Nothing exudes success and confidence like a luxury watch. A nice watch is a perfect accouterment to a business suit or outfit for hitting the town. That’s why the luxury watch market is poised to grow to potentially be worth over $30 billion by 2025.
Selling luxury watches can be a profitable business, but you have to understand the associated costs and profit margins to be successful. Here is a look at the business behind selling luxury watches.
What is the Retail Price of Luxury Watches?
The term luxury can be a bit subjective. What may be considered a luxury to some, may be quite ordinary for others. For instance, spending $500 on a watch may be considered high-end to many. But to sophisticated connoisseurs, luxury may mean something north of $50,000.
Watches range in price from a few dollars to several hundred thousand. The pricing also depends greatly on the brand and the rarity of the piece. For instance, the price of a new Rolex starts around $5,000 and typically falls in the $8,000 – $12,000 range. Whereas a watch from Patek Phillipe can cost you anywhere from $12,500 to over $2 million.
Here is a look at the average retail price for the Top 5 leading luxury watch companies in 2018:
- Richard Millie: $141,171.18
- Patek Phillipe: $54,132
- Audemars Piguet: $50,781
- Rolex: $12,390
- Longines: $6,296
The market for luxury watches has exploded and well-known watchmakers are continuing to create new products to cater to the demand. If you can establish yourself as a reputable brand in this space, there is a lot of money to be made. But it takes a long time and a lot of investment in advertising to reach that point.
What is the Wholesale Price of Luxury Watches?
Many dealers choose not to manufacture their own watches and instead buy them wholesale to sell to customers at a markup. Some brands like Rolex will only work with authorized dealers. But others aren’t as strict.
The average dealer markup on a luxury watch is around 27%, but that figure can vary greatly depending on the brand. Some go as low as 13% and others as high as 44%. So, it all depends on the popularity of the watch and the knowledge of the dealer. Luxury watches are often created in small batches with limited demand. So, the dealer must understand the market well to know how to price the piece.
Costs to Make/Manufacture Luxury Watches
It’s also important to analyze all the costs associated with manufacturing a luxury watch. Most well-known luxury brands manufacture their own pieces in-house. That way, they can control the entire process and keep quality limited and demand high.
The cost to manufacture a particular watch will vary depending on the brand and the individual model. But typically, it’s a fraction of what the end-user will pay to purchase it. Watchmakers will have to pay for the production of stainless steel or precious metal and all the internal mechanisms such as the hands and dial.
Luxury watchmakers are notoriously secretive about the costs associated with production. But it’s estimated that the average high-end watch such as a Rolex or Patek can cost anywhere from several hundred to several thousand dollars to manufacture. It’s not unusual for the wholesaler to double the price, just for the retailer to do the same when selling it to the consumer. By the time it ends up on your wrist, it may be marked up by 4-5x the manufacturing cost. So, a watch that costs $3,000 to make, may sell for $12,000 – $15,000 in the store.
But much of that margin is not taken as profit, it’s put back into advertising. The success of a luxury watchmaker is not simply in its ability to manufacture great watches. It rests in its ability to market a particular lifestyle that the consumer wants to experience.
So, to stay relevant and stay on the minds of consumers, luxury watch brands put a massive amount of money into advertising. In 2019, Rolex spent around $56 million in advertising. Considering that Rolex also made $5.4 billion in 2019, the strategy worked. In addition to Rolex, at least 70 other luxury watch brands spent over $1 million on advertising the same year.
In addition to advertising, luxury watch brands have an immense amount of overhead that includes labor, machinery, research and development, and design. Another part of what makes luxury watches so expensive is that they are often made in limited quantities and feature special elements that make them unique. So, a lot of capital has to be put into research and development, as well as the labor needed to make these intricate pieces.
Not to mention, many brands handle production in-house. Rolex, for example, operates its own foundry to directly alloy all the gold used in their watches. This allows them to maintain their reputation for quality. But it also costs a lot to operate the facility.
What are the Profit Margins on Luxury Watches?
Starting a luxury watch business takes a lot of patience and dedication. You not only have to create stellar products, you also have to effectively market your brand to exude wealth and status in the public eye.
But all the hard work can pay off if you can build a reputable brand. The profit margins for a luxury watch business are quite high and range from 40%-50%. These high margins accommodate all the costs and labor that go into creating these intricate products and marketing them to the public. But if done effectively, luxury watchmakers can do quite well if they develop a loyal following for their brand.
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