Investment

Luxury watches, family businesses, and inflation hedges

The pandemic has been kind to Chrono24, the online marketplace for luxury watches, which raised $120 million in an August fund raising from investors, co-led by Bernard Arnaud’s Aglaé Ventures.

In 2020 the company reported a 30% increase in transactions totalling $2.4 billion from nine million unique visitors a month.

Thanks to their high-profit margins, luxury watchmakers have been able to pay their own way as family businesses

Swiss family businesses that dominate the luxury watch sector are happy enough. Thanks to their tight relationship with networks of dealers they still get a premium price for new products and Chrono24 is increasing the size of the pie. The weight of money seeking a hedge against inflation is continuing to push luxury watch prices higher, according to Chrono24 data. Some prices have doubled over five years.

Celebrities are continuing to lend their cachet to the sector. On arriving in Paris, to sign for his new club PSG, footballer Lionel Messi wore a Rolex Yacht-Master, retailing at $27,000. 

As a football superstar, Messi could go on to raise millions by auctioning off his timepiece, as other celebrities have done. In 2018 an Omega watch owned by Elvis Presley sold for $1.8 million. In 2017, actor Paul Newman’s more renowned Rolex Daytona sold at auction for $17.7 million.  

Truly unique watches can also perform well at auction. In 2019, Patek Philippe set an all-time auction record of $31 million with its intricate Grandmaster Chime, said to have taken seven years to assemble. 

Auctions play a crucial role nurturing the worth of different brands, as jealous buyers compete on price. Specialist auction house called Antiquorum acts as a showcase for different leading watch brands. YouTube has also pressed into service by retailers keen to woo the bling generation.

Luxury watch manufacturers can bid up the value of their merchandise at auction, just they may lend watches to celebrities for endorsement. But the global fascination with exclusive brands is very real.

Thanks to their high-profit margins, luxury watchmakers have been able to pay their own way as family businesses. Switzerland’s best-known luxury watchmaker is Rolex, owned by the Hans Wilsdorf Foundation. Patek Philippe retains the Stern family as owners.  Audemars Piguet is led by Olivier Audemars, the great-grandson of its founder. 

Omega is owned by Swatch, led by the Hayek family, whose innovative products countered a foreign invasion of quartz watches in the 1980s. After 2015, Apple watches mounted another challenge but luxury watches retained their image. 

Chrono24 has brought price transparency to the private world of luxury watches, as well as a platform to buy and sell used watches across the world. 

The platform was started in 2003, but its team led by Tim Stracke who took control of the business in March 2010 by developing a relationship with watchmakers, dealers, private buyers and sellers. 

Stracke realised buyers were increasingly interested in pre-owned watches, particularly where previous ownership offered an interesting back history. He initially gained traction by persuading dealers to exhibit pre-owned watches for a fee going on to negotiate the sale of new products with watchmakers.

He sees luxury watches as a uniquely global market, where wealthy individuals regularly compete for the same brands. News on changing prices and trends encourages further interest. This can lead to market dominance by smart e-commerce platforms, as shown by Amazon, eBay and Airbnb. 

To reassure its buyers, Chrono24 keeps their payment in an escrow account. If the buyer decides against buying a watch after receipt because it does not live up to expectations, the transaction gets unwound. 

Dealers are vetted and deliveries insured. Chrono24 says bidders at auction often use its price guide to reduce the risk of bidding too much. Many buyers and sellers are now happy to trade by mobile phone.

Early investors in Chrono24 included Gianni Serazzi, a former Richemont director, who runs GS Consulting, Alberto Grignolo, who merged Yoox with Net-A-Porter then sold them to Richemont and billionaire venture investor Oliver Samwer of Global Founders Capital and Rocket Internet. 

Aglaé Ventures decision to invest in August’s fundraising suggests Chrono24 has crossed a watershed. 

Bernard Arnault’s LVMH is involved in luxury watches as well as Richemont, which purchased Chrono24’s smaller rival Watchfinder in 2018. 

Venture capital firm General Atlantic which led the fundraising in August retains an array of family office clients. It is viewed as a decent judge of the potential in e-commerce businesses.

Following the arrival of the pandemic, Chrono24 saw a surge in business when individuals cancelling holidays and theatre trips started browsing its website. Stracke told WatchTime early in 2021: “I think it brought our business forward five years in terms of how users behave the way people think about buying on the internet.” Other options for growth include jewellery.  

Amid the crisis, dealers are said to have hedged their bets when markets were crashing by putting some of their spare cash in luxury watches, whose prices were relatively stable. And the price momentum is continuing, as fears of inflation grow. 

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