High-end watch prices are sinking. Does that mean bad times ahead for luxury stocks?

The London Watch Show 2022

Leon Neal/Getty Images News

Falling high-end watch prices could point to worrisome prospects for luxury retailers like LVMH (OTCPK:LVMHF) and Richemont (OTCPK:CFRHF) during 2022's second half.

According to WatchCharts, resale prices for luxury watches - which some people buy as investments - have tumbled about 15% on average in the past two months, with top-of-the-line Rolex and Patek Philippe headlining declines.

Declines among the highest-priced offerings exacerbated average losses, leading to a steady slide since April for average secondary-market sales prices across the 30 most popular resale models:

According to luxury lifestyle magazine Robb Report, prices for some of the flashiest models like the Audemars Piguet Royal Oak and Patek Philippe Nautilus models have plummeted than 30% since the spring.

Crypto Catalyst?

Experts are widely blaming the crypto bubble's bursting - led by an over 50% fall in the price of Bitcoin (BTC) - for the fall in flashy watch prices and a reduction in luxury sales in general:

For example, Bloomberg recently extrapolated the drop in Rolex Daytona demand to the sudden hit the crypto crash inflicted upon recently rich crypto investors.

To be sure, the crypto issue isn't the only variable in watch-price pullbacks.

Robb Report recently quoted consumer-goods analyst Jean-Philippe Bertschy of Vontobel as saying high-end watch prices had become unsustainable amid overdone hype. He added that the crypto issue was adding to the problem rather than causing it.

Supply Constraints

Nonetheless, experts say undersupply remains a major issue for luxury watches given the nature of their meticulous production. Given this scarcity, prices are likely to remain somewhat stable at higher levels, even if the investment angle of purchasing the watches has been curtailed to a degree.

CEO Brian Duffy of Watches of Switzerland (OTCPK:WOSGF) recently told Bloomberg that the retailer is struggling to keep up with demand for watches from both Rolex and Cartier parent Richemont (OTCPK:CFRHF). While Richemont management recently indicated its plans to speed up production of its Cartier watches, the supply-and-demand dynamics remain tight.

Hope for a Comeback

Still, unless a comeback is in order for cryptocurrencies, there are lingering concerns that cutbacks in flashy spending among crypto investors could cut into sales for luxury retailers beyond Richemont and Rolex.

Publicly traded luxury brands include LVMH (OTCPK:LVMUY), Hermes (OTCPK:HESAY), Essilor Luxottica (OTCPK:ESLOY), Compagnie Financière Richemont (OTC:CFNCF), Tapestry (TPR) and Farfetch (FTCH).

Read more here about Goldman Sachs’ recent concerns on consumer confidence and luxury-retail sales.

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