Less than six months after celebrating its 175th anniversary with new releases and auctions of majorly historical watches, Patek Philippe has dropped a news bomb on the watch world. Effective today, a number of retail price changes will be seen across Patek’s lineup, including a 7% decrease in the Americas. An obvious reaction to the recent currency fluctuations resulting from Switzerland untethering the Swiss Franc from the Euro, the price changes will certainly have an effect on collectors while sending a message to the market in general.
A chart showing the violent drop in the Euro when the SNB uncapped the exchange rate.
As many of you are aware, on January 15th, the Swiss National Bank made the decision to change its three-year policy of capping the Swiss Franc-Euro exchange rate. What resulted was the floor dropping out from under the Euro in a matter of hours. The instantaneous 20% drop has slowly corrected back to 15%, but the impact has already been made. What this sort of currency fluctuation causes is a negative impact to exports and domestic products of the stronger currency – even more so when the currencies are neighbors. Weaker currencies will have a hard time paying higher prices for imports, and domestic buyers will often choose to cross the border and take advantage of their strong currency. What’s more, companies relying on sales from countries with weaker currencies won’t bring in as much revenue after currency conversion, cutting into ever-so-important margins. One thing I think we all wondered was how and when the Swiss watch market would be hit, as well as the resulting reaction. Well, now we’re finding out.
Mentioned above, Patek is decreasing retail prices in the Americas across the board. Other decreasing locations are Switzerland (5%), Hong Kong (7%), and Asia-Pacific (3%). Japan and Eurozone countries will see increases of 5% and 7%, respectively. The UK will be unaffected by the price changes. If you’ll notice, adding up the Euro increase and the USD and CHF decreases appear to balance out the severe drop in the Euro from a few weeks ago. Instead of hitting Euro countries with 12-14% increases in prices, which would be pretty brutal, Patek is taking a chance on a risky move.
At this point, my guess is Patek is hoping the Euro continues to normalize, and they can hold off on another price increase for a few years while bringing the USD and CHF back up over that time. This sounds good in theory, but it poses the risk of devaluing your own products in the eyes of the consumer. We all know Patek is elite, and there’s a real life event that’s causing the price drop, but it still is a bad sign that very well may hurt the brand’s reputation. Collectors look to Patek as a smart buy, one that can potentially lead to holding an appreciating asset; however, when that asset is devalued by its own makers, rather than at the dictation of the market, what does that say about the asset’s true value? Sure, prices can go back up, but it’s a sign that the value of a Patek can be changed at the drop of a hat. The $50K Patek purchased a month ago couldn’t be re-sold for any more than $45K, at least until prices are increased. With lesser brands, the depreciation hit is a given, but not quite as much for Patek Philippe. However, the uncertainty Patek is showing in their prices could change this perception in the long term.
Another possible effect of the price changes is that Patek is leading the way for other brands in adjusting to the currency fluctuation. If all else follow, or most, at least, then it goes back to being a level playing field. I’m surprised Patek was the first to move, but it wouldn’t be a shock if other major brands take notes. It’s very interesting to see the most elite major watchmaker slash prices, and I know we’ve got our popcorn ready. At the very least, you will see folks coming to the US to buy Patek, specifically from the UK, Eurozone countries, and maybe Japan and Switzerland.
Let us know in the comments what you think about this move by Patek Philippe.
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Ryan
While not on the same level as PP, everything I’ve heard is that Omega and Rolex are moving forward with price increases later this year. We’ll see what comes of it, I suppose. Shocked to see Patek do this.
Chris
I think this is a fairly significant move. Patek is incredibly savvy in the ways of watch marketing. They virtually wrote the book on curating brand identity in the luxury watch world. If they’re backing off with their prices, it’s the result of careful examination of a marketplace they know very well.
Shane Griffin
You very well may be right. However, the part that bothers me is that one of the main reasons for the price decrease is too much inventory, i.e., their watches are overpriced. That should be a red flag for a collector. Patek Philippe can’t properly price their products such that they’ll sell? They have to decrease their own pricing in order to push inventory? Not a good sign.
Chris
It could signal trouble in the industry. This is just blind speculation, but suspect that for every perpetual chrono and grand complication, they move hundreds of Calatravas and Nautiluses. These are the pieces in the most competitive section of the market.
Say what you will about Kevin Rose, he’s a savvy investor in both business and watches, and his interview with Ben Clymer back in November should have had Rolex collectors seriously considering thinning their collections. I don’t think the whole market is going to be affected, but if we see more pieces flooding the second hand market, it’s going to have an effect on sales of new pieces. I would not to be surprised to see the wildly overheated vintage Rolex market being the first one to weaken. It seems like there have been several auction disappointments in the last few months as well. Only time will tell.