Business Breakdowns
· 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?
· John Reardon
[00:00:00] S1: I think internally at Patek Philippe, they are very mindful of what happens at auction. They're very aware of what's happening on the secondary market. But it's not their business. Their business is selling modern production watches. They're watching very closely. This way, I expect they're watching very closely what other brands are doing, especially Rolex that's going into preowned. We see Vacheron Constantin is doing, what Audemars Piguet is doing on the brands itself with the secondary market, but Patek Philippe has taken a position of just not being part of it in any way, shape or form. They're focused on what they're doing, which is making the best watches that have ever been made. Now that said, when I was working for Patek Philippe the first question I asked naively, I asked the President of Patek Philippe U.S.A. at the time, "What, in your opinion is Patek Philippe's greatest competition?" And I thought the answer was going to be Rolex. I was very wrong. I was quietly informed that Patek Philippe's greatest competition is Patek Philippe from the past. And that's a very interesting way of looking at things. So I wonder if that mindset is still in the minds of management of Patek Philippe's that they've done such a great job in the past. That's what we should be looking out for. It's very interesting because I'm focused on vintage that I'm dealing with a lot of collectors that are trying to decide, "Do I buy a modern minute repeater, or do I buy a vintage perpetual chrono?" These are the questions that the end consumer is having. Sometimes, they ask the dirty question, "John, which one will go up more in value in the future?" A question I just don't want to hear because I don't know, but I could tell you that major collectors in the world are really trying to decide whether vintage is the future or if modern watches are the future, and the great thing is everything that's being made today by Patek Philippe, it will eventually be a vintage. So the answer is very circular at the end of the day. It's just a matter of where do you want to place your bets.
· Matt Reustle
[00:00:00] S0: Yes. It's quite interesting, and you referenced the collectors, and I'm curious when it comes to something like this where it's wearable art, but there is the sense of, do you own your products, or do your products own you, and the fear of wearing something that's that expensive. So when you're dealing with collectors, do you think the majority of these are being put in cases, kind of sitting in safes or in closets, or whatever it might be? Or most of the collectors that you're talking to, wearing these on whether it's day-to-day or on a more regular basis, whatever it might be? What's your sense of that? And just dealing with a Patek and what you suggest because obviously, if you buy something like this, you want to wear it, but I think there's a fear that comes into play.