Investors see opportunity in the watch sector

The latest “happening” in the watch world came courtesy of Tiffany, acquired this year by LVMH, and Patek Philippe. Established in 1837 and 1839 respectively, the two began a collaboration in 1851 and, in celebration of this 170th anniversary, are presenting a limited edition of one hundred and seventy Nautilus ref. 5711/1A-018 in steel with Tiffany Blue dial. Never far away, Phillips in Association with Bacs & Russo offered the first watch in the series for sale with an estimate of $50,000. The mere mention of the Nautilus is enough to send collectors into a frenzy, particularly since Patek announced the imminent retirement of the steel version from the collection. Throw in soaring interest in watch auctions, which have totalled in excess of CHF 500 million since January, and it was no surprise when the hammer came down in New York last weekend at $6.5 million, making this the eighth most valuable watch ever sold at auction. A sign of the times, all proceeds go to the Nature Conservancy. The remaining 169 watches in the series will be available to very lucky clients of the Tiffany boutiques in New York, Beverly Hills and San Francisco.

E-commerce

There is more to this news than meets the eye. Since the Covid-19 pandemic, high-end watchmaking has caught the attention of investors in a segment of the luxury industry that hasn’t seen the last of the big transactions. The number of possible takeover targets is certainly small, given the solid business models in place at independent brands, but the flow of capital continues unabated, as illustrated in recent weeks. When Richemont published its interim report for the six months to end September, the group’s chairman and controlling shareholder, Johann Rupert, outlined plans for Yoox Net-à-Porter (YNAP), the Richemont-owned e-commerce platform that is struggling to come out of the red after posting another operating loss of €141 million for the half-year.

The aim of Johann Rupert, who for the past five years has been calling for a neutral, industry-wide platform with no controlling shareholder, is to strengthen ties between YNAP and Farfetch. Already last year, Richemont alongside Alibaba invested $500 million in the fashion e-tailer. Theoretically, the next step should see Farfetch invest in YNAP, together with other investors. As online shopping strengthens its foothold in the luxury market, these transactions have huge implications, both financially and for strategy.

New investors

This is also the thinking at Partners Group, a Swiss investment firm which has taken a “significant minority stake” in Breitling from CVC Capital Partners for an undisclosed amount: the financial press has speculated on 25% for around CHF 700 million. This would value Breitling – which is expected to achieve revenue in the region of CHF 700 million for the year ended March 31st, 2022 – at CHF 2.8 billion and is a strong indication of the potential these investors see in the brand which, notes Partners Group, benefits from attractive trends, especially in Asia. The Swiss fund intends to accelerate this growth and take advantage of the estimated 6% annual growth rate in the luxury watch sector between now and 2024.

This is Partners Group’s first steps in the watch sector. Also making their debut are retired basketball legend Michael Jordan and current NBA superstar Giannis Antetokounmpo. Alongside other US athletes and Wall Street investors, they raised $165 million to invest in WatchBox, one of the biggest secondary marketplaces for watches that recently took a controlling stake in De Bethune. With inventory valued at $150 million and revenue on pace to reach $300 million by year-end, WatchBox operates, in addition to its online platform, physical outlets in New York, Los Angeles, Miami, Houston and Dallas in the United States, as well as in Dubai, Hong Kong and Switzerland. According to McKinsey, by 2025 sales in the booming pre-owned market could top $30 billion; that’s half the size of the market for new retail watches. Again, the potential for gain is sufficiently high to attract new investors to the sector. The next step for WatchBox will likely be an IPO. Breitling is nurturing similar long-term ambitions.

It’s been decades since a watch company was publicly listed, the last being Movado in 1993, TAG Heuer in 1996 and, more recently, the British retailer Watches of Switzerland, in 2019. The buzz over potential new listings leaves no doubt as to the investment fever taking over the sector.