Inflation & Interest Rates: Are Watches Safe?

Rising inflation and interest rates have significant implications for the luxury watch market. As the cost of living crisis continues to affect economies worldwide, it's crucial to understand how these factors influence prices and consumer behaviour within the industry.

In the UK and Europe, rising inflation has led to an erosion of purchasing power. This can make luxury watches more expensive for consumers, as the prices outpace wage growth. 

Additionally, higher interest rates can impact consumer spending, as many medium-to-high income individuals have experienced real-world mortgage increases, business loan rate rises and a general drying up of accessible, previously cheap, financing options. All this has started to visibly affect the demand for luxury assets, and watches are certainly not immune. 

Global production disruptions caused by the pandemic have eased somewhat but are by no means back to normal. The ongoing conflict in Ukraine has contributed to the shortages of raw materials, delays in manufacturing, and increased shipping costs, which have all increased production expenses for luxury watch brands. These additional costs are often passed on to the consumers, further exacerbating the impact of inflation.

However, despite these challenges, the luxury watch market has shown resilience. Affluent consumers who view luxury watches as a long-term investment tend to be less deterred by rising inflation and interest rates. They recognize the enduring value and prestige associated with luxury timepieces and are willing to make purchases despite economic fluctuations. Watches, unlike other asset classes like art, fine wine, whiskey, property and luxury yachts are very often more sellable, and can be liquidated more easily, with less fuss and the small nature of the item itself facilitates the possibility of cross-border transactions more naturally. 

That being said it is important for luxury watch brands to monitor the ongoing economic factors closely and adapt their pricing strategies, product ranges and targets accordingly. By striking a balance between maintaining profitability and meeting consumer demand, they can navigate the challenges posed by inflation and interest rate fluctuations while ensuring their products remain accessible to a broader range of consumers.

The luxury watch market was certainly hit hard by the last great financial crisis 15 years ago, but ultimately bounced back stronger and more robust. Time will tell if history repeats itself.