Business Breakdowns
· John Reardon
[00:00:00] S1: It's amazing when you talk to someone that doesn't know or think about Patek Philippe, one of the first things they say is, "Oh, is that, that ad campaign, you never actually own a Patek Philippe?" I love that. I hear that all the time from people that aren't in too watches, but that came from a very specific place in history. In the 1980s or starting in 1989, the ad campaign was called, tradition is our future, and I think to understand Patek Philippe's business strategy, you have to understand, they don't exist in the past, present or future. They exist in all 3 places at the same time, and I think this is fascinating from a marketing point of view. They're very proud of what they've done in the past and they lean on the past. They're absolutely obsessed with what they're doing now and how that reflects the past, but they're always looking towards the future at the same time. When I was there, decisions aren't made about the quarter or the year, they were, what about 10? What about 15 years from now? Even when I was working there 20 years ago, they were talking about the 200th anniversary in the year 2039, which we're all looking forward to, which is quickly approaching, so the idea of tradition is our future is ingrained in their DNA. And in 1995, this campaign under the leadership of Philippe Stern once again. "You never actually own a Patek Philippe. You merely look after it for the next generation," really caught upon the emotional angle of this timelessness of past, present and future. Earlier campaigns were focused like long-form journalism and great descriptions of why Patek Philippe is technically the best, why there's the craftsmanship, why their artistry is the best, but people didn't sit down and wanted to read a book. They just wanted to be told why. And I think emotion is one of the greatest ways to convey that. And that campaign is still brilliant because it just captures the heart of giving a watch to your son or daughter and imagining your grandkids having that piece in the family, and that transcends all other messages, and that's what people walk away and remember to this day.
· Matt Reustle
[00:00:00] S0: Absolutely. Yes. I think it has a place, if it's not the greatest of all time. It is certainly in a very small handful of other campaigns in that category. You referenced before that 1989 auction, and in the little research I did, it did seem like Patek embraced auctions differently than other heritage brands, watch brands. How involved were they? You mentioned they were both consignee and a buyer in these auctions. How important was that strategically for them? Obviously, there's a big secondary market. Talk a little bit about the auction space, which you have quite the history in yourself.
· John Reardon
[00:00:00] S1: Going back to 1989, the idea of a single brand auction was just quite foreign. There were Habsburg Feldman/Antiquorum. They did it with a couple of other brands. Off the top of my head, I think Cartier, Omega had a sale, but Patek Philippe was the first really the brand itself was fully behind it. And even their advertisements were both Patek Philippe and the auction house hand-in-hand and the PR machinery of the auction houses and the brand itself work together. So this was all just uncharted territory. Now that was all great and it worked because there was such a small community of people that were even interested in auction at that time. But over time, people will be like, "All right. Well, the brands are gaming the auctions." Because then all of a sudden, we saw every brand have an auction. They saw what Patek Philippe did and they're like, "Oh, let's try the same." And it was in the early 2000s that Patek Philippe significantly backed off from auctions. They just stopped. Their museum has everything they could ever imagine that they could want. So they weren't active in buying, and this was my era in the auction world. It was frustrating that Patek Philippe was not buying the top pieces at auction anymore, but the beauty of it was it was a pure form of a marketplace. The momentum was already going and collectors and individuals, sometimes, investors and buyers of all sorts, they were buying Patek Philippe at auction, so the prices just kept going up, up and up and as Patek Philippe backed off completely, the prices just kept going up furthermore.
· Matt Reustle, John Reardon
[00:00:00] S0: And when they historically did buy in those auctions, you mentioned the museum. Is that where those pieces would go? Were they ever then coming back out and selling them or doing anything else with the watches? [00:00:00] S1: So when Patek Philippe buys a watch at an auction, and they were very active in the 1990s, in the early 2000s of buying. That was the golden era of all the great pieces were surfacing at auction. They were all going into the museum. They were being cleaned, overhauled and put on view. To this day, you can go see them in Geneva. It was an amazing period of time to acquire some of the rarest pieces that surfaced. It's like that intergenerational timing made sense. Pieces from the 1930s through '60s were showing up at auction during that period of time. Go through an auction catalog from 1999, where your heart melts, the opportunities that one had. Today, we just don't see the same types of pieces surface at an auction. You get 1 or 2 great watches a season, where back then, you might get 5 to 10 amazing watches per auction and probably at materially lower prices. I'm sure. Yes. I mean, the prices just make me want to cry. [00:00:00] S0: When thinking about auctions and the secondary Patek market, I heard some numbers that were quite outrageous, but can you put some ballpark around how big of a secondary market Patek actually has?
· Matt Reustle, John Reardon
[00:00:00] S0: When thinking about auctions and the secondary Patek market, I heard some numbers that were quite outrageous, but can you put some ballpark around how big of a secondary market Patek actually has? [00:00:00] S1: In anticipation for that question, I was trying to get real numbers for you, so I'm going to give guesstimates. 2 parts, first, the annual turnover of the company itself of modern production pieces of what Patek Philippe is selling. They don't share these numbers publicly or privately, but I'm guesstimating between $1.2 billion and $1.5 billion a year. And this is just modern of that 70,000, 75,000 watches they're selling per year. But where it gets interesting, and this is my world, it's preowned and vintage. We estimate that approximately $8 billion annual turnover of vintage and preowned, so we're talking real numbers. That's unfathomable, but the point being is the pre-owned and vintage market is much larger than the primary market. And I think through the last 3, 4 years, those numbers just keep getting greater. Really hard to pin down the exact numbers because just think every transaction that we see at auction is public, but imagine the amount of business that's being done out there that it's with dealers. It's with retailers. It's online. There are significant numbers, and there are many of us trying to figure out how much it really is, but that's my best estimate.
· Matt Reustle
[00:00:00] S0: That's incredible. Those numbers. I mean once you get into the billions, that's one thing, and then well into the billions that is remarkable just to understand how much of an economy exists just around this single brand. How do they think about that secondary market, the vintage market? Because at least, from my sense of things, it obviously has a massive impact on brand image. But from an economics perspective, they're not capturing any of the economics of those watches that are selling in the secondary market. Is there a way that the brand deals with that strategically just to have a sense of what's going on in that market? And it must impact what ultimately happens in their primary sales or the new modern sales. But what's going on inside the walls there in terms of how they're thinking about that?