Why watches are so expensive, and can they be cheaper?
A blog by Seköni Original
(Read time: 8 mins)
We would like to start by stating that there is a clear distinction between expensive and overpriced. The definition of expensive is “costing a lot of money,” meaning it’s a relative term. A $5 cup of coffee from Starbucks may be expensive to a student but not to a blue-collar worker who’s looking for a quick caffeine boost. As for overpriced, it is defined as “charging too high a price for.” A $1000 watch may be expensive to me, but it may not necessarily be overpriced. To answer that, we have to look at the intrinsic value- which is a culmination of the cost of materials+ designing+ manufacturing+ marketing+ distribution+ fair profits. Now that this distinction is made clear, let’s go on with the title of this blog post: Why are watches so expensive? Can they be cheaper?
Before we go on to the next section, ask yourself a few questions:
• What is your personal definition of an expensive watch?
• How would you define “overpriced”?
Ultimately, it ties down to the cost of a product and the perceived level of value it adds to our lives we think it provides us. Successful products fit perfectly on the price scale and also provide us, consumers, the level of satisfaction and value we would demand at that price point.
Simply put, our expectations are met.
As you read on, you will learn more about how you can:
1. Make a more informed choice when purchasing a watch
2. Understand the business models of the companies you buy your watches from
3. Honest insider glance into the watch industry and what it entails
Can watches to be cheaper? Read on to find out.
Two broad categories of watch companies
Generally speaking, there are two broad types of watch companies: fast-fashion and luxury. Each of them has a drastically different model and supply chain. By definition, the former is “inexpensive clothing produced rapidly by mass-market retailers in response to the latest trends,” and the latter is “a state of great comfort or elegance, especially when involving great expense.”
The business model of these two categories differs drastically. Successful fast fashion brands cheaply produce produces, make use of smart marketing tactics to sell to as many people as possible to generate profits. Luxury brands generally produce high-quality materials and markup their prices based on brand recognition and perception.
That said, there are many reasons why watches cost as much as they do and I will dive into it here.
This line of collection is Patek Phillipe's CALATRAVA Series. Made of white/rose Gold, each model is listed for SGD39,000/USD29,000. Yes, you read that right- it's with the 3 zeros behind. (Source: Patek Phillipe's website)
Reason 1: It is actually expensive to produce the watch
Some watches are expensive because they honestly cost a lot to produce. What this boils down to is the cost of materials and manufacturing processes. There are many different components to a watch and each will have its own quality/reliability standard. If a watch company uses a precious metal (gold/platinum/etc) watch case and alligator leather strap, it will undoubtedly be expensive but it will be justifiable to sell this for more than you normally would a regular watch. Expensive? Yes. Overpriced? Not necessarily. Is there a need for it? I would argue that it is never necessary to purchase a precious metal watch given the strength and reliability of stainless steel. Precious metal is more of want.
However, in the current market, rather than being actually expensive, it is common to find watches that are expensive AND overpriced. Most of these watches fall under fast fashion. They use cheap material and produce unreliable watches and use great marketing techniques to push out an overpriced watch. I would consider them more like a marketing firm with a product than watch companies conducting marketing. What they sell to you is the story, at the expense of the product. I’m sure you would rather purchase your watches from the latter than the former.
Reason 2: Unnecessary middlemen costs
The journey from manufacturer to consumer can be a long and arduous one. Everyone in the chain takes a cut of the money, adding to the every-increasing cost of a watch. This aspect of the supply chain is not exclusive to watch retailers, but to every consumer product from fast fashion and luxury brands. We shall explain this by using a $250 fast fashion watch as an example. This is the average industrial norm:
These costs incurred stack up and result in expensive, overpriced watches. Coming direct to consumers through the Internet removes points 2 and 3 and saves these middleman costs. Online retail companies then have two choices- they can pass the savings to you or they can take in the extra profit margins. Seköni Original does the former. Why? Because we believe in quality goods that are accessible to all.
Reason 3: Excessive Marketing Costs
Watch companies are for-profit companies and because their aim is to generate revenue, naturally, the business models of companies lean towards themselves and away from the consumers they serve.
As defined by Google, fast fashion brands generally sell cheaper products, produce them quickly and try to sell to as many people as possible. Because the price of the products is not too high, the method to high revenue is by selling their products to as many people as possible. To do so, they incur significant marketing costs, and these costs are pushed to you, the consumers. The advertisements you see on social media, the banner ads you see when browsing through blogs and sites, and the sponsored content a social media influencer posts- these are all marketing costs that fast fashion brands spend to get in front of you, to get your attention. For most watch companies, customer acquisition costs will be higher than the costs of making the watch. Luxury brands aren’t free from this curse as well. The Rolex clock you see at every Wimbledon tournament, the Cartier advertisements you see before Avengers Endgame begins, and billboard advertisements with a picture of a watch 1000 times the size of an actual watch. Luxury brands do it too, just bigger.
All these costs are transferred to you when you purchase the watch. Marketing costs is one of the biggest reasons why watches cost as much as they do. Companies want to grow fast, so they make you pay for it.
Roger Federer elegantly swinging his racket. No prizes for guessing the brand in the background and how much money it took for them to be placed there. (Source: Matthew Stockman/Getty Images AsiaPac)
Reason 4: Unfair Profit Margins
Remember the formula we shared in the first paragraph of this blog?
The intrinsic value of a watch= Cost of materials+ designing+ manufacturing+ marketing+ distribution+ fair profits.
Profit margins are ingrained in any good business. However, there is an apparent gap in the watch industry- reliable watches with good design usually have to cost us so much. It is perfectly possible to create a great watch that is not too expensive, but this will have to come at the expense of a lower profit margin.
One of the reasons why so many fast-fashion brands do well is because they produce watches for fashion-driven individuals who lack a better option at the $100-$500 price range. I would give credit to some fast fashion brands, they have good design principles and create good looking watches. (Let me be clear: good design isn’t throwing lines on a watch with claims of minimalism when it’s simply uninspiring lazy design.) However, a lack of formidable competition and lack of will to change the status quo from existing competitors removes the need for fast fashion brands to use the best quality materials when producing their watches. This protects their profit margins and makes its investors happy. As seen in the example in Reason 2, current industry averages have it that a $15 watch is sold for $250. I get that there must be a profit margin, but this is ridiculous.
Luxury brands place an extensive value on their design and manufacturing processes. Paying $10,000 and above for luxury brands may be really expensive but is justifiable when it’s a watch that has undergone several iterations before it is brought to market. For example, in an interview with a Patek Philippe's President, he talked about how it takes them 4-8 years to create a watch movement, depending on the level of sophistication. People into Haute horology may be willing to pay for a watch like this. Unfair profit margins? Not necessarily. It is unfair to say that margins like this are uncalled for because the talent and craftsmanship in producing these watches are hidden from the consumer perspective. Expensive? Very.
The above 4 pointers are the main reasons why watches cost so much. We hope that this helped shed some light on the timepiece industry. At Seköni Original, what we do is combine the high production quality of luxury brands with the affordability of fast-fashion brands, bringing you a great watch at a fair price. We do our best to go against the negatives of these 4 reasons:
1. We create a high quality watch without unnecessary, non-critical, components like white gold instead of stainless steel.
2. We remove unnecessary middleman costs by coming direct to you.
3. We remove excessive marketing cost so that you don't have to pay for our growth. We believe that the best form of marketing is through word-of-mouth and the best way to encourage that is by creating an honestly good watch.
4. We take fair, sustainable, profits. Coming to you through crowdfunding allows us to be powered by you, not profit-driven investors. This means that we can focus on creating a truly good watch and grow our brand fairly.
We hope that this helped shed some light on the timepiece industry. Now go forth and make smarter purchases!