Battling both a strong Swiss franc and demand from the Far East, buying a watch in Europe is stretching the enthusiast's capacity for pain.
WORLDTEMPUS - 23 February 2011
Kristian Haagen
Ouch! Rolex increased retail prices for the second time in six months, with European stickers raised by an average of 7.5 percent. One of the brand's top-selling models, Submariner Date Ref. 116610LN, is now retailing for 20 percent more than it did in August 2010.
This is not an updated version of the Submariner, and the increase is not caused by a change in material (it remains stainless steel). This did not happen because steel has become the new gold, nor is it due to the introduction of a new movement that has been in the pipeline for a decade (which could be chalked up to costly R&D). And it is certainly not because technicians' salaries have increased 20 percent. It's “just” a price increase.
Rolex, of course, is the most well-known Swiss brand in the luxury segment. The king of Swiss watch brands sells approximately 800,000 watches per year and adorns the wrists of celebrities, sports professionals, world adventurers, and Chinese businessmen alike.
In China, a Rolex is considered a business tool linking the owner with the positive connotations of the brand and signaling a clear advantage over the competitor who may dress his wrist with a “mere” TAG Heuer. A Rolex is a symbol of power – but to many Europeans this symbol is rapidly becoming unaffordable.
A Different Squeeze
The European squeeze does not end with the recent price increase, though. Worldtempus spoke to a couple of the most important Scandinavian retailers, who said their biggest problem was not even the new price tags; it's the lack of stock. “Our sales are impressive. Our numbers for last year were record high. But this year we are facing a different kind of problem,” one store manager admitted.
All this may work to the advantage of the brand in several ways, of course. Behavioral science dictates that we appreciate our purchases more if we have gone through some hardship to obtain them. And, perhaps more surprising, we appreciate an expensive item disproportionately more than an inexpensive object.
In other words, the same Rolex might possibly yield more pleasure for the owner at its higher price. If he or she can afford it – which is, of course, the issue facing financially-challenged Europe now. However, the price increase appears to have made no dent in sales: Swatch Group, for instance, just reported record gross sales of CHF 6.44 million for 2010, confirming the aforementioned retailer's remark about shortage of stock.
Indirectly, the stock shortages are again the result of Asian demand as such record sales can increasingly be chalked up to China and other Asian tourists buying in Europe. Their economies are on much sounder footing, causing their currencies to gain significantly against the Swiss franc and the euro. Price increases are not being recorded in Korean won or Japanese yen.
Too Expensive
At this point, we should remind ourselves that luxury is not supposed to be cheap. Luxury is not supposed to be discounted. Luxury is all about products we don't need, but still pay big bucks to own.
Still, the question remains: what is the right pricing policy? European customers are clearly hurting and in danger of losing their appetite for their favorite timepieces. Is the Swiss watch industry living in a bubble, satisfying demand based on currency fluctuations while failing to protect their traditional clientele? This is a question we may need to ponder.
