The head of Rolex SA said viewing luxury watches as investments is dangerous

I dislike when people draw comparisons between watches and stocks. This conveys an incorrect message and is risky," said Chief Executive Officer Jean-Frédéric Dufour in a rare interview with Swiss newspaper NZZ ahead of the Watches and Wonders trade show in Geneva this week.

Prices for pre-owned watches, particularly those from brands like Rolex, Patek Philippe, and Audemars Piguet, surged to unprecedented levels in 2021 and early 2022 as speculators, fueled by low interest rates and soaring cryptocurrency values, eagerly bought up expensive Swiss timepieces.

However, secondary market prices have plummeted over the past two years amid weaker economic growth and higher interest rates. The Bloomberg Subdial Watch Index, which tracks prices for the 50 most traded timepieces by value, has dropped by 40% during this period.

Rolex, the leading Swiss watch brand, dominates the industry with an estimated 30% market share. Renowned for models like the Datejust, Daytona, and Submariner, the company based in Geneva saw its sales surpass 10 billion Swiss francs ($11 billion) for the first time in 2023, according to Morgan Stanley estimates.

Regarding the secondary market, the Rolex CEO confirmed that the Swiss watchmaker, controlled by the foundation named after company founder Hans Wilsdorf, closely monitors secondary market prices. He stated that "very well known and successful brands" are always on consumers' minds and continue to perform well despite a downturn in demand.

"This can also be seen in the fact that the resale value of these watches does not decrease," he told the newspaper.

In a significant strategic shift, Rolex began issuing certificates of authenticity for its pre-owned watches in late 2022 through a certified pre-owned program. These authenticated pre-owned watches are sold through the brand's network of authorized dealers, including Switzerland's Bucherer, which Rolex acquired in 2023 in its largest-ever acquisition.

Dufour, who has been at the helm of Rolex since 2015, anticipates 2024 to be a challenging year for the Swiss watch industry as demand wanes from its peak.

Bloomberg News reported in December that the surge in retail demand for top Swiss watchmakers' products had considerably slowed after three years of frenzied buying.

Dufour noted that the slowdown will impact sales of smaller watch brands the most. "The pendulum is now swinging in the other direction, and it is naturally more pronounced for the less established brands," he said. "While they may have seen a 20% increase in sales during the upswing, they may now experience a 15% decline."

"For the big brands, the fluctuations are smaller," Dufour added.

During prosperous times, watchmakers tend to overproduce, and when markets weaken, retailers face pressure to reduce prices. "This is extremely problematic because discounts damage emotional products like ours," Dufour remarked.

He also mentioned that the strong value of the Swiss franc against other currencies is adding to the industry's pressures, along with the rising cost of raw materials such as gold.

"The increased interest rates are also affecting people’s spending mood, and the geopolitical situation isn’t helping either," he concluded.