Why Luxury Watches Are So Damn Expensive?

Luxury items are expensive. That is neither a new nor revolutionary thought. But whereas purchasing a Ferrari or an Andy Warhol painting begets a price tag that most people are happy to justify — seller, buyer, and overall marketplace — equivalent items from the world of timepieces are often held up as “too expensive.” That isn’t to say it makes sense to purchase a watch that costs the same as a sports car. However, people need to better understand that the man-hours, research and development, and tactile additions that go into manufacturing a luxury vehicle also apply to something small and wearable like a luxury watch.

Suppose the average person wanted to spend $3,000 and earned a salary in line with the U.S. national average of $44,564 per year, based on a traditional 40-hour work week. That purchase would be 6.7 percent of their annual income before taxes.

So what exactly makes a wristwatch cost — and actually worth — nearly seven percent of the average Joe’s yearly cash intake?

And when people ask, “Why are watches so expensive?” are they really asking, “Are watches overpriced?”

 

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You’re really buying Research & Development

The extreme attention to detail paid to every facet of production is often what defines a luxury item. Whereas these days we’ve placed more emphasis on speed and efficiency in many things — driven by automation — prestige watch companies continue to rely on the steady hands of artisans who have had to train for almost a decade before they can start producing items. Consider the Blancpain 1735 Grande Complication, which boasts 740 handmade parts. Then consider that Germany’s A. Lange & Söhne has 70 employees in its finish department alone, where they handle more rudimentary aspects such as chamfering, graining, and polishing. And finally, consider the years of research and development that has gone into refining each step of the watchmaking process, such as creating in-house movements, specialized dial mounting, long power reserves, and finishing techniques that ensure a watch remains elegant for years.

When you make your first big watch purchase, understand that you’re not only buying brand prestige, but also the millions of hours of work that go into crafting a range of items — some of which may never hit the marketplace.

Markup makes a difference

When Apple announced its Apple Watch in 2015, it was revealed that the cost to manufacture the product was $81.20, making it the least expensive Apple product when compared with retail price ($349). In other words, it had the highest markup of any Apple product to date.

The company certainly isn’t alone in finding that watches — like nearly all consumer goods — can be marked up tremendously. According to Forbes, “The manufacturer may double its manufacturing cost in arriving at a wholesale price to the distributor. The distributor in turn doubles its price in selling to the retailer, who doubles the price once again to the consumer. Before you know it, a watch that cost $500 to manufacture ends up with a price tag between $4,000 and $5,000.”

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The success of many direct-to-consumer watch brands stems from their affordable price points, which are a byproduct of cutting out middlemen who tend to include markups as they see fit. For those looking for “affordable” watches, it would be wise to explore luxury brands that sell directly to consumers on certain pieces, such as Omega, IWC, Chopard, Panerai, and Longines.

Limited quantities make for high costs

When Rolex put its Daytona back on the market in 1991, after three years of having none for sale, the waiting list grew to six years for those seeking to add one to their collection.

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Needless to say, premium watch brands rely on ensuring supply never meets demand. This isn’t only because the more intricate the item, the longer it takes to make, but also because it adds to the idea that a person is making a luxury purchase.

Luxury = expensive

Watches used to be a utilitarian tool. But over time, the advent and mass adoption of the cell phone has caused a shift in perception. Today they’re seen every bit as much an amenity as a diamond ring. Rather than have their products remain a tool for the masses, many brands have embraced the notion that a watch is a gift you buy for yourself.

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When a brand can evoke “luxury” with the mere mention of its name, it takes it as a license to raise prices. After all, you’re now not only buying into a company’s R&D, you’re also buying the acclaim that comes with other people knowing what’s on your wrist.

Our need for opulence is something behavioural scientists have tried to explain. As Forbes noted in its coverage of Supreme’s business model, “We are essentially primates with an evolutionary drive to want more of the things we cannot have, driven by a fear of loss. The appeal of a scarce product is further enhanced when it also publicly conveys social currency, in the form of wealth, status or power.”

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