How did watch prices get so high? The number one response from watch enthusiasts seems to be “greed” – though “maximizing profits” would be the politer way to say it. Looking at the recent history of watch industry growth, I don’t see evidence for pure greed. Instead, I see companies investing in what seemed to them (at the time) like sustained and unrelenting growth between 2005 and 2015. In this article, I will walk you through the increases in watch prices and why they have gone up faster than the rate of inflation. In the next article, I will explain why all of the sudden people aren’t willing to pay those prices anymore.
My second of four articles on watch pricing appeared in aBlogToWatch. Here are some of the highlights. Please check out the full article at aBlogToWatch. If you missed the first article, you can access it here. Here are some article key quotes:
Swatch Group is not increasingly growing their profit margins through price increases. The Richemont Group shows a similar trend. If the goal of the watch industry were greed through raising prices, the orange line should be rising every year. However, this is not the case – the recent price increases have not resulted in growing profits.
Despite increased efficiency in production, many other factors contribute to increased costs. These are not specific to the watch industry, rather general factors that typically contribute to increasing costs of production: increases to wages, labor laws, increasing legal costs in a litigious world, the costs of medical care, taxes, more sophisticated equipment, sophisticated R&D and related staff, increased marketing, technology purchases, growing pension pools of workers, energy efficiency and emissions law compliance, and even building a factory costs significantly more today than 30 years ago.
Public companies have shareholders and are accountable for the performance and the share price of the company stock. Investors buy that stock and expect the company to perform in the short and long term…the easiest way to boost short-term earnings is to increase the retail price of products by a few percent. The extra money goes straight to the bottom line profit.