Business Breakdowns
· 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.
· John Reardon
[00:00:00] S1: Many Patek Philippe collectors take great pride in wearing their watches out there, and the beauty is not everyone is going to know what's on your wrist. I mean there's simple Calatravas from the 1950s that are worth $0.5 million, but for the uneducated eye, it looks like a $3,000 watch. And people are out there wearing these. And I absolutely love and respect when these things are seen out there in the wild. My eye is trained. It's what I'm looking for. I mean I walk into a room, of course, I'm looking at everyone's wrists and trying to assess what do people have. Yes, if you're wearing a Rolex covered in diamonds, you're screaming to the world, what you have, and that's the point of it. Yes, if you have a Richard Mille that you just bought $1.4 million, and it has 1 million different colors and bells and whistles, you're screaming to the world something very specific that's on your wrist. But when you wear a vintage classic chronograph, no one's going to know. It's going to be hidden under your cuff that's 33 millimeters of beauty that no one's going to know about. It's discrete. It's understated, and ultimately has more demand than those other watches over time.
· Matt Reustle
[00:00:00] S0: I love the understated luxuries that for the trained eye obvious, but for everyone else, a lot less obvious. You referenced a few times you worked at Patek Philippe. I'd love to just hear a little bit about what the experience was like, both being hired there. And also just inside the organization, how big is it? What is the culture like? I get some sense from the outside of what it's like, but how much did that match the inside? Anything you could share there would be fascinating.