Text | Drain gold
Rolex started its annual price increase, but the price of second-hand met Waterloo.
Two years ago, a second-hand Rolex Daytona could be sold for 1.2 million, but now it can be won for 500,000, a drop of more than 58%. There is even a slip in the market, if you don't buy it, I won't buy it, and it will drop by 200 tomorrow.
Not only Rolex, but the economic downturn in the luxury business is generally not good.
For the same luxury watches, the prices of Patek Philippe and Audemars Piguet in the second-hand market fell by 6.5% and 7.4% respectively, Hermès quietly lowered the allocation threshold of platinum bags from 1:2.5 to 1:1.2, Gucci's parent company Kering's revenue plummeted by 15% in 2023, and Prada cut the price of classic nylon bags by 20%.
The price avalanche in the watch market is only the tip of the iceberg of the systemic crisis in the luxury industry.
Rolex, which is regarded as a "hard currency" by the middle class, no longer retains its value, and it is becoming more and more difficult for consumers to believe that "buying luxury goods equals investment".
Supply and demand are out of control and decoupled from value preservation
The biggest reason for the collapse of Rolex's second-hand market is first of all the brand's own supply and demand out of control.
Luxury mechanical watches are both consumer goods and investment goods, and Rolex, in particular, is considered by many to be a "hard currency" due to its strong and easy to sell prices in the second-hand market.
As an investment product, value preservation is the first element, and strict control of supply and demand is something that brands must do well.
Over the past decade, Rolex has maintained an annual production of 1 million units, which, together with the rules of placement, is sufficient to create effective scarcity and maintain the price of the product.
However, since the increase in production to 1.24 million units in 2022, the pick-up cycle of specialty stores has been shortened to 60 days, directly piercing the "scarce" bubble of the brand.
What's worse is that the brand has also personally harvested the second-hand market - Rolex has launched officially certified refurbished watches, although the price is 15%-20% higher than that of unofficial channels, but the "official" signboard gives consumers a more secure and safe guarantee, which not only diverts the profits of second-hand dealers, but also destroys the market's expectation of scarcity.
This prospect brand should be predictable, why do you still choose to do this? The essential reason is that consumers buy less, forcing brands to find ways to increase revenue.
On the production side, last year, the government of the Canton of Jura, where the Swiss watchmaking industry is concentrated, received a request for help from about 40 companies to pay compensation to avoid layoffs.
The consumer side is a little more complicated, as a consumer product, Rolex is not necessary, and it can be saved.
As an investment product, consumers are more likely to buy gold to preserve its value than mechanical watches. According to the 2024 China High-Net-Worth Individuals Brand Tendency Report, gold is the most popular investment choice among high-net-worth individuals. Looking at gold's strong price trend all the way up, it's easy to see why.
The second-hand market is very sensitive to trend changes, and as long as scarcity is reduced, the consensus that "Rolex is a hard currency" can easily collapse quickly and completely decouple from value preservation.
Middle-class consumption has been downgraded and there has been a shift towards pragmatism
The failure to sell luxury goods is a comprehensive downgrade of the consumption psychology and investment strategy of the middle class.
For them, Rolex is not so much a watch as a class pass and a wealth safe, inherently speculative.
In "All or Nothing", Manager Lu stuffed green gold in his daughter's schoolbag, and in "Crazy Boy", the pheasant turned over by the gold watch given by Chen Haonan, all of which illustrate the public's collective consciousness of Rolex value preservation.
The deeper downgrade is hidden in the collective shift of middle-class consumption, from face engineering to pragmatism, and cost performance is the new law of survival.
It is difficult to expand cash flow expectations, and rigid expenditures such as mortgages, education, and medical care cannot be reduced, so the budget can only be cut from other places.
Many details have piled up the general trend of downgrading middle-class consumption: Pinduoduo's annual active buyers exceeded 900 million, the 1688 factory direct supply model rose, the wave of equestrian club closures and the sharp decline in ice hockey courses were staged simultaneously, and medical beauty was downgraded from a single Thermage of tens of thousands to a photorejuvenation of hundreds of yuan......
Some Reddit users dismantled the Rolex steel watch and found that the cost of materials was less than 10% of the selling price, although the cost and the selling price are not necessarily related, but disgruntled consumers are easy to associate with the 90% premium is a pure IQ tax.
The fragility of the narrative of the financialization of luxury goods reveals the deconstruction of "investment" by the middle class—when a watch is far more volatile than stocks, the myth of "once and for all" is vulnerable to gold and government bonds.
"Save 100% if you don't buy" has become a reality from a joke, which can only illustrate one fact: artificial scarcity can't save the brand.
Maintain scarcity, the secret of luxury preserving value
The purchasing power of the middle class is getting weaker and weaker, who will pay for luxury goods?
Two ideas, one up and one down.
Looking up, the richest group of people will not be affected by short-term factors in luxury consumption, and their spending power is decoupled from the economic cycle, which is the last safe haven for the industry.
For them, price is secondary, and irreproducible scarcity is the most valuable, whether it is Patek Philippe's technical barriers built with complex processes such as perpetual calendars and minute repeaters, or Richard Miller's patent for a 1.75mm ultra-thin movement, the impeccable technology and craftsmanship is the greatest confidence to support the price of products.
Downward penetration is another way of thinking, diffusion of the original high-end technology to the next level of products, or it can also be called "light luxury".
Tudor is equipped with a Rolex homologous movement but halves the price, and Omega offers free movement testing for life, which is essentially a high-end brand oriented to the mass market, with technology decentralization and service bundling to expand the customer base.
But it's easy to flip over, and once consumers equate price reductions with depreciation, brands are at a kind of dead end, as evidenced by Burberry's shrinking value after the price cut and Gucci's performance plummeting by 15%.
Finding a new value anchor is imminent for the luxury category. Experience economy and intelligence are the feasible direction of luxury goods.
According to the "2023 China Sustainable Consumption Report", more than 60% of post-95 consumers prioritize experiential consumption. Luxury clothing brand Moncler will achieve revenue of 3.1 billion euros in 2024 through high-end events such as the St. Moritz Ice and Snow Art Exhibition and the Shanghai "City of Genius" fashion show, of which experience-driven consumption will contribute 40%.
Technology useism is also giving a higher premium to concepts such as intelligence and wearables. Gen Z consumers prefer the versatility and smart attributes of smart watches, such as health monitoring and mobile payments, and the annual sales volume of smart watches is nearly 10 times that of mechanical watches, and the growth rate is even higher.
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It turns out that any consumer product must always return to its rightful place.
The price collapse of Rolex's second-hand market is by no means an isolated event, but a microcosm of the structural crisis of the luxury industry, which has torn open three layers of illusion: artificial scarcity, symbolic value and financialization of products.
When the speculative crowd realizes that luxury goods are not hard currency no matter how much they are like hard currency, the game of beating the drum and passing the flowers will never go on.
This may be a harbinger of the transition between the old and the new era of luxury: the luxury of the future will probably not be a million-dollar watch in the window, but a new product that will fuse the most cutting-edge technology, culture and experience into one.