Are Old Watches a Thing of the Past?

Every few years a tech product launches that's supposed to kill mechanical watches. Quartz did it in the 1970s. The smartphone did it in the 2000s. The Apple Watch was supposed to do it in 2015. Each time, the prediction was reasonable on the merits: the new product told time more accurately, did more things, and cost less. Each time, the mechanical watch industry got smaller for a year or two, then quietly grew. The way I think about it, the question isn't whether old watches survive. It's why they keep surviving when they shouldn't.

The answer is that watches stopped being timekeeping devices a long time ago. The minute the smartphone put an atomic-clock-synced display in everyone's pocket, the actual function of telling time became free. What was left for watches was everything else: status, craftsmanship, jewelry, family heirloom, asset class. The watch industry was lucky in that those functions don't compete with software. They compete with other forms of jewelry, and on that axis, a Rolex is still doing very well.

What the Apple Watch Actually Killed

The Apple Watch killed the bottom of the watch market. The $50 Casio that someone used to wear because it was cheap and told time has been replaced by the smartphone. The $300 Fossil chronograph that someone used to wear because it was a step up from a Casio has been replaced by an Apple Watch SE. That entire mid-tier of functional analog timepieces, which was a real chunk of the unit volume of the watch industry, is gone.

What it didn't touch is the part of the watch market that was never really about telling time. A Rolex Submariner has more in common with a wedding ring than with a Casio: it's a piece of jewelry that happens to display a time. The buyer is paying for the brand, the craftsmanship, the ability to pass it down, and increasingly, the secondary market value. None of those things are things a smartwatch can be.

The Asset Class Story

The interesting financial story underneath all this is that mechanical watches in the last decade have started behaving like an asset class. Pre-owned Rolex prices have outpaced the S&P 500 over the last five years. The Patek Philippe Nautilus 5711 lists at retail for around $35,000 and trades on the secondary market for $150,000 to $250,000 depending on the year and condition. That kind of resale dynamic doesn't exist anywhere else in consumer goods at this price point.

Part of that is genuine supply constraint: Rolex makes roughly 1 million watches a year, demand has been higher than supply for the popular references for most of the last decade, and the brand has been deliberate about not expanding production to meet it. Part of it is laundering and a real influx of speculative money, the same forces that drove sneakers and graded baseball cards to similar resale curves. The mix of those two things is debated; the resale prices are not.

What This Means for a Buyer in 2018

If you're buying a watch as a tool, an Apple Watch is the right answer. It does more, it costs less, and it's better at the only thing both products are still being asked to do. If you're buying a watch as jewelry, the question shifts to the same one you'd ask about any piece of jewelry: do you like wearing it, is the price reasonable for the craftsmanship and brand, and does the resale value matter to you. Mechanical watches answer those questions well. Smart watches don't, and won't, because the underlying chip ages out in three years and the secondary market knows it.

The honest take: most of the watches sold in 2018 will be smart, most of the watches still being worn in 2030 will not. Old watches aren't a thing of the past. They're a thing whose function has been cleanly carved away from their cultural role, and the cultural role is what the buyer in this category is actually paying for.