While it’s obvious that every industry has its inherent issues, luxury watch industry today has been to many observers - including myself - a mystery. For me, it’s clearly ripe for economists to prove or disprove new economic theory of consumer behaviour as well as manufacturer or supplier behaviour.

But rather than bore you with my views about how oddly irrational consumer and supplier behave towards what appears to be common goods which are made by the hundreds of millions (I think a great degree of this success is due to very effective marketers – who really deserve awards for their success) – I would like to comment on a very controversial aspect of watch collecting.

This is the issue of the ever escalating cost of watches versus the capability of high horology watches retaining its purchase value. Serious collectors know that respected high horology with complications is critical for purchases to retain or even appreciate in value. The logic here is at least is simple – or so it seems. Well made watches with complications take a lot more effort and resources to be made. Thus as a general rule, fewer are available.

Once a respected expert said to me some years ago, that making watches is a laborious process that requires labour intensive skills to fabricate, polish and assemble a tiny machine. He also informed me that the supply of such high skills is in fact very low and that in time, the low supply of such skills will cause the inflation of prices of the more labour intensive watches – i.e. the highly finished pieces such as Dufour or Lange – or the super complications. As supply of such skills is low and will continue to remain low but cost and wages will continue to rise, prices of rare and complex pieces will always continue to rise. This view is supported by a report by EuropaStar – “Who is going to service these watches?”

Unlike economic goods where prices are dictated by the equilibrium of demand and supply, luxury goods appear to be the exception to the norm. Very expensive timepieces continue to be inflated – or “adjusted” - over a short period of months but yet many still are sold. The amazing upside to this effect is that with frequent price adjustments upwards of timepieces, recently acquired pieces of the same model enjoy price appreciation – well at least on paper. This is what I call “luxury goods price inflation effect” or LGPIE for short.

So it is not uncommon for a collector to buy a rare or special timepiece today and expecting to sell within 6 to 12 months either at the same price or slightly more.

The LGPIE effect however is seen only on some timepieces (emphasis on 'some'). However, collectors are secretly thinking that the new piece they ordered or just bought will behave just like that. To me, the probability is low to very low that the watch just bought will behave like that. My suspicion is only a few will benefit from the LGPIE effect.

The positive effects of the LGPIE, to me is negated by the increased production numbers despite the fewer skilled labour supply. See the report here by the Federation of Swiss Watch Industry. Although the increase in number of production is not great, the issue is that production numbers has not dropped despite the concern about skilled labour supply. The report here states the facts but the key is - perception. I think marketers have been extremely successful in conveying the image of exclusiveness and rarity of their timepieces.

Will this knowledge stop me from high horology? Unlikely, serious watch collectors consider the retention of value – especially over the short term – as a low secondary factor of choice.

This post is just my convoluted way of saying, be careful of what the marketers want you to see or believe AND be aware or observe how long the LGPIE can go on for watches as a whole.