive in the watch category compared to other luxury segments since the market cap for luxury watches is much smaller than that of apparel or handbags for example now let's take a closer look back at the three brands mentioned ap rolex and patek philippe before advancing any further it is important to note that the current demand for these products also is a byproduct of their attention to quality their iconic designs and the way that they operated the last century that last point about operation is important because given their private operation instead of looking for short-term returns these brands have the ability to operate with a rare level of autonomy in the luxury space when short-term profit is not the only concern these brands can focus on their most coveted attribute their long-term perception of being seen as a prestigious brand in the market this prudent approach with a leading product is the base for the current demand but there was much more involved in this growing snowball [Music] although the brands certainly have an impact on what has happened a lot is also contributed through a perfect storm of hype created by things outside of their control in my opinion i believe there are four primary factors that have created these empty displays at ads and secondary market premiums first social media has created a completely different landscape for watches the ability to learn buy and sell online has ushered in a level of convenience and access that previously was not possible also looking back to veblen in this theory there has certainly been a rise in conspicuous consumption in a modern context since showing off your new toy is not only limited to those in your local circle but an online circle that can reach every corner of the globe with an increase in the flexing lifestyle the biggest and most expensive is what gets clicks and those clicks for some are as good as any currency secondly the surge of vintage and the obsession with steel sports watches with the crazy auction results such as the rolex paul newman daytona celebrities speaking favorably about references from some of the top brands and a general boom for 20th century vintage rolex in general it has created a shift in what people wanted with talk of sports watches and the world getting more casual with the tire many started to look at sports watches more than in years prior in addition watches have become more of a global playing field than ever before with markets growing rapidly for this type of good especially in places like asia this surge to a singular style and growing markets has changed the playing field completely number three the flipping culture and those making money as soon as there was a spike in demand there was clearly not enough supply to go around leading to opportunists who saw money to be made by buying as low as possible and then selling higher this fueled the growth on two sides it first captured the attention of those looking to make money in the secondary market but also it brought in those lusting to show their status of owning the most exclusive of products both sides fueled one another as the trading prices rose so did the demand for the watches as what you get with your watch was not just a well-made luxury good but one that has become increasingly exclusive and a literal investment in rare circumstances as much as i hate to say it but for the final point we have to look at a grip on the supply despite the increase in demand for brands like rolex and patek they are not going to just increase their supply even if the market could support it they're not going to do this for two reasons one it's not the easiest thing to scale production a sizable amount in a short period of time because we're talking about skilled artisans who are assembling these watches but secondly a rapid increase could have long-term consequences for the pricing and demand for their products brands like rolex and patek don't look at their organizations in a five-year period or a decade period they look at their positioning in century-long time frames with watches as a product category becoming less about function and more about craftsmanship artistry and status brands of this ilk want to align themselves further with these ideas in order to have longevity in a market that will undoubtedly get smaller in the next 50 to 100 years now there's a lot of lack of transparency when it comes to production and nobody truly knows what is going on but one thing is certain you have to understand what is the priority and the positioning of these brands and why they operate and what is their number one goal in the long term all of these ideas combined have in turn created a cycle of continued uptick of demand and with the drop of production as a result of the 2020 shutdowns this only has added fuel to the fire however despite this appearing to be nothing but good for the brands this actually has led to some negative implications as well the most obvious downside of this is probably what people like you and me feel it has become harder to get watches that you are interested in buying is i truly love brands like rolex ap and patek but this certainly hurts those who remember times before there was a surge in demand where if you had the money to spend and showed face it was much easier to become an owner of these watches but times have changed and instead of being able to walk out of an authorized dealer with a watch you more often than not are needing to play games to show your worth and can be added to a wait list in a way these waitlists have a somewhat mystique around them and have only furthered the insatiable desire for some to own these watches but on the other side you have many consumers that are simply fed up with what is going on i think most people in the market desiring luxury don't mind if there is a level of exclusivity and if the products they want are not the easiest to get but there becomes a point when the track to acquire can cannibalize the other elements of what a luxury experience should be this has led many to look elsewhere either at other brands or outside of watches altogether and to be honest i think some of the brands are probably content with this as they are preferring to sell less units and then make their products more exclusive which in turn will create more demand and raise prices but that is putting a lot of faith in the current cultural zeitgeist and i think that it's always important for both people and brands to remember what has gotten them into the position they are currently in but as a second issue it is one area that is not discussed as much as there is another group that is currently in a tough position and that is with authorized dealers now i don't want to make ads overly sympathetic characters but the reality is the ones that are playing by the rules are in a tough position let's get back to the example at the beginning of that patek philippe nautilus say you are an authorized dealer of patek and you're allocated a nautilus a point that i might add doesn't really happen as often as most believe and you now can sell that watch so now you have one watch and a list of people inquiring that is at least a few hundred names long who do you choose in addition if you sell that watch you will have to sell it at retail price but as a retailer you have to know in the back of your mind that the same watch you sold for 35 000 can now be flipped by that person you sold it to for a crazy return for multiples of their money this puts both the retailer and the buyer in a tough position and although i can't confirm how much this happens there is no question that some authorized dealers sell directly to secondary market channels but this can lead to quick termination of your authorized dealership by these brands in fact that double seal auction example at the beginning happened as a result of a retailer losing their a.d of patek and having nothing further to lose so they maximize their profits on the way out why this is something that the brands need to think about is that they sell their watches through a large network of typically family-owned retailers across the globe by frustrating the people that are on the ground selling your products you create risks and relationships that are usually decades long why this is even more important is that watch brands have been operating not as direct to consumer brands for the past century they are b2b companies recording sales when they sell to retailers not the end consumer if enough ads or doors get frustrated this could lead to some reworking of how these brands need to operate an operation that is on a global scale and if there's one thing that watch companies hate to do that is to make quick strategic decisions [Music] the truth is this is much more complicated of an idea than what many people make it out to be there's not just one soul thing that's responsible and this has spiraled mostly as society has changed i believe if you asked someone to define the term luxuries or luxury goods you would get a variety of responses but here is a formal definition an inessential desirable item which is expensive or difficult to obtain to me there are two parts of this definition that stand out the first being expensive this has always been an aspect of luxury goods as the exclusivity and scarcity was dictated by the barrier of entry of price however what is happening here is that being expensive is no longer sufficient in giving people the dopamine high of owning something exclusive we need another layer so by adding an extra hurdle of extreme scarcity it has only made these products in the eyes of consumers that much more enticing but apart from a global change in human behavior and what people deem as luxury where can brands go from here and where can we go from here now despite my own preferences the reality is i think brands see a bit of writing on the wall they have two choices spend the millions and millions of dollars in order to scale production make more money while the market is peaked but risk the long-term downsides of over producing from a business perspective the short-term gain for a private company in luxury goods is not going to be worth the return especially in the world of swiss watches when exports are certainly going to go down over the next 10 to 20 to 30 years there's just a lot of assumptions to be made here but if there's one thing that i think will go a long way when thinking about the optics of how people see a company i think transparency is going to be important now these brands can't disclose everything that's going on but even having statements about how they allocate pieces what are the rules and how 80s operate this all goes a long way and i think will help at least add a bit of favor in just the mindset towards some of the brands now it's really easy from an outsider in of somebody that wants these products to just say hey just make more of them because that gives what we want but also on the other side i think you have to consider what the goals of these brands are and that is to maintain prestige and i think this idea of transparency is important as you're kind of forging or maybe building up that next generation of consumers you have an entire generation of people that are coming up and are going to start to have discretionary income where they do not remember the time when luxury watches or a watch i should say was a needed tool for day-to-day life they grew up with a smartphone the apple watch when they have discretionary income they're going to look elsewhere to spend that money if the entire product category is going to neglect them not only in telling a story about what their product means and where it sits in the current marketplace but maybe you're just neglecting them all together and making it difficult luxury is going to be luxury and this is a very difficult concept and thing to really unpack i would say that many of these brands are going to probably think a little bit more about going directly to the consumer or thinking about their partnerships in a bit more involved way whether it's e-commerce or thinking about an online digital front and only having a few key partners but this is just my general take on this subject it's a very complicated one i don't have all the answers but i think it's a lot of different factors involved i think the rise of social media and what has happened with a crazy surge of an online landscape has made the demand for a product on a worldwide scale be so much that regardless of how these brands operate it's going to be a challenge to meet it and if they did meet it they are making perhaps some compromises for the longevity of their brands and we're dealing with these types of institutions that all they have at their back is going to be their prestige their exclusivity in the marketplace they're going to protect that at any cost so a lot of crazy things happening i'd love to see your guys's comments down below what is your take on the current supply demand just craziness that is happening in watches today i'd just love to see comments down below this is one that's certainly a loaded topic it's very much involved but love to see what you guys are thinking there's a lot to unpack here and i really wanted to take a very high level perspective on this and really get into the details of what i think is truly happening but again i don't think anybody truly knows everything that is going on also guys if you enjoy content like this how this is all made possible is through teddybaldestar.com full authorized dealer of 30 brands quick and fast fulfillment dedicated customer support and full factory warranty for all the brands that we carry but guys thank you again so much for watching be well and i will see you all very soon

Channel: Teddy Baldassarre

Views: 961,327

Keywords: teddy baldassarre, teddy watch, teddys watch reviews, teddys watch collection, watch industry 2021, watch industry news, rolex submariner, rolex daytona, rolex datejust, rolex milgauss, audemars piguet royal oak, audemars piguet, patek philippe, patek 5711, patek philippe nautilus, new patek 2021, new patek nautilus 5711, patek philippe auction prices, rolex auction prices, vintage rolex, limited supply watches, rolex authorized dealer, bark and jack, hodinkee, jenni elle

Id: rLB27j4vZnU

Length: 19min 52sec (1192 seconds)

Published: Sat Oct 02 2021

Reddit Comments

[u/sasdie]

I think he’s missing the point that many watches are sold between dealers and never see a customer and so prices are generated which real customers never will pay. It’s a bubble which has to blow up some day. At the moment demand is high, but with the increasing prices this will drop to a point where not enough people can/are willing to buy one. Sure, there are always super rich, but Rolex alone is pushing 1 million watches to the market each year. So as every market, this one will be satisfied one day.