<![CDATA[Horolonomics]]>

<![CDATA[Horolonomics]]> Follow Horolonomics, filter it, and define how you want to receive the news (via Email, RSS, Telegram, WhatsApp etc.) https://follow.it/horolonomics Wed, 22 Mar 2023 10:42:55 +0200 <![CDATA[2022 FinancialSwatch]]> https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwUW0mF20hDwR3CrAHWlao0B I spent some time reviewing the Swatch Group 2022 Annual Report recently. To be more specific, I jumped into the financial statements and, by and large, skipped over the larger narrative in the 244 page document. That narrative is undoubtedly interesting, but sometimes a narrative distracts from the message sent by the numbers in various tables covering asset, liabilities and related financials. And, those numbers are actually audited by outside parties. The wordsmithing in a narrative doesn't necessarily have to follow requisite standards.

The box of a MoonSwatch, showing iconography used on the crown.

Overall, the financial picture looks good for Swatch Group. The company increased its dividend, which they wouldn't do if there were a crisis. Net sales increased by roughly CHF 140 million and almost all of those net sales benefitted the Swatch Group bottom line. The operating result (one measure of profit) increased by CHF 115 million. In addition, this operating result was a larger portion of net sales, going from 15.9% in 2021 to 17.2% in 2022.

A fair bit of this result is likely attributable to MoonSwatch. Some reports indicate that over 1 million MoonSwatches have been sold. With a retail price of CHF 250, it is at least plausible that MoonSwatch revenue of CHF 250 million generated a big chunk of Swatch Grouop's overall CHF 115 million improvement in operating results. Put another way, I'm sure the Swatch Group is glad they avoided the branch of the multiverse in which they did not introduce MoonSwatch.

Here are a few other things from the financials that jumped out to me:

Hedging

Swatch Group reports that it held CHF 847 million in forward currency contracts in 2022. This signals that management has a careful approach to financial management. Earning different currencies from around the world can expose an organization to significant currency risk. For example, if Swiss currency were to gain value against a wide range of other currencies, then (on the spot market) those currencies would yield fewer francs, which would make it much more difficult to pay franc-denominated bills. Swatch Group is well-hedged, or insured, in this regard. Around 69% of the company's forward contracts are denominated in euros and the US dollar. We can also view these euro contracts as the cost, to Swatch, of Switzerland not joining the euro.

Poof: Current Financial Assets

In 2021, Swatch Group held CHF 388 million in "current financial assets." This is one part of the group's liquidity, or "cash on hand," that it has available to pay bills. At the close of 2022, this balance was zero. If I were a shareholder (full disclosure, I'm not), I would be curious about this development. The good news is that it looks like Swatch Group paid off a lot of debt in 2022 (current financial debts dropped from CHF 98 to 8 million). So there is some chance this liquidity shift was tied to a reduction in borrowing. Cash and cash equivalents did increase, so I tend to believe the company was simply using slightly less liquid assets to build cash and pay off debt. Overall, that arguably increases the group's liquidity.

All Hands on Deck

My Hodinkee X Swatch Sistem51 Blue Edition

In 2021, Swatch group booked CHF 61 million in "short-time work allowances." According to ch.ch "If [a] company is temporarily in financial difficulties, [it] can reduce or totally suspend the work of [its] employees without having to lay them off" via the short-time work allowance program. Apparently, Swatch group made use of this option in 2021 and it cost them a fair bit. In the 2022 finanical report, Swatch group booked only CHF 1 million in short-time work allowances. This means the company was much more appropriately sized in 2022 compared to 2021, which is no doubt a welcome development for the group. Given that the company employed roughly 600 more workers at the end of 2022 (compared to year end 2021), it seems Swatch set goals that required an expansion of its workforce. The report also notes that just over half of its employees are women (I should note that the headcount figures are unaudited).

Hurray for the Red, White and Blue

Swatch group sales expanded at a fast rate in America, growing by 27% year on year. "Oceania," grew by a whopping 38% year on year, the largest expansion of any region in the report. Sales in Europe grew by 20%. There was some bad news in the largest market of all: Asia. There, sales decreased by roughly 9%. It remains to be seen if this region will rebound now that covid restrictions have seemingly eased there.

Clouds on the Horizon?

Swatch group registered an 8% inventory increase between 2021 and 2022. This is a fairly sizeable buildup in a short period of time. It is equivalent to more than CHF 450 million. A prior report seemed to suggest that this buildup of inventory was related to acquisition of raw materials in anticipation of future production. However, the 2022 financials suggest that a little over half of the new inventory, by value, was attributable to semi-finished and finished products. It remains to be seen if this is simply new product that the group properly anticipates selling in 2023 or whether it is unsold product from 2022 that has not found a home on wrists. This development is clearly something to keep an eye on as Swatch group releases interim reports in 2023.

Conclusion

The numbers suggest that Swatch Group had a good year in 2022. They employed more people, did not lay off many of those who were employed, saw a meaningful improvement in operating results, and increased their liquidity by reducing debt and increasing cash on hand. There are some reasons for the group to be optimistic given the potential for recovery of demand in Asia. There are also many opportunities to succeed with new releases this year, such as those associated with the Blancpain Fifty Fathoms 70th anniversary. However, given an upswing in inventory, the group should be somewhat cautious. Of late, there has been uncertaintly in the banking system, an uncertainty that has touched Switzerland itself. The watch industry isn't necessarily adversely impacted by such uncertainty, but it does suggest that caution may be the right approach in 2023 (for Swatch Group and others).

My book on the history of Rolex marketing is now available on Amazon! It debuted as the #1 New Release in its category. You can find it here.

You can subscribe to Horolonomics updates here.

]]> Tue, 21 Mar 2023 16:20:52 +0200 https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwUW0mF20hDwR3CrAHWlao0B <![CDATA[Fifty Fathoms Anniversary Act II: the Tech Gombessa]]> https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwX0AgM0BtZH-nHnycKeoCpf Although there are still some who debate the point, much evidence suggests that the first watch to check the requisite boxes for scuba diving (rotating bezel, luminous material, automatic winding and, obviously, significant water resistance) was the Fifty Fathoms introduced by Blancpain in 1953. This year marks the 70th anniversary for the watch and we’ve already seen “Act I” of a commemorative sequence of watches. In early February, a limited series of 210 watches with special dial marks (reading “70th Anniversary” and the series number of the watch) was introduced, 42mm in size.

Panelists at the Blancpain preview event earlier this week.

Earlier this week, I joined a number of guests at the Blancpain boutique in Manhattan for a preview of the Fifty Fathoms “Act II.” The event was truly global, with participants “tuning in” to a live stream featuring five hosts. Marc Hayek (Blancpain CEO and President) and Marc Junod (VP and Director of Sales) broadcast from Switzerland while Jason Heaton (writer and diver), Laurent Balessa (Gombessa Foundation Founder and Leader) and Tatiana Boube (Mokarran Protection Society Science Coordinator) joined in from Rangiroa, French Polynesia. This last location looked, frankly, like a tropical heaven on Earth.

By way of watches, I didn’t know what to expect from the gathering. The invitation card featured the partial arc of a dive watch bezel but the markings were truly baffling.

A teaser graphic sent by Blancpain ahead of the event.

At the spot usually reserved for a 10 minute elapsed time marker, there was a 30. At what is traditionally tge 50 minute marker, there was a 2:30. I guessed that this was, potentially, some indicator for a chronograph counter that ran at a different frequency than usual. This guess, it turns out, was somewhat close but also quite inaccurate. I’ll return to this in a bit.

Before getting into the specifics of the watch release, let’s revisit the “origin story” of the Fifty Fathoms. As captivatingly told by Jeff Kingston in a legendary HSNY lecture, in the very earliest days of scuba diving, Blancpain CEO Jean-Jacques Fiechter ran out of air while submerged in the Mediterranean. This spurred him to design a watch he could dive with that would reliably help any wearer track elapsed time.

In the modern era, Blancpain is still actively involved with the diving and marine science community in a variety of ways.

Details of the Ocean Commitment work with Great Hammerhead Sharks (on display at preview event).

In particular, through its Ocean Commitment program, Blancpain has sponsored at least five Gombassa Expeditions featuring technical, scientific and artistic goals achieved alongside highly technical ocean diving. The lead in these expeditions is Laurent Ballesta, an expert diver and photographer. What was particularly interesting about the Fifty Fathoms watch officially released by Blancpain today and previewed on Monday was that Ballesta’s participation in development of the watch echoed the origin story of the Fifty Fathoms itself.

More specifically, as a consequence of his dive experiences, Ballesta realized there was a function that was missing from timekeepers. In this case, the function is unique to modern, technical diving. But the method for developing a solution was quite similar to Fiechter’s own approach in the 1950s. Diving activity provided the parameters of what a watch should deliver and watchmakers spent a fair bit of time working out how to deliver that function. According to Ballesta, it took five years for Blancpain to onboard a new checkbox for a dive watch and deliver it to market with the box checked off. So, let’s talk a bit more about the watch.

The Blancpain Fifty Fathoms 70th Anniversary Tech Gombessa

My first good look at the Blancpain 70th Anniversary Tech Gombessa

The watch released today is the Blancpain Fifty Fathoms 70th Anniversary Tech Gombessa. The Fifty Fathoms hallmarks are all there in the timepiece. Arabic hour markers sit at 12, 3, 6 and 9. The diamond lume pip lives inside a curved unidirectional bezel. The script marking “Fifty Fathoms” is located at 6 o’clock on the dial.

A few new features jump out, though. The first of these is Blancpain’s choice of an orange hue for the hour and minute markers on the dial. This color carries through to the hour and minute hands as well as the word “Tech” presented just above the 6 o’clock marker. My guess is that these watches will be very well received in The Netherlands, where orange is the national color. If this is intentional, it is a wise choice. According to FH export statistics, The Netherlands was the 14th largest importer for Swiss watches. The country also punches above its weight: adjusted for population, it is the 10th most important market for Swiss watches.

The Blancpain Fifty Fathoms Speed Command in orange. Photo credit Phillips Auctions.

The avid Blancpain collector will note that the Tech’s dial furniture color is reminiscent of certain references from the aughts. In particular, the Fifty Fathoms Flyback Chronograph Speed Command (reference 5785F-11D03-63A 578511d0363a) has a similar orange flair. Other references from this period also featured bold coloring in dial elements, such as the L-evolution series.

The most unique feature, by far, is the watch’s fourth hand, which the brand refers to as a “three hour” hand.

A graphical display of the Fifty Fathoms Gombessa Tech. Note the 3 hour hand pointed just short of the five o'clock marker. In this case, if the wearer were timing an event that started when the 3 hour hand was pointed at 12, almost one hour and fifteen minutes would have elapsed.

Here, we see the influence of Laurent Ballesta in the design of the watch. Ballesta and his crew of divers use “closed circuit” systems while submerged. These employ chemicals to remove carbon dioxide from exhaled air and inject oxygen to replace any that is lost to metabolism. As a result, they do not create any bubbles which, in turn, offers advantages for observing wildlife. Ballesta shared that tracking three hours of elapsed time is particularly useful for diving with rebreathers since that is the envelope typically recommended for the closed loop system he uses. He also noted that, after three hours, exhaustion and cold begin to set in and it is usually time to end a dive. This is the major new complication in the Tech Gombessa watch. The three hour hand is geared to the minute hand, but it only completes a full rotation after three hours. In order to track a long event, you rotate the bezel so that the diamond pip aligns with the three hour hand. If you want to know how much time has elapsed, you simply read off the mark on the bezel that the three hour hand points to. This solved the mystery of the “30” and “2:30” markers on the bezel that I described earlier. The scale on the Tech Gombessa bezel differs from incumbent designs because the relevant hand does not complete a full rotation in one hour.

Although this new complication is handy for technical diving, it is also helpful for timing any event lasting three hours or less. The list of possible events is long, but examples include a movie (except for the longest) and, in my case, my classes (which are typically not more than two hours).

A wristshot of me wearing the Fifty Fathoms Gombessa Tech.

The three hour timing function may also be useful for flights which are on the shorter end. Also worth emphasizing is the Tech Gombessa’ integrated rubber strap and lugless design (the strap is affixed to the wrist with a traditional buckle and tang system). In some ways, the Tech’s strap system reminds me of vintage “disco volante” designs in which the strap can come closer to a closed loop because it isn’t limited by the length of the case. Now, I’ve made my own fair share of jokes about the hackneyed “it wears smaller” claim. But I’m really being honest here: this design works and makes the 47mm watch wearable. I recently purchased a surplus milspec “SOPMOD2” digital quartz watch which is quite oversized compared to your standard Casio. My watch is only 4mm larger than the Tech Gombessa, but the lugless design of Blancpain’s offering makes it feel like my SOPMOD2 is approaching 60mm in comparison. Take a peek at the wrist shot here, you can judge yourself. The use of titanium for the case also helps with wearability by reducing the heft of the timepiece.

Just a few additional items of note when it comes to the Tech Gombessa.

The Gombessa Tech's movement and skeletonized rotor, as seen through the display caseback

First, there is no date window (a complication that many would rather not have on a dive watch anyway). The display caseback provides visual access to the movement, which features a skeletonized rotor emblazoned with the Gombessa Foundation’s iconography. There is a helium escape valve near 10 o’clock. Three barrels in the movement supply a lengthy five day power reserve. Luminous material provides legibility in low light conditions. For price, we heard the watch was available at CHF 26,300 with VAT included.

Wrapping Up

The Blancpain Fifty Fathoms 70th Anniversary Tech Gombessa celebrates Blancpain's tradition of molding dive watch design in response to real-world diving experiences. In this case, it was the needs of closed circuit diving which inspired the addition of a new three hour hand complication. Interestingly, another recent release of the Fifty Fathoms was also inspired by closed circuit diving. Blancpain’s 2019 Nageurs de Combat Automatique, released in celebration of French Navy combat divers, features a barely perceptible black “7” numeral printed on the dial just above the six o’clock position. Covert military divers often use pure oxygen rebreathers, but these systems are not safe at a depth greater than 7 meters. This explains the decorative element on the Nageurs de Combat.

We see, then, a theme developing when it comes to the evolution of the Fifty Fathoms. Divers are now regularly pushing the frontier of the kit they use in order to achieve different goals and objectives underwater. In response, Blancpain has synchronized the development of the Fifty Fathoms with the emergent needs of the dive community. The Fifty Fathoms 70th Anniversary Tech Gombessa is the latest, but not likely the last, example of this design strategy.

Lovell Hunter, founder of Love Hunter Watches.

What came across in our conversation, though, was an unspoken impression that I think bears emphasis: watchmaking is a profession that many thoughtful people, and their families, have depended upon for many decades.

This perspective is also grounded in a somewhat recent development on the world stage. On December 12, 2020, the United Nations Educational, Scientific and Cultural Organization (UNESCO) formally added craftsmanship of mechanical watchmaking and art mechanics to the list of intangible cultural heritage. While the proposal for this adoption was spearheaded by Switzerland and France, their nomination form noted “artisanal watchmaking production does exist elsewhere in the world.” Indeed, if you’re deliberate in following Instagram tags on pictures of unfamiliar watches, you might find they are the product of a craftsperson in Eastern Europe, Canada, Germany, Australia, Japan or China.

Thomas Harland's shop in Norwich, CT. Source: *Old Houses of the Antient Town of Norwich, 1660 - 1800. Available here.*.

Artisanal watch and clockmaking also once found a home in Connecticut. English clockmaker Thomas Harland settled in colonial Norwich, Connecticut in 1773 and set up his workshop. He advertised production of clocks in cherry and mahogany cases, as well as enameled and “silvered” clock faces. One of Harland’s tall clocks from 1775 is on display with the Metropolitan Museum of Art in New York City while another example sold for $36,800 at auction in 2018 (granted, some of this price is explained by a woven newspaper dated 1785 held within the clock’s cabinet). Harland’s success allowed clock and watchmaking to bloom in Connecticut. By 1844, traveler G. W. Featherstonhaugh wrote, “In Kentucky, in Indiana, in Illinois, in Missouri, and here in every dell in Arkansas, and in cabins where there is not a chair to sit on, there was sure to be a Connecticut clock.” Recent reports suggest that there are still locations in a former clock factory which set off a Geiger counter, marking the location where luminescent radium was applied to dials many years ago.

The Path to Watchmaking

Let’s return to my discussion with Lovell, who recently launched his own independent brand called Love Hunter Watches in Connecticut. Lovell grew up in the Melrose Projects in New York City’s South Bronx. He shared that, in his early years, he was fascinated with geology, the solar system, and the heavens. For Lovell, the launch of the Hubbell Space Telescope was a particularly momentous event. He enjoyed disassembling mechanical devices in his youth, although he admits that reassembly was sometimes a challenge. Lovell also has fond memories of his fascination with a Casio calculator watch from those years.

Lovell’s father worked in the fashion industry. As many parents do, he offered a thoughtful suggestion of a possible career path that might resonate with his son. He told Lovell about watchmaking as a career and shared some details about what that job entailed. Subsequent events would show that Lovell’s Dad demonstrated keen insight when he realized how his son’s interests were natural compliments to horology.

In high school, Lovell began working for Tiffany’s in Manhattan. In most jobs, there really is not a great substitute for experience. The fact that Lovell began accruing experience in the fine jewelry industry before he reached adulthood has undoubtedly provided him with insights and skills which have stood the test of time.

A prototype baseplate machined by Lovell Hunter.

Following Tiffany’s, Lovell began working at the Tourneau watch retailer on 57th Street. He spent five years in sales and one year in management. Eventually, the call to deepen his understanding of watchmaking was too strong to resist. He enrolled as a watchmaking student in the Lititz Watch Technicum in Lancaster County, Pennsylvania. There, he completed a school watch. Through work on this pocket watch, Lovell gained experience with case-making and dial fabrication. Following graduation, he spent roughly ten months developing movements on paper.

Subsequent to Lititz, Lovell relocated to Connecticut and joined the watchmakers at Breitling’s service center. He mastered incredible challenges, such as servicing a Breitling perpetual calendar with 415 distinct parts. However, the routine of servicing watches did not provide Lovell with the opportunity to employ many of the skills he enjoyed developing in watchmaking school. He shared that the challenge of the job had largely disappeared. At some point, Lovell became uncomfortable referring to himself as a watchmaker.

Becoming Independent

A screenshot from a broadcast interview with Lovell Hunter. Source: WTNH.

Just after 2019, with the onset of the pandemic, Lovell took his first, bold, steps on a new career path. He began finding and acquiring machinery for his own workshop. Lovell acknowledges that without the care and support of family and friends, the effort may have been insurmountable. He related how his community helped him bring two key pieces of equipment down stairs leading into his workshop. They were angled at a steep 60 degrees. Lovell’s Schaublin 70 lathe weighs 750 pounds while his Schaublin 102 weighs 1650 pounds. It required some creative and skilled rigging to set up the machines in their designated locations. An electrical rewiring project was part of the effort.

Even in conversation on the phone, you can sense Lovell’s happiness and fulfillment when it comes to these efforts. Lovell’s design aesthetic draws from art deco and art nouveau styles. I’d seen a photo of one of his watch prototypes in a local newspaper (which was how I first learned of his work) and I suggested that it was reminiscent of Daniel Roth. Lovell replied “ahhh, now I know you know watchmaking,” while confirming that he found inspiration in that great watchmaker’s achievements. He is fond of using German silver for his mainplate. Lovell uses the same material for construction of finger bridges, a mechanical element which serves as an homage to traditional watchmaking.

A design schematic for Lovell Hunter's click system. Source: Lovell Hunter.

Lovell is currently completing his first commissioned watch, which he plans to deliver in the near future. Through work on this inaugural timepiece, Lovell has streamlined the process for making parts for his movements. For example, the design schematic presented here shows how six copies of a component in Lovell’s click system can be machined at the same pass. The result of a machining run can be seen in the next picture, where the six components have been milled on the end of a piece of bar stock.

Machined compenents for Lovell's click system. Source: Lovell Hunter.

This work shows that Lovell is developing his processes in a manner that allows for a certain degree of scale efficiency in production. This augurs well for the sustainability of his fledgling brand. Challenges certainly remain. For some measurements, Lovell must work in imperial while in others he switches to metric. We shared a laugh over the fact that such conversions have caused difficulties for NASA in the past.

I asked Lovell about his experiences with inclusivity in the watch industry. He specifically cited Audemars Piguet’s partnerships and collaboration with Jay-Z as a moment in industry history that inspired him greatly. Lovell shared that, in his view, this bold step towards improving representation in the watch industry was a key component to the brand’s success. It is said that inadequate inclusivity hurts everyone involved, both those excluded and those excluding. From this perspective, brand partnerships with individuals from under-represented communities are in the financial interest of brands themselves. The challenge to improve inclusivity is great. To the extent that watch brand employees from Europe, for example, operate in the United States, those employees are doubly challenged with addressing an unfamiliar market while at the same time implementing inclusivity within a similarly unfamiliar culture.

Alongside practicing his craft, Lovell is committed to transmitting his skills to the next generation. He presently teaches at a local high school and community college so that others can learn more about watchmaking. From this perspective, Lovell’s commitment to horology connects directly to something mentioned above: the official arrival of watchmaking as part of the world’s intangible cultural heritage. Through design, manufacturing and communication, Lovell Hunter is enlivening Connecticut’s long, but interrupted, contributions to horology. He is creating a new legacy for horology in America.

If you would like to communicate with Lovell Hunter about his watchmaking, you can reach him at lovellhunter1@gmail.com . You can find video of an interview with him broadcast in Connecticut here.

Kari Voutilainen, center facing, lecturing at the Horological Society of New York on February 13, 2023.

I was on the fence about whether I would attend, but I still have regrets about missing François-Paul Journe's lecture a few summers ago. If there is a pantheon of present-day traditional, independent, artisanal watchmakers, both Journe and Voutilainen are almost definitely members. Moreover, I've been priviledged to see Voutilainen's work "in the metal" more often than almost any other living master independent watchmaker. So, after lecturing four hours in the morning, I made the trip to Manhattan. I wasn't going to regret missing this one.

The Zenith X Voutalainen X Phillips watch. Dial side (top) caseback (bottom).

The room was packed. Earlier in the day, an email request went out: 60 people were on the waiting list to attend, so those with a last minute cancellation should notify the society. I arrived early in order to get a decent seat and this gave me a chance to catch up with a few members of the community. Looking around, I recognized the US CEO of a major watch brand in attendance, which erased any doubt that this was an important moment for many.

Only a few minutes into M. Voutilainen's delivery, I took out my phone and spontaneously began typing notes. The lecture will be available on YouTube in the not-too-distant future, so I will not offer an exhaustive recap of those notes. Rather, I would like to share a few points that I found particularly important and offer some reflections on those points. So, let's get to it.

Guilloche Bottleneck A number of collectors I highly respect have started bemoaning the proliferation of stamped guilloche dials. In short, this practice involves taking the hand out of handcrafting and raises the question "does a dial manufactured at high speed by a Bruder Swiss metal press (for example) really justify a five figure price tag?" Voutilainen offered some insights into why hand guilloche is in retreat.

A Voutilainen "28Pi Proto" at a Phillips auction preview. Dial side (top) caseback (bottom).

He shared that, of late, there are only two independent workshops that offer handmade guilloche meeting his standards. That is a pretty slender reed carrying the weight of an industry (in fact, Voutilainen related the story of an intermidable and problematic delay in dial delivery). Any time Voutilainen went to buy a rose engine so that he could produce dials "in house," he was outbid by the Swatch group. It is likely that Swatch purchases these machines for one of its brands, Breguet, who produces a fairly large volume of watches with traditional guilloche dials. Fortunately, Voutilainen purchased one of the two aforementioned guilloche workshops when it closed down. Let's hope many brands will be able to place dial orders with a Voutilainen workshop in the near future.

Cash Capital is Best Capital Voutilainen shared observations, made throughout his career, on the fate of other independent watchmakers who borrowed financial capital in order to fund their brand. He also shared that he witnessed watchmakers struggle and perhaps fail as a consequence of this decision. Voutilainen never specifically said that he funded his machinery and equipment with his own personal savings, but I was left with this impression. Borrowing comes with strings, and that means someone is at the end of those strings and that person may pull you about. Without "liberty of the creation," in his words, an independent watchmaker might struggle to reach their full potention. Self-financing is no easy feat, though. Voutilainen shared that he worked long, long hours in order to get his businesses underway. In addition to his full-time watchmaking job for other brands, such as Urban Jurgensen and Parmigiani Fleurier, he operated his own workshop "after hours" in order to independently craft watches. Freedom from borrowing that Voutilainen enjoyed came with a price.

Two Voutilainen watches that were on display for Watchtime 2022.

Less is More For collectors, scarcity is never a straightforward situation. Its byproduct is often lengthy, or perhaps closed, waitlists. Voutilainen made it clear, though, that he does not intend to increase production volume from its present 40-70 watches per year. The reality is that traditional artisinal craftwork does not scale well. It typically requires costly expansion of a workshop, hiring more watchmakers with exceptional skills, and acquiring more machinery. For Voutilainen, there is the added complication that he recently assumed the role of CEO for a second brand: Urban Jurgensen. From this perspective, his workload has already increased significantly despite the fact that workflow from his eponymous brand is in a steady state.

The upside to pegging production at its current volume is that Voutilainen's watches can continue to deliver high craftsmanship without cutting corners. For example, he shared that many "blue label" brands polish the ends of pivots using a ceramic disk. Such work is effective, but burnishing the end of the pivot involves working the metal more and strengthening it. Using a more time-consuming technique provides an end result which will last longer. Indeed, Voutilainen shared that he regularly delivers watches and doesn't see them return for service or adjustment for many, many years.

In summary, Kari Voutilainen's career accomplishments are the product of passion and tireless dedication to craft. It is due to watchmakers with his ethos that traditional watchmaking techniques survive and, from a certain perspective, thrive today. In my next post, I will share the story of another watchmaker who is, in many ways, a "kindred spirit" to Voutilainen. He was actually in the audience during Voutilainen's lecture and shared that he appreciated some "encouraging points" from the discussion. Keep an eye out, I will share that story in the next day or two.

An inflatable rat in front of a Rolex property in New York City, source: Google Maps.

While following up on a recent Instagram post, I spent some time reviewing properties owned by Rolex in the New York City metropolitan area. One property, in particular, caught my interest because it seemed to be "off the beaten track." In order to learn more about it, I used street view in Google Maps to access some pictures of the building. As I virtually strolled down the middle of the street, I approached the building's main entrance. Surprise doesn't even begin to describe my reaction when I saw an inflatible rat positioned on the sidewalk facing the door.

This thing was big, maybe 12 feet tall. A carnival-esque rodent was the last thing I expected to see near the entrance to a Rolex building. There were three people standing nearby, one wearing something like a construction hat. Having seen a number of labor-related demonstrations in the recent past, my gut told me this may explain the street view picture. Then, I started asking myself which employee union would set up a demonstration like this. I didn't think it was likely that Rolex employees would engage in this kind of public demonstration. The organization has rightly earned a reputation for cautious inscruitability.

Two inflatable rats in front of a Rolex Authorized Dealer in New York City, source: Reddit user five_now_dog_five.

After a little more digging, I found that this was not the only Rolex location visited by billowing rodentia, figures that are sometimes called "Scabby the Rat." On July 12, 2022, in the "nyc" subReddit, user five_now_dog_five posted a photo taken outside the relatively new Rolex boutique in the Meatpacking district. There, not one but two inflated rats were positioned on the sidewalk. One faced the entrance and the second faced a display window. The plot had definitely thickened.

A Facebook post by Laborers' Local 79 showing a "die-in" by apprentices.

Soon after reviewing the Reddit thread, I found the origin of these blow-up sidewalk spectacles: Construction and General Building Laborers’ Local 79. This union represents various construction trades in the five boroughs of New York City. On Facebook, they shared a number of posts regarding demonstrations they'd made at a Rolex property beginning in late July, 2022, including a "theater action" die-in carried out by apprentices. On Twitter, the account local79nyc shared graphics of two slogans reading "Time is up! It is time to do the right thing, Rolex!" and "Worker dignity is not a luxury! Shame on Rolex for allowing the exploitation of construction workers at their new Manhattan headquarters!"

This last slogan pointed toward an explanation for the demonstrations.

A Facebook post by Laborers' Local 79, Scabby making a rather choice hand gesture.

Demolition is presently underway at 665 Fifth Avenue, which is the address of Rolex's 12 story Manhattan headquarters. The brand is building a new headquarters that will scale to 25 (or perhaps 28) stories. Demolition and construction of such buildings is a daunting enterprise typically involving multiple parties such as an architect, engineers, a general contractor and subcontractors. It is likely that Laborer's Local 79 was demonstrating because Rolex's general contractor has hired "open shop," or non-union, subcontractors to work on the building project.

In general, Rolex's modern approach to corporate responsibility is commendable. The brand sponsors various arts enterprises. Luca Bernasconi, President and CEO of Rolex Watch, USA, has reportedly stated that the new building will be eco-friendly and energy-efficient. The brand's charitable branch funds additional environmental initiatives through its Perpetual Planet program.

For these reasons, reliance on non-unionized labor for construction of Rolex's new headquarters is a bit of an ethical outlier. Unions, and organized labor, are not presently very common in the United States. The Bureau of Labor Statistics reports that, in 2021, only 10.3% of the workforce was unionized in America. From this perspective, Rolex's reliance on non-unionized construction workers is basically consistent with most American business practice.

However, the tides are presently turning. Gallup reports that unions are at their most popular level in the United States since 1965. There is also a serious ethical question regarding how multinational organizations approach their foreign subsidiaries. One philosophy is "when in Rome, do as the Romans do," which would suggest non-unionized labor on the New York project is reasonable. An alternative approach would be a sort of "golden rule" in which a business would "do to others as it would have done unto itself." From this perspective, the fact that an estimated 75% of the watchmaker workforce is unionized in Switzerland suggests that Rolex should be more disposed towards unionized workers on its construction project in the United States.

There are important upsides to using organized labor on a New York City construction project. This type of work is dangerous. Convincing empirical evidence suggests that when there are unionized workers on a construction site, that site is safer. This is not a purely theoretical question. Since March, 2022, the New York City Department of Buildings reports that the Construction Safety Enforcement Inspection Unit has delivered $37,500 in penalties from construction violations at 665 Fifth Avenue. The NYC Department of Buildings also reports one worker on the project was injured from a piece of debris while a second sustained a burn injury. It may very well be the case that, even after accounting for these costs, Rolex has reduced its expenses by using non-unionized labor on the construction site. However, this is the kind of detached, money-driven accounting we more usually expect of profit-oriented enterprises. Rolex is famously owned by a charitable trust, suggesting that unsympathetic bottom-linery is not really necessary.

I've reached out to both Rolex and Local Laborers' 79 in order to learn about their more recent perspectives. They haven't had much time to respond, but if I do learn anything from either I will share more here. I'd like to wrap up this post on a lighter note. As is often the case on Reddit, the thread describing Scabby's trip to the Meatpacking AD contained a fairly humorous take offered by user dbetts77. They wrote, "pretty sure both rats will get a Batman before I do."

A picture I took of a 1992 Patek Philippe catalogue

Let's get the potentially controversial part of this out of the way: Ellipse is a misnomer when it comes to the Patek Philippe references 3788, 3930 and related versions. More specifically, the watch case in these designs is not rendered in the geometrical version of an ellipse that is frequently taught in high school. I'm honestly a little embarrassed to have only recently come to this conclusion, but geometry was never my strong suit. I won't take all the blame. In most discussions of the Ellipse (the watch), inevitably the "golden ratio" comes up. I think I was distracted by that, because the golden ratio is a pretty interesting topic. Nevertheless, I'd like to set the record straight, or at least straighter, with this post.

An ellipse is basically an oblong shape.

The Ellipse in Washington, DC, a grass area in President's Park.

Compared to a canonical ellipse, the Patek Ellipse has sides that are too straight leading to "corners" that arch too quickly. Real ellipses are also defined by an equation, like:

x^{2} + {(\frac{y}{2.75})}^{2} = 1

A graph of this equation is below.

As I'll show in just a bit, the case profile of the Ellipse watch is also defined by an equation, but it is meaningfully different from an actual ellipse. The Cartier Bagnoire is much closer to an ellipse than the Patek Ellipse.

I came to this realization after flipping through the pages of a 1992 Patek catalogue I received as a holiday gift.

Another picture of a page from the 1992 Patek catalogue.

There, I saw a designer's drawing of the Ellipse watch, which I share here. I'd never seen this drawing before. It features a crosshair at the center surrounded by four overlapping circles. I later learned that these four overlapping circles are called a quatrefoil, a shape that is important in a number of religions. Some claim that in Christianity it represents the four gospel authors in the Bible. The design also appears in mosques. Van Cleef and Arpels famously adopted a quatrefoil in their Alhambra bracelet.

I spent a bit of time trying to figure out how a combination of the quatrefoil and the golden ratio could result in the case design we find in the Ellipse.

Example of a cloverleaf highway design in Michigan, US.

That effort, by and large, went nowhere. I will note that the quatrefoil drawing presented in the 1992 Patek catalogue does lend credence to the claim on John Riordan's Collectibility that one possible designer of the Patek Ellipse was inspired by the interwoven "cloverleaf" offramp pattern frequently featured on American highways.

I began to turn my attention away from the quatrefoil / golden rule and started concentrating on the end result of the design.

A very early tube television, image rotated 90 degrees. The design similarity with the Ellipse watch is clear.

The Ellipse is basically a rectangle with rounded corners and curved edges. The shape was vaguely familiar. It looks like a very early tube television. In fact, some software refers to this design as the "TV Screen Shape." Eventually, I identified the actual shape of the Ellipse because I'd discussed it in an earlier post on the shape of wrists. It is a Lamé Curve, also known as a superellipse.

Gabriel Lamé was a 19th century mathematician who made significant contributions to the field of partial differential equations.

A Patek Philippe Ellipse ref. 3748 (L) and Hein's Sergels torg in Stockholm (R).

In 1818 he offered the first known analysis of his eponymous curve, which was later dubbed a "superellipse" by Dutch polymath Piet Hein. In 1959, planners in Stockholm, Sweden held a competition for the redesign of a downtown public square. Hein's proposal for a Lamé curve (superellipse) fountain won the competition. The fountain stands to this day (see photo). It bears a striking resemblance to the Ellipse reference 3748, in which diamond hour markers evoke the circular "windows" at the base of Hein's fountain.

Interestingly, it is entirely possible that Patek's Ellipse designer was inspired by Hein's fountain, rather than the golden ratio. The timing is consistent. Hein's design was presented to Stockholm planners in 1960. The Patek Ellipse debuted in 1968.

Regardless, once I realized the Patek Ellipse followed a Lamé curve (superellipse), I decided I'd try to "reverse engineer" the equation behind the Patek Ellipse case. Here is what I settled on:

{|\frac{x}{2.4}|}^{2.617} + {|\frac{y}{2.75}|}^{2.617} = 1

In the image presented here, you can see that the gaph of the above equation matches a photo of the Patek Ellipse almost perfectly.

A graph of the equation defining the shape of Patek's Ellipse (L) and the graphed equation overlaying a Patek Ellipse (R).

You can also see that the actual equation for the Ellipse watch is meaningfully different from the ellipse equation I presented earlier. Interestingly, we now know exactly where the golden ratio fits into the design of the Patek Ellipse. If you look in the exponent of the equation just above, it rounds to 2.62. This is one plus a rounded value of the golden ration (1.62).

It appears that marketers may have enjoyed some unconstrained freedom when naming and describing the design of the Patek Philippe Ellipse. Precision is important in engineering and horology, but calling a Lamé curve (superellipse) an ellipse muddies the waters. I can certainly understand why Patek did not want to call the watch the "Lamé," because doing so could lead to jokes among English speakers about how "lame" the watch is. The brand probably also took a pass on Superellipse because that is perhaps a little less "serious" than most reference names we typically see from the maison. It is fun, though, to note that the superellipse shape of the Ellipse case is a decent proxy for the actual shape of the human wrist in cross section, a point I make here. From that perspective, we can think of the Patek Ellipse as the opportunity to display wrist geometry atop your own wrist.

Al Worden's official NASA portrait from 1971. He's wearing the watch in question on his left wrist.

They were looking for help identifying a watch on the wrist of an astronaut in a photo from 1971. The astronaut in question is Al Worden, pictured here. Worden was the command module pilot for Apollo 15. He orbited the moon 74 times during that mission. To this day, he travelled farther from Earth than any other person. Worden was a 1955 West Point graduate but he commissioned in the US Air Force (the Air Force Academy was not yet commissioning graduates so USMA and USNA graduates were able to commission in the Air Force). Before NASA, Worden flew the F-86D Sabre and the F-102 Delta Dagger. He then earned a Master's degree in aerospace and instrumentation engineering just before enrolling in a test pilot school in the UK.

I've included a screengrab of the DM I received about the watch in question.

The DM laying down the gauntlet to spot Worden's watch.

Worden wore it for one of his official NASA portraits. As soon as I saw this watch, I knew I would struggle to identify it. First, the watch has a cushion case design with faceted edges. Frankly, this is not a design employed by the most well-known brands on the most well-known references. The cushion case was very popular with watches in the early half of the 20th century, but I thought it unlikely that Worden would use a 1940s timepiece for astronaut work. Most troubling was the brand name and icon at 12 o'clock. The name seemed to start with the letter "G" but the rest was indecipherable and the icon was equally inscrutable.

As I began to look through photos of candidate matches, my fears were confirmed. Various design elements matched closely to Soviet watches of the era, including the cushion case, black and white dial, and painted arabic numerals. I knew that there was no way Worden wore a Soviet watch during some of the hottest years of the Cold War. There were two design elements, though, that set me on the path to making this spot with near certainty. First was the date window at 4:30. This positioning of a date window was not used by very many brands in the 1960s and 70s. Zenith was one brand that did, but the cases in their references did not match the cushion shape in question. And, squint as I might, I just couldn't convince myself that the brand on Worden's watch spelled Zenith.

The other brand that employed a 4:30 date window was Longines in their Ultra-Quartz reference housing the caliber 6512 "Cybernetic" movement.

Worden's watch on the left and a Longines Ultra-Quartz on the right. Photo credit of the Longines: Auctions Dr. Crott.

In fact, the Ultra-Quartz was a near perfect match. Longine's offering was a back-winder, and Worden's watch had no discernable crown. The cases are a very close match: the integrated lugs and edge facets on Worden's watch are dead ringers to the Ultra-Quartz cushion case design. In addition, Worden's watch featured hash marks to indicate short increments of time. This level of detail would appeal to an astronaut. Longines' Ultra-Quartz was similarly marked: each minute was tagged with a long hash mark while twelve second intervals were marked by shorter hash marks. This design was rare among watches of the era and it also seemed a perfect match between the Longines and the Ultra-Quartz.

Nevertheless, I couldn't sign off on Longines as the manufacturer of Worden's watch. The Longines featured applied hour indices while Worden's watch had printed arabic hour markers. The Longines icon, and brand name, really did not seem to appear anywhere on Worden's watch. "Ultra-Quartz" and an applied design just above it were also missing from Worden's dial. It really felt like, in Longines, I'd found another "close but no cigar" match.

On a whim, I decided to read a little more about the development of Swiss quartz movements in the 1960s and early 1970s. I thought it was possible that Longines had a subsidiary or related brand that could have manufactured Worden's watch. This hunch turned out to be correct. I stumbled upon a 2020 Europa Star article by Stephen Fossett on Longines' introduction of the "first commercial quartz crystal watch." Fossett mentioned that Longines collaborated with a smaller Swiss company, Bernard Golay SA, to develop the Ultra-Quartz movement. Could this Golay match the fuzzy brand name beginning with "G" I'd seen on Worden's watch?

The answer is yes!

Worden's watch on the left and two examples of Golay watch dials on the right.

The brand name and emblem on Worden's watch are, basically, a perfect match in more recent, clearer, pictures of Golay watches (see the side-by-side photos offered here). Am I 100% certain of the match? I suppose there is some small residual doubt. But it is really, really small. I'd probably need to use scientific notation to express how unlikely it is that Worden's watch is not a Golay (in collaboration with Longines) timepiece.

So, there you have it. To my knowledge, this is the first bit of evidence that an early Golay / Longines quartz watch participated in the NASA astronaut program. Many questions remain. For example, was the Golay watch simply a prototype of the Longines Ultra-Quartz? What did Longines learn from Worden and NASA about this watch and its preformance? Did the Golay fly on the Apollo 15 mission? I leave these questions to future research.

A screenshot from the Rolex press release regarding the certified preowned program. This post is not affiliated with or endorsed by Rolex, you can find the official web page at www.rolex.com.

I'm still digesting this news, but I have a few thoughts about how this will all play out and how the preowned space will evolve in response.

Side note: before we get into this I want to welcome all the new subscribers who joined, maybe following my "Watch of the Week" article on Hodinkee. Thank you for trusting me enought to read what I write. I take that trust seriously and it means a lot to me that you're sharing some of your valuable attention. Ok, back to the other topic: Rolex and preowned.

Let's begin with a major caveat.

Daily average seismic amplitude for the Cotopaxi volcano, 2015,

I've wondered if the impact of Rolex's announcement is akin to the experience of those standing near the Cotopaxi volcano in June of 2015. You feel some rumbling but you're not quite certain if it will amount to anything. A few months later, a major eruption happens (see graph of Cotopaxi seismic activity). Much remains to be seen, but if Rolex executes their preowned strategy carefully and fully, I do think we'll see a major change in how the preowned market operates. On the other hand, if Rolex bails out, then this whole thing will seem like a quirky experiment with no long-term implications. So, here are the major consequences, as I seem them.

Collectors

This development is a huge improvement in conditions for collectors. There is now a new option when it comes to finding a preowned watch. A truism in economics is that if you give people an additional option (subject to certain conditions) they can not be worse off because they can always keep doing what they were doing and not use that new option. Implicitly, I'm assuming that Rolex's entry to the preowned segment does not eliminate buying options like forums, independent dealers, eBay, etc. I think this is a reasonable assumption, particularly in the short run (I'll come back to this).

There are additional reasons to believe Rolex' entry is good for collectors. Advancing on an AD wait list for a desirable reference, such as a Submariner, has often required purchasing other inventory, including less desirable references, jewelry and even watches from different brands. Now, there is the possibility that a collector could establish a robust purchase history by buying a preowned Rolex at an authorized dealer. This makes the waitlist game more palatable, potentially (whether this happens is at the discretion of those practicing the dark art of wait list management).

I've previously written that there is a "lemons problem" when it comes to preowned watches. Economist George Ackerloff was the first to pay close attention to the fact that a lot of markets for "used" products are distorted by asymmetric information regarding quality. Before today, collectors faced an adverse selection risk: they might buy a watch with undisclosed poor condition issues or something similar. Perhaps the worst outcome would be buying a watch which had been stolen, sending it in for service, and then having the watch confiscated because the serial number had been registered by the victim. These are all situations in which a collector might unknowingly buy a "lemon" (ie low value) watch.

A numerical example might help flesh out this idea. Suppose there is a 20% chance that a preowned Rolex Day Date is stolen and that a stolen watch is worth nothing to a collector (because it is eventually recovered). Suppose further there is a 40% chance the watch is damaged in an undisclosed manner, in which case the Day Date is worth $20k to a collector. Finally, suppose there is a 40% chance the watch is exactly as advertised, in which case it is worth $40k. In these circumstances, a risk-neutral collector would be willing to pay the expected value of the watch, which is .2*0 + .4*$20k + .4*$40k = $24k. The lemons problem lowers the market value of a preowned Day Date: the bad outcomes hold down the market price of preowned. This was the status quo prior to today.

Now let's look at what happens when Rolex enters and certifies preowned watches. Assume they do not certify stolen watches, so that probability goes to zero. Assume they won't sell watches with undisclosed conditions, so that probability goes to zero. Consequently, the value of a preowned Day Date increases to $40k. This may be stating the obvious, but Rolex certified preowned watches will carry a higher price than what we see now in the preowned space, in part because the adverse selection problem is eliminated (Tim, IG handle @velociphile, posted a story showing this certification premium earlier today). Various guarantees and warrantees also have value which will be priced into a Rolex certified preowned watch.

You might naturally ask: how are collectors better off if they end up paying more for preowned? The answer is that collectors will, almost definitely, still have the opportunity to roll the dice and bear adverse selection risk. Unofficial channels for buying preowned are unlikely to go away. One reason: many collectors have built important relationships with their independent dealers and they will be unwilling to set those aside. In addition, eBay and other platforms will still have an element of convenience that a brick and mortar retail watch shop will be hard pressed to match. The fact is, a lot of collectors do not have a geographically convenient authorized dealer. So, collectors will sort themselves. Those that are looking for a low price, want convenience, and are willing to bear risk will still purchase through unofficial channels. Those that can pay a higher price, want a "sure thing" and want a buying history with a convienient AD will go through that channel. Everyone is better off.

Authorized Dealers

Let's face it: all those empty display cases, and even those cases occupied by "exhibition only" watches, are kind of odd.

I actually walked by an AD recently with two friends who are less familiar with collecting and pointed out all the empty cases. I explained the situation and one said "I thought they were closed"! The new certified preowned program will allow authorized dealers to, finally, carry Rolex in stock. The program will not allow dealers to sell preowned stock that is newer than three years in order to avoid a situation where dealers simply label new stock as preowned, thereby capturing a secondary market premium.

Nevertheless, it is much less likely that a collector will arrive at an AD only to find that there are no Rolexes available to buy. I don't think sales personnel enjoy the seemingly neverending task of telling visitors that the product they want is not available. Strictly speaking, they may still have to do this. However, the alternative they can now offer (a certified preowned Rolex) is far more likely to meet buyers' expectations.

Independent Channels

Without a doubt, Rolex's entry to the preowned market means there is more competition for preexisting channels like independent dealers and online sales platforms (forums, eBay, etc). Incumbents will likely need to adapt, but I believe there are plenty of ways to do so. There are more brands than Rolex, so shifting inventory in a different direction is a clear option. In addition, offering better terms or other perks will help offset the draw of Rolex preowned certification. Finally, indepedent players will almost certainly compete fiercely on price.

Pot Pourri

We needed more watchmakers before today's Rolex announcement. Now, we really really need more watchmakers. As far as I know, a CNC machine can not authenticate a Rolex watch. That's a process that requires a knowledgable and experienced watchmaker, there really isn't a great alternative. If authentication of preowned watches draws watchmakers away from manufacturing and / or service, scarcity and service delays will get even worse. There's really only one way to fix this: more watchmakers.

Somewhat unrelatedly, the certified preowned Rolex program is good for the environment. As I discussed in a recent post, buying a preowned watch has very minimal adverse impact on the environment. Certification of watches will make preowned purchases more appealing. Rolex deserves a great deal of credit for this important ancillary benefit from their new initiative.

Conclusion

It remains to be seen if Rolex' new certified preowned program is as impactful as it seems. We should know more by the end of 2023, when retailers beyond Bucherer are able to join. It is hard to know if uptake by authorized dealers is likely. Much depends upon the terms negotiated between Rolex and dealers. So far, little is publicly available. Nevertheless, assuming Rolex is able to succeed with this initiative, the brand will directly benefit through higher secondary market pricing for their older models, thereby relieving price pressure on new designs. It remains to be seen if other brands will match Rolex's preowned strategy, I would expect Omega to seriously consider doing so. Personally, I find it exciting that Rolex is making bold moves in order to address challenges for collectors. It is an encouraging development.

Instead, closet currency is the value that is stored in items that you put in your closet. At least, that's what I think it means. I arrived at this conclusion since eBay's post featured YouTuber Jose Zeniga describing the monetary value of different luxury watches. Zeniga also described a "luxury exchange" that eBay set up in NYC. In essence, you could take something out of your closet, go to the exchange, get an appraisal value, and then use your item and its appraisal to purchase another item that was available on the exchange. The formal definition of money is anything that is generally accepted as payment. In essense, eBay set up a NYC micro-economy in which almost any closet item could be used as money.

Money is actually a pretty complex topic. It took a lot of smart people in Europe a decade to introduce a new form of money: the Euro. Sam Blankman-Fried earned a degree in physics from MIT. Yet he seems to have fumbled when it comes to another new form of money (cryptocurrency, which is actually low in moniness but I digress). According to Forbes, his errors cost him $14.6 billion overnight.

One of the errors we know people are prone to make when it comes to money is something we economists call money illusion.

A shop window in New York City, 1956. Source: Library of Congress

This is the tendency to think of value in terms of today's prices and / or earnings. For example, it seems like sausages for 70 cents, as shown in this photo from New York City in 1956, are really cheap. We definitely can't find sausages for that price today. However, there were fewer zeros in the typical person's income in 1956. In fact, median income in the United States was estimated at $4,800 in that year. It's a lot harder to scrape together 70 cents when you are earning less than $5,000 per year and it's also hard for us to presently imagine what that was like. In 2021, median househond income was closer to $80,000, more than fifteen times greater than earnings in 1956. If we adjust the 1956 price of sausages for all the inflation that has taken place over the past six decades, we end up with a price of $7.67, which is probably about what you would expect for sausages in New York City today.

If luxury buyers are now thinking in terms of "closet currency" then there is also a risk they will fall prey to "closet currency illusion." This would be a tendency to not adjust the value of items in your closet for what is happening to inflation as time progresses. I've previously discussed the emergence of data analytics providers in the luxury watch space. Given how they operate, I believe closet currency illusion is not just an abstract risk, it is actually happening.

Trend for the nominal and real "watch price" index.

Let me show an example. I used a piece of software to create a spreadsheet from the values of a "watch price index" published as a graph by a watch data analytics provider (I did this in a prior post; I've also shared concerns about watch price indices in that same post but I'm going to gloss over those concerns for the purposes of today's post). I've presented the unadjusted value of their index for the past three years in the graph I've shared here. That information is given by the blue line. I then converted the index to its real value, a process which involved using the consumer price index for durable goods to adjust the raw data for inflation. The result is the orange line.

Comparing these two lines makes a few things clear. First, in real terms, the increase in watch prices wasn't as significant as the nominal (non-adjusted) index suggests. At the peak, unadjusted watch prices increased by 216%. If we look at the real value of watches though (adjust for inflation in durable goods) we conclude that the increase to peak value is smaller: 177%. This is still an astronomical rate of increase over a short period of time, but it is also importantly smaller than closet currency illusion would suggest.

There are a few other things we learn from the real watch price index. Closet currency illusion would suggest that from its peak, the watch price index declined by 17.2% (the blue line). In reality, though, the decrease was larger because the price of other durable goods continued to climb while watch prices were falling. When we consider the real watch price index (the orange line), the decrease from peak is 23.1%, a fair bit larger. From this perspective, the decline in watch price values from their peak is more significant. The overall trend is also interesting. Closet currency illusion would suggest that the watch price index increased in value by 67.5% over the past three years. However, in real terms, watch prices have only increased by 36%. Illusion would cause you to overstate the appreciation in the value of watches by a factor of about 1.88.

Wrapping Up

At the close of the recent Geneva watch auctions, I exchanged direct messages with a very well-known and important private watch dealer. One of their comments, in particular, drew my attention: "we're in trouble." If we look at watch prices without illusion, I can understand this sentiment. The decrease in watch prices from peak is more significant than nominal values would suggest. However, I think the collecting community has still, net, benefitted significantly from rising interest in fine watches. A 36% real increase in value over slightly less than three years is nothing to sneeze at. It amounts to approximately 12% per year, a rate of growth which exceeds the appreciation of US stocks over the same period. Again, major caveat, this assumes the watch price index is a valid measure of aggregate prices in the watch industry and I am really not certain that is the case. The major point here is that the decline in watch values could have been worse. At the end of the day, if you enjoy your watches and they increase in value a little bit, you've had a pretty good go of things during some otherwise fairly turbulent times.

Scott Crossfield stands in the middle of this picture holding a rolled up document. To his left is US President John F. Kennedy. They're enjoying a lighter moment during a ceremony in the White House, 1961.

I've been brainstorming about two new book projects. One involves the Smithsonian archives but it does not primarily involve Rolex. Nonetheless, out of curiousity I checked whether the Smithsonian archives had materials pertaining to Rolex. A quick search surfaced an entire folder holding correspondence between Rolex and one of the most important pilots to ever walk the Earth: Scott Crossfield.

Crossfield was born in 1921 in Berkeley, California. At age 13, his family moved to Washington state. In his younger years, Crossield suffered serious medical conditions which isolated him for extended periods of time. During these lonely stretches, Crossfield began to daydream about becoming a pilot. With the outbreak of World War II, he joined the Navy and fulfilled his dreams. Crossfield flew the F6F Hellcat and F4U Corsair along with a number of other platforms. He did not see combat and returned to Washington state after completing his service. There, he earned undergradate and graduate degrees in aeronautical engineering from the University of Washington. By 1950, Crossfield could claim one of the broadest portfolios in piloting. He had practical experience flying challenging aircraft and he had advanced academic achievement in the field of aeronautics.

In 1950, the National Advisory Committee for Aeronautics (NASA's predecessor) reviewed Crossfield's qualifications as a job candidate.

Crossfield in pilot's garb as a passenger on a flight.

They liked what they saw and hired him as a test pilot. In that role, Crossfield lived on the ragged edge of speed and control in the cockpit of America's most novel and unproven airplanes. He survived more than 100 missions in experimental aircraft including the X-1, XF-92, X-4, X-5, Douglas D-558-I Skystreak, and the Douglas D-558-II Skyrocket. In November, 1953, Crossfield became the fastest human alive when he flew the Douglas Skyrocket past Mach 2, or twice the speed of sound. His record would only last about a month.Chuck Yeager flew faster while piloting the X-1A in December.

In a recent biographical article, author George Spencer gave Crossfield the nickname "Death Dodger." During one flight, the windshield iced up and Crossfield couldn't see out. He took off his shoe and sock and used the warmth of his foot to defrost the glass. The X-15's engines exploded at 45,000 feet when Crossfield took the plane on its third powered flight. He managed to land, but the plane's fuselage buckled after a high speed landing on the dry lakebed runway. During a ground test of new engines for the X-15, the airplane exploded and hurled Crossfield 20 feet while strapped into the cockpit. It is estimated he experienced 50 Gs. For context, Omega's Speedmaster was "only" required to survive a 40 G impact in order to earn certification for spaceflight.

According to a post on Jake's Rolex World and the archival records I've obtained, by 1959 Crossfield faced a silent hazard on an almost daily basis, even while he was not flying. The hazard was a watch he'd acquired: the Rolex GMT-Master reference 6542.

A Test Wearer

Here, I won't go into all the details surounding the GMT-Master during the late 1950s and early 1960s.

A GMT Master formerly owned by Marlon Brando. This one is missing the rotating bezel.

I'd encourage the reader to go back and check out the articles I link to in the opening paragraph. The punchline is that during this period, Rolex sold some GMT-Masters containing strontium 90 as luminous material. This particular radioactive isotope was (and is) heavily regulated in the United States, in part because strontium is hazardous to health. The U. S. Atomic Energy Commission contacted Rolex, and a few other brands, regarding the strontium in the GMT-Masters and coordinated a "recall" of the radioactive watches in mid-December, 1959. Their efforts began roughly two months after photos were taken of Crossfield wearing his GMT-Master at an event for the Society of Experimental Test Pilots.

The Smithsonian archival records I've obtained consist of letters between Crossfield and Rolex employee Rene-Paul Jeanneret.

Rene-Paul Jeanneret in his early years, here adventuring in the Mediterranean. Photo credit: Jeff Kingston's lecture at HSNY.

The archived letters begin in July, 1966 and end in November, 1967. Jeanneret was a high-level employee at Rolex. He held the title Director and he was close to Rolex's co-founder, Hans Wilsdorf. A letter from Jeanneret to Crossfield is the earliest dated document in the Smithsonian records. Jeanneret mentions that Crossfield will travel to Geneva sometime in early August and offers to host Crossfield at Rolex headquarters. Jeanneret offers a note of caution, though. The "watchmakers holiday" would be in full effect during that time year so the Rolex facilities would be quiet during any visit. He encouraged Crossfield to travel later in the month. Finally, Jeanneret encouraged Crossfield to ship his Rolex watch to Geneva as soon as possible so that it would arrive before everyone scattered for the watchmaker's holiday.

In late July, Jeanneret sent another letter to Crossfield with the assessment of his watch's condition. Jeanneret shared, "I am sorry to report that the damage was extensive - rust had invaded the entire movement and none of it was worth salvaging." It's possible that Crossfield somehow allowed water to penetrate the case. Jeanneret noted that he would replace the movement, dial, hands and bezel as part of the service.

Crossfield's reply, in turn, connects him to the strontium 90 GMT-Master saga. At some point, Jeanneret asked him to write down and send details regarding the recall of his reference 6542 for "Strontium 90 content." It's possible Jeanneret initially made this request while Crossfield was visiting Geneva but Jeanneret wanted a written summary of their conversation. Crossfield agreed. In an early September letter, Crossfield shared that he was an "aeromedical subject, with very consistent personal physical and medical records kept," and that he "may be a unique source of experiment" for Rolex. During those years, the "A. E. C." (likely the Atomic Energy Commission), the Lovelace Foundation, and the Air Force recorded Crossfield's "whole body radiation count."

These records were likely taken while Crossfield flew experimental aircraft.

The Douglas D-558-II Skyrocket piloted by Crossfield reached 62,000 feet of altitude when it broke mach 2. According to a chart published by the Federal Aviation Administration, flying at higher altitude and farther from the equator results in a higher rate of cosmic radiation exposure due to diminished protection from the atmosphere. During his Mach 2 flight of the Skyrocket, Crossfied was exposed to more than 6 millisieverts per hour, or more than 60 times the dose of an X-ray. For this reason, many organizations were likely interested in keeping track of cumulative radiation exposure for high altitude test pilots.

Crossfield also shared with Jeanneret that he consulted with one of the physicians who was involved in monitoring his radiation exposure. This particular physician, Dr. Wright Langham, was affiliated with Los Alamos National Laboratory. Since Los Alamos participated in the development of nuclear weapons, Langham was involved in physiological and biological experimentation with radiation. When Crossfield asked if there was a way to gather data about the health effects of the radioactive GMT-Master, Langham indicated, "there was no merit in the concern for the material in the watch being deleterious to health. [Crossfield] then told [Langham] [he] was not going to turn the watch in because of its souveneir value in the future. [Langham] indicated (again in [Crossfield's] interpretation) that he knew of no reason why [Crossfield] should from a radiation and health standpoint." Crossfield, in the end, did return his GMT-Master because we was "ordered to return it for rework under threat of impounding or a subpoena or the like."

In response, Jeanneret wrote, "you most kindly put on record your experience with our GMT-Master chronometer as a potential source of dangerous radiation. We are very pleased to add your letter to our bulky file on this sore subject!" My guess is that Rolex leadership was more than pleased with this letter, they were probably ecstatic. Crossfield's attestation regarding the harmlessness of the radioactive Rolexes would serve as a powerful deterrant to anyone seeking legal damages as a consequence of the watches. In fact, I've wondered if the known lawsuits over this matter were withdrawn once attorneys became aware of an expert Los Alamos physician who claimed the watches were harmless (full disclosure: this is not medical advice regarding the health dangers associated with these watches, to read more on this matter I recommend Jack Forrester's article on the subject).

Later correspondence between Crossfield and Jeanneret made it clear that the two ultimately developed a personal relationship that each valued. Crossfield inquired after Jeanneret's family members by name and checked in on a particular health condition that Jeanneret was managing. Likewise, Jeanneret added a hand written note to a typewritten letter inquiring after Crossfield's wife, who was also coping with a challenging health condition at the time.

Beyond the personal, Jeanneret was happy to promote the professional accomplishments of Crossfield's experimental aircraft projects. Jeanneret requested a "dramatic" photograph of the X-15 and planned to include it in a promotional film for "jewellers and their staff, or possibly local clubs."

President Kennedy receiving a scale model of the X-15 in 1961.

Crossfield likely valued this high profile acknowledgement of an endeavor which he clearly loved. The X-15 would be portrayed alongside "Professor Piccard's bathyscaph which dived into the Marianas Trench," as well as "Sir John Hunt during his first successful attempt at climbing Mount Everest." In appreciation, Crossfield sent Jeanneret an X-15 scale model which Rolex placed on display in their reception hall. A similar model was presented to President John Kennedy, as shown in the photograph reproduced here.

Correspondence between Jeanneret and Crossfield in late 1966 and early 1967 reveals that Jeanneret hoped to leverage his relationship with Crossfield in furtherance of Rolex's commercial goals. In particular, Rolex had fallen behind one of their principle competitors and Jeanneret seemed intent upon closing the gap. It seems Crossfield may have been central to that effort.

An Ambassador to Space Ambassadors

In my book on Rolex, I provide evidence that the brand viewed Omega as a principle competitor in the mid to late 1960s.

A slide providing details about how the Speedmaster arrived in space. Source: HSNY lecture by watchmaker Bernhard W. Stoeber, who serviced space-flown Speedmasters for Omega.

Through serrendipity, Omega enjoyed a public relations triumph in 1962 when astronaut Wally Schirra wore the Speedmaster in outer space. Omega only learned of the Omega flown to space after Schirra returnd to terra firma. By 1965, the Omega Speedmaster was the only watch what was qualified for spaceflight by NASA. Crossfield's role as a highly accomplished pilot at the edge of the atmosphere placed him figuratively, if not literally, close to the astronaut community. This became apparent to Jeanneret. For example, in November of 1966, Jeanneret learned from Crossfield that astronaut Jack Swigart "had such bad luck with his Rolex." Jeanneret enrolled Crossfield as an intermediary and gave Crossfield contact information for Rene Dentan, President of the American Rolex Watch Co. Swigart's watch was given VIP service treatment and Jeanneret worked hard to ensure the astronaut was happy with his timepiece. The efforts paid off. In Crossfield's opinion, Jack Swigert became a "permanent Rolex [supporter] all due to your very courtious [sic] handling of [his] watch problems." Jeanneret's efforts showed remarkable foresight. Four years later, Swigart joined the Apollo 13 crew and achieved fame as part of the team that snatched victory (survival against incredible odds) from the jaws of defeat. In the movie "Apollo 13" Swigert was played by Kevin Bacon. There is evidence that Swigert wore both a Rolex and an Omega watch during the Apollo 13 mission.

Perhaps in appreciation for Crossfield's connecting Rolex with the astronaut community, thereby possibly countering Omega's lead among spacefarers, Rene Denton and Crossfield went out for lunch. According to Crossfield's subsequent letter to Jeanneret, they "set about to and did imbibe quite to excess. I hope it didn't raise too many questions in his mind about the character of your friends." It's unlikely that Jeanneret held any such concerns with the man who was an entre to top tier pilots and / or astronauts.

Jeanneret collaborated with Crossfield in an effort to get GMT-Masters on the wrists of other top-tier pilots besides Swigert. In late September, Jeanneret asked, "does Major William Knight, and/or the other pilots currently responsible for the X-15, wear a GMT-Master? If not, how should we go about applying a remedy to the situation?" By mid-April, 1967, Jeanneret and Knight were communicating directly by mail, likely due to Crossfield's efforts. Jeanneret thanked Knight for agreeing to wear a GMT Master while flying the X-15 "at something like Mach Number 6.5." Jeanneret described this as "a highly unusual opportunity for our watches to show what they are worth." Jeanneret also noted a "dire shortage" of GMT-Masters (a reminder that the modern shortage of Rolex sports watches has precedent). Exactly one week after Jeanneret penned his letter, as documented on Rolex Magazine Knight was provided with a complementary GMT-Master. Knight wore the watch when he set a Mach 6.7 hypersonic record while piloting the X-15. It's reasonable to assume that Crossfield helped make this happen since Jeanneret seems to have provided him with a copy of his letter to Knight. Jeanneret also offered to add Knight's photograph to Rolex's "Great Names Gallery" which was a strictly private collection of a "select few" who were invited to dedicate a photograph to Rolex.

In mid-November, 1966, Jeanneret wrote that he'd read about the M2-F2 "space glider" and its debut pilot Milton Thompson.

Jeanneret asked Crossfield if Thompson or other pilots in that program were wearing Rolexes. He also shared that it would be "of great interest to us to submit our GMT-Master to test under these unusual conditions." Jeanneret apparently believed that the M2-F2 would expose a Rolex to "higher speed and gravity" than any other type of aircraft. Unfortunately, it seems that Crossfield and Jeanneret did not receive the reponse from Thompson that they hoped. Jeanneret later wrote "Thank you for your explanation about Milt Thompson. We will have to play it his way, I'm afraid. Now if only we had a clear idea what his way is! Perhaps he will feel like explaining one of these days." There is some chance that Thompson encountered a restriction on receiving gifts. This is common for US federal government employees in the modern era. Indeed, after the first moon landing in 1969, even President Nixon was not able to accept a gold Speedmaster from Omega, as detailed here. Nevertheless, there was still room for Crossfield to contribute to Rolex in other ways.

Space Forces and Product Development

Towards the end of November, 1966, Jeanneret began soliciting Crossfield's opinion regarding how various spacetravel forces might impact Rolex watches. Jeanneret wrote, "All of us here followed with the greatest interest the magnificent performance of Geimini 12 and are full of admiration for the two cosmonauts ... I read somewhere that at takeoff, the acceleration of the Gemini rocket goes from 0 to 8 km in one second. Would you think that this kind of acceleration would put a stress on a normal wristwatch, and that it would be difficult for a watch to perform normally while crossing the Van Allen Belt?" The Van Allen Belt is a region of "highly energetic charged particles" surrounding Earth at different distances. It is also worth noting that Jeanneret's use of the Russian term "cosmonaut" in his letter may have raised an eyebrow or two. There is some possibility that Rolex was exchanging similar letters with Soviet space authorities. Finally, in the same letter, Jeanneret indicated that Rolex would like to supply "GMT chronometers" to the Apollo program.

Crossfield happily offered some extensive thoughts on these matters.

A stamp from the Rolex office of Rene-Paul Jeanneret, complete with his signature. This stamp was from an April, 1967 letter sent to Crosfield.

He wrote, "Accelerations and gravity loads have been at human tolerance limits for years and cannot change until we get a new model man. Your Rolex on centrifuge machines evidently has been subjected to higher than flight loads ever experienced in my own experiments. Incidently, I also went through a simulated ejection with it once (22g) with no problem. The typical accelerations of the arm (throwing a ball, boxing, banging the table) are many orders of magnitude in excess of any flight loads. Once on the X-15 program while testing a tape recorder, I whimisically added your watch and it was subjected to 10g for 15 minutes. If I remember correctly, it lost a little time but ran the whole time. This is not surprising as attitude only effects it at one g and, of course, the friction is up and the spring is loaded." Here, we see that Crossfield provides extremely valuable "test data" which Rolex would have struggled to obtain independently. It is unlikely they could have independently run a test load of 22g while someone was wearing one of their watches. Similarly, Rolex received free evidence of how their watch performed during a long, high G centrifuge run.

In the same letter, Crossfield indicated that he was not aware of an "deleterious effect" of the Van Allen Belt on a wristwatch. He did believe that "long durations (weeks perhaps) in a hard vacuum" could affect the seals on a watch. However, he couldn't foresee why a wristwatch would be exposed to that kind of vacuum for such a long period of time. Extra-vehicular activities in outer space or on the moon surface typically did not exceed 9 hours in the 1960s and 70s (a fact which is true to this day).

Toward the end of 1967, Jeanneret solicited Crossfield's help with some more sub-space questions. He asked Crossfield how "Jumbo Jets" and similar airplanes would impact a pilot's "timekeeping" and whether the GMT-Master would suffice for that use case. He also asked if the "particularities of the SST jets" would require special watch functions. Here, Jeanneret is referring to supersonic passenger jet travel, which was just over the horizon. The first Concorde flight was March 2, 1969. Jeanneret even offered to "build a prototype for [Crossfield] to test," because Rolex, "[wanted] to keep moving with our times, even if it has to be done as (sic) [supersonic] speed!"

Whether such a prototype was ever developed or built is a question which will remain for future research. Jeanneret's query regarding modern passenger air travel is part of the last letter I obtained from the Smithsonian archives.

Conclusion

The Smithsonian archive of Crossfield-Jeanneret correspondence provides a number of valuable insights into Rolex during the mid-to-late 1960s. One of the world's top pilots was touched by the strontium-laced GMT-Masters and helped Rolex understand the health implications of their flawed product. In the space race between Omega and Rolex, Crossfield was critical in advancing Rolex's interests on the wrists of some of the most important pilots and astronauts of the era. Just as Griffith Pough helped Rolex understand the impact of extreme environmental conditions on timekeeping, Crossfield supplied the brand with valuable insights into the timekeeping impact of high G forces, vacuums and extraplanetary radiation. Much of this story is undoubtedly still untold, but through the Crossfield-Jeanneret letters we see, once again, that Rolex enjoyed a multifaceted return from its relationship with an accomplished outsider.

This figure from climateactiontracker.org shows that, even under an optimistic scenario, some increase in global temperatures is unavoidable.

The bad news is that we clearly need to do a whole lot more to get to a point where we halt the growing cost of environmental degradation. As the graph I've presented here shows, existing policies are not enough to ensure a healthy planet for our children, their children, and all future generations.

As Elizabeth Doer's outstanding coverage on Quill and Pad shows, the watch industry is discussing the challenges ahead and developing contributions to the fight against climate change. These include the use of recycled and recovered materials in manufacturing as well as requiring transparency in how raw materials are sourced.

We like to imagine that the simple act of buying a traditional mechanical watch is good for the environment. Supposedly, a traditional mechanical watch lasts a long time and it is not "disposable." This is a reasonable point. However, when it comes to information, collectors and buyers will struggle to learn the exact environmental impact of any particular watch purchase.

A WWF assesment of watch brand environmental friendliness.

The image here comes from a 2018 WWF report on the jewelry and watch industry. The report author rated the majority of watch brands as "latecomers" and "non-transparent."

When we turn to the Apple Watch, a supposedly "disposable" bit of kit, we discover that Apple is actually ahead of most of the luxury watch industry when it comes to disclosure. On their web page, after a fair bit of digging, you can find a report offering carbon footprint figures for the Apple watch, calculated according to an international set of standards (ISO 14040 and 14044). I tried to find similar environmental disclosure statements for major Swiss watch brands and I got nowhere (although this Rolex infographic by some undergraduates is pretty cool and interesting). I do believe it is still likely that a Swiss mechanical watch is more environmentally friendly than a smartwatch. For example, a smartwatch requires electricity, the production of which almost always casts off greenhouse gases. A mechanical watch involves converting caloric intake into stored energy through a wound spring. That caloric energy is either recovered as you move about (automatic winding) or you "exert" yourself to wind the watch. In either case, my guess is that the greenhouse gas emissions from winding a mainspring is negligible compared to the energy used in charging an Apple Watch.

But why am I left to guess about this? If I really do care about the future of the planet and I want to compare the carbon footprint of a mechanical watch to an Apple Watch, why is the traditional watch industry making it so hard to do so? Fortunately, every collector has a readymade solution to this conundrum: buy preowned or vintage. Such watches do not require mining or shipping about of raw materials. They don't require consumption of energy in a manufacture in order to create the timepiece. That energy use took place at some point in the past. Therefore, the carbon footprint for a preowned or vintage watch is necessarily lower than the footprint for a brand new watch walking straight out of an authorized dealer's door. Prefer an untouched case? Consider buying a watch from a manufacturer who upcycles components, such as watchmaker Colin de Tonnac at Semper & Adhuc. At least then you'll reduce the environmental impact of a watch that is mostly new.

I have bought my own fair share of brand new watches. However, I have also bought preowned. Since buying a "used" watch is almost certainly better for the environment, I generally feel better about my "secondhand" purchases. Going forward, knowing that the preowned path is greener may well shape my buying patterns.

A Cartier Crash watch I saw at a Phillips Auction preview recently.

Chronometer: Cartier

Earlier this year, Singapore Watch Club announced a collaboration in watch design with Cartier. They co-created 18 different timepieces with a wide range of case shapes. Legendary collector Roni Madhvani has also described his opportunity to collaborate with Cartier in designing at least one timepiece. Howeover, from his description, it sounds like participants could be "empowered" more if they were allowed to publicly share details about the collaboration.

I would also give Tudor an honorable mention here because they have worked with certain groups to create custom timepieces. However, my understanding is that they are winding down this program.

Broken Mainspring: Rolex

The crown is at the top of the game in so many ways. Throughout their ascendancy they've maintained a fair bit of secrecy and closed design process. There are historical examples of Rolex creating special editions of watches shaped by certain collector interests, such as this Panama Canal example. But let's face it: this kind of thing is more or less non-existent today.

2. Elevate Unheard Stories

Meta describes this behavior as "Identify and share authentic, meaningful stories from communities that are overlooked."

Chronometer: WAX for Collectors

WAX isn't a watch brand, but they are an adjacent business focused on insuring watch collections. I chose WAX because Complecto identifies them as a sponsor. Complecto, in turn, was "founded with the goal of building an inclusive community that reflects and celebrates the true diversity of watch enthusiasts and collectors around the world." Through sponsorship of Complecto, WAX has identified and supported possibly overlooked members of the watch collecting community. WAX also emphasizes the creation of an open community including collectors of "all types, interests and backgrounds." It is worth noting that ORIS, Bezel and Analog:Shift have also supported Complecto events.

Broken Mainspring: Any Brand Focused on Celebrity Ambassadors

Omega's Instagram account prominently features three celebrity ambassadors as I finish writing this post: Zoe Kravitz, Hyn Bin and George Clooney.

This probably applies to most of the industry. Ambassadors are generally famous and their stories are not overlooked. So, if a brand devotes a whole lot of marketing to ambassadors then they are necessarily not elevating unheard stories. There is certainly one possible exception: IWC has an ongoing campaign involving a well-known football (soccer) coach and a charity that helps "children and young people overcome violence, discrimination and disadvantage in their lives." This is perhaps a good example of using celebrity ambassadors to share stories from overlooked communities (although I find it curious that the watch brand itself has not advertised this year's activities through its media channels).

3. Shop the Moment

For this one, a brand should "tap into trends and create exclusive experiences so people feel part of something."

Chronometer: Audemars Piguet

I think there are two developments which place AP at the head of the pack when it comes to this strategy. First is the launch of the Royal Oak Concept Black Panther Flying Tourbillon in April of 2021. There is no question that the Marvel franchise, as well as the Black Panther character, are an ongoing, highly popular trend.

The Zenith "Master of Chronograph" exhibit.

Add to that a live drop on YouTube with an auction of a piece unique version of the watch and you've offered an experience that makes people feel part of something. I've previously written about AP House, and this is also a very unique experience that is also exclusive in the sense that, in most places, the visit is by appointment.

Zenith earns honorable mention here. This year, they offered a touring exhibition of their timepieces which included a watchmaking class. Their collaboration with Felipe Pantone also connected the brand to an exciting, and trending, modern artist.

Broken Mainspring: The Person in Charge of Retail Loss Prevention at Richemont

Every Richemont store I've visited requires that I stand outside while some guard eyeballs me until the door is unlocked and then I'm let into the store. It feels like an airport experience from 2003: a slowly ambulating TSA line ending with me taking off my shoes and belt. It's not exclusive and it's just not a good trend.

4. Solve it IRL

Here, Meta suggests that brands "Go beyond talk and use technology in innovative ways to help relieve the big pain points of your audience."

Chronometer: MING Watches

Probably the biggest pain point in the modern watch industry is the dreaded wait list. I've written a number of times about the fact that wait lists are what happens when a brand imposes production limits with a retail price that is too low. MING uses technology to solve the wait list problem. The brand follows a "just in time" model in which a design is shared with the public and those who want the watch must send a deposit within a certain order window. However, the brand pledges to deliver as many watches as are ordered. While this does not necessarily completely eliminate the wait list, it goes a long way towards addressing it. MING's approach takes place entirely online and does not involve retail sales.

Broken Mainspring: The Holy Trinity Plus One

A Vacheron Constantin Overseas Dual Time. This unique piece desin was later placedi into a limited edition production run by VC. The Overseas is one of the steel sports models with an unrelenting waitlist.

I'm not going to name names here, but let's just say each of the holy trinity have a steel sports model with a wait list process that remains unaddressed by technology. If we add in one more brand with an interminable steel sports wait list, managed by some chaotic decentralized process that only ADs understand, we pretty much cover the majority of "pain points" in the industry (there is also a pain point around long waits for servicing but I'm not aware of any brand that leverages technology to address this problem).

5. Unlock the you-verse

As far as I'm concerned, the term "you-verse" does not exist and nor should it ever. Meta put it in their report, though, so I'm reproducing it here. They describe this one as "Co-create emotional, immersive experiences with individuals that give them more agency and empathy."

Chronometer: Initium

I haven't personally experienced Initium's watchmaking class, but I've read many positive reviews. Initium invites watch enthusiasts to their workshop in Switzerland. There, each participant assembles a watch which they can bring home.

The canonical view of a student in a watchmaking class.

The experience is co-created because you can choose different components for the watch. You can also choose the length of your visit and whether lunch is included. I'd imagine this is fairly immersive because you're actually assembling your own watch. I'm not sure how much agency you have, but I suppose you can try a novel approach for installing the balance cock (if you bend the hairspring don't @ me). I'm quite certain the experience is empathy-building. Every time a tiny screw has rocketed out of my tweezers and across the room while I try to assemble a movement, my sympathy for watchmakers has grown.

Broken Mainspring: Contrôle officiel suisse des Chronomètres (COSC)

I don't know why, but this keeper of the chronometry rating just seems unemotional, non-collaborative, non-immersive and I really don't see the organization as empathy-building. Either the movement meets the spec or it doesn't. Honestly, I don't think COSC should bother with the you-verse and I'm actually happy they don't.

Conclusion

It is hard to determine if the watch industry really needs these novel marketing practices. They're certainly worth knowing if a particular brand or organization is interested in reaching audiences that aren't accessible through more traditional marketing. I was somewhat encouraged by the fact that I could find watch industry practitioners who seem to have achieved these novel forms of creative outreach. However, it is equally clear that there are many who have not.

The analysis of economic cycles is a specialized field and it is very tricky to assess how particular industries are impacted by fluctuations. Most of the claims I've heard about the business cycle and the watch industry could benefit from more careful inspection, so I'll try to do that here.

I decided to use methodology that represents a solid "starting point" when it comes to business cycle analysis. The impact of a recession on any industry is not easily or casually measured, for reasons I will describe below. The TLDR on this is that the modern watch industry is not immune from the business cycle when we use generally accepted notions of what a business cycle represents. However, there are things that do reduce the impact of economic fluctuations on the industry: watch brands have partial immunity. I will discuss this idea first.

Shock Absorbers

In 1992, the rap group Geto Boys dropped the track "Damn It Feels Good to be a Gangster." The reality is that it also feels pretty good to be in the watch industry when times get tough. There are a few reasons why this is the case, particularly in the modern era. These days, precision mechanical watches are largely purchased by those with fairly deep pockets. Most evidence suggests that income volatility is lower at the higher end of the income distribution. There are many reasons for this, but a lot of it has to do with access to financial institutions, insurance, and the like. Since the industry's buyers have more stable income, it stands to reason that demand is correspondingly more stable. This is the first reason why downturns, potentially, aren't as impactful for the watch industry.

The watch industry is also somewhat insulated from recessions due to the unique nature of the industry itself. The supply side is more or less concentrated in one country: Switzerland.

This is almost the perfect stock photo for this post.

Demand for watches is globally spread across a heterogeneous array of countries and regions (albiet some locations generate greater demand than others). One of the principles of portfolio theory is that holding a diverse array of assets reduces risk. The same principle can apply to macroeconomic risks. If you sell to all, or almost all, of the countries in the world, you've built a hedge against any country-specific downturn. For example, suppose the Russian market closes (you know, theoretically). Just sell 10 more watches in 10 other countries and you'll be OK.

Dampened, Not Eliminated

At the end of the day, the industry's insulation from the business cycle is an empirical question. Unfortunately, the industry itself is not always forthcoming with useful data. I and others have relied upon numbers from the Federation of the Swiss Watch Industry FH in order to draw inferences about market conditions. Of late, FH has changed its reporting format and I know of at least one commentator who has abandoned FH data as a result. In addition, as a trade organization with direct connections to watch businesses, FH isn't necessarily disinterested in how the watch industry is publicly portrayed. I'm not aware of any specific concern when it comes to information published by FH, but the organization's mission statement does not include transparency, for example.

There is one area, in particular, in which transparency would be helpful. We know that watch brands have bought back unsold inventory and destoyed it in the past.

A recent TikTok video with 1.3 million likes showing unsold handbags which Coach purportedly slashed and discarded.

Data on this practice is not readily available in FH's typical reports. Destroying previously produced watches is not a "good look" from a sustainability perspective (to be fair, the Swiss watch industry is not the only business likely engaged in this practice). For example, a whole lot of energy was initially consumed in the production of these watches (with associated emmissions presumably) and still more energy is used in their destruction. Fortunately, under certain international agreements, the Swiss government is obliged to report "reimportation" of Swiss products.

A product is reimported if it is brought back to the country of origin after being exported (a bit like a round trip). Official government statistics on reimportation will capture any Swiss watch brand which buys back unsold inventory. It is really the exports net of reimportation which reflect the state of the watch industry. For example, exporting $10B of watches only to have them sit in stores and then reimporting the same watches worth $10B would suggest the industry was clearly struggling. FH statistics would show exports of $10B in these circumstances, suggesting the industry was doing well. In contrast, exports net of reimportation would show zero exports. For this reason, I will use net exports below.

An additional complication with assessing the impact of a recession on the watch industry stems from the nature of recessions themselves. In the past 22 years, there have only been three recessions in the United States. Fortunately, broad economic downturns are fairly infrequent. This complicates empirical analysis because there are few "treatment experiments," ie downturns, that we can contrast with "control" years in which an economy is normally expanding. Further, when we ask "is the recession harming the watch industry," the best response is "whose recession?" As mentioned earlier, economies are not a perfectly synchronized ballet in which everyone moves in the same direction at once. Rather, they can resemble a chaotic jumble of different trajectories. For example, in the 32 years between 1990 and 2021, there were only four in which the United States, China, Japan and the world as a whole were all underperforming at the same time. Otherwise, there was a glimmer of strong performance in some portion of the global economy.

There is one additional challenge with interpreting the impact of the business cycle on the watch industry: seasonality. Not all months are created equal when it comes to watch purchasing. For example, the end-of-year holiday season is a major source of demand for watches as gifts. When such regular patterns are present in data, there is a real risk that interpreting the numbers may create spurious results since the onset of an expansion or contraction may be arbitrarily coincident with a seasonal pattern. In the subsequent discussion I will control for this possibility.

The Evidence

In order to assess the impact of the business cycle on the watch industry, I began by obtaining official Swiss government statistics on exports and reimportation of watches, clocks, and parts. Those numbers are available since the beginning of 2000. I then calculated net exports (exports minus reimportation) from this information. There is significant monthly seasonality in this data. For example, August net exports are quite low compared to the rest of the year. This period corresponds to the mid-to-late summer "watchmaker's holiday" in Switzerland. In contrast, the largest surge in net exports takes place in September and October as retailers stock their inventories ahead of the year-end holiday season.

I remove this seasonality from the raw data so that it will not impact my results.

The de-seasonalized net export figures are presented here. I focus on month-to-month growth in net exports (doing so removes the influence of slow-moving trends in the industry, such as dwindling sales of low-priced timepieces). The grey bars in this figure represent the official months during which the United States was in a recession (in other words, NBER business cycle dates). As I mentioned earlier, not every economy around the world experiences a recession at the same time as the United States. However, this post is a rough attempt at quantifying the cyclical nature of watch exports. In the future, I may attempt to more carefully capture the timing of global recessions.

Even visually, it is clear that the "COVID recession" had an adverse impact on the luxury watch industry. Net exports of Swiss watches collapsed and displayed their worst performance over the 20 years for which I have data. More careful inspection will also confirm that during the Great Recession of 2008-9 and the "Sept 11" recession, Swiss watch exports also languished. When I apply a formal statistical technique (an ordinary least squares regression with a dummy variable for recession months), the estimates imply that during a recession, Swis watch net exports decrease by approximately 8.4% per month. The result is statistically significant. This is a fairly drastic rate of decline. There is little doubt that the estimate is heavily influenced by the depth of the COVID recession. Nevertheless, the available evidence shows that recessions do, indeed, negatively impact the Swiss watch industry.

What Goes Up Must Come Down

There are many dimensions of the watch industry that defy norms or received wisdom. The evidence I report above, though, shows that the watch industry is like almost every other industry that is out there: when there is a recession, jobs are lost and production declines. It is certainly true that there are gravity-defying outcomes in the watch industry, such as rapidly escalating prices in the vintage segment during COVID (particularly true when it comes to extremely rare timepieces). However, those trends tend to be the exception rather than the rule.

My book on the history of Rolex marketing is now available on Amazon! It debuted as the #1 New Release in its category. You can find it here.

You can subscribe to Horolonomics updates here.]]> Fri, 23 Sep 2022 23:31:17 +0200 https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwUHi_4GBFTGCt3hDS9njgCr <![CDATA[Pugh X Rolex - A Scientific Collaboration]]> https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwVYEDknX-N_rR-xWH3zZqEA It is fair to say that collaborations in the watch industry are, at present, less a novel strategy and more a mature tactic that a brand can use to generate excitement and interest in their products. The success of collaborations is driven by diversity. A brand has its unique heritage, design motifs, and comparative advantages. An outsider has their own philosophy of design, track record, and areas of strength. The two come together and the whole is, hopefully, greater than the sum of the parts.

This post is about a very early collaboration in the watch industry. The brand in question is Rolex, a manufacturer that does not have a reputation for collaboration in product development (beyond the "collaborations" which were necessary in order to source parts in Rolex's earlier years). The outsider is Lewis Griffith Cresswell Evans Pugh, who went by Griffith Pugh. Their collaboration was unique in that Rolex did not explicitly market the lash up with Pugh. In fact, his role in the history of Rolex has remained unsung to this day. The collaboration between Pugh and Rolex was also unique in that Pugh was involved in the inner workings of Rolex watches. Science was the basis of the colloboration and design played a negligible role. Pugh helped Rolex gather data and understand how to implement timekeeping in the most extreme environments.

In this post, I will also offer a new, intriguing possibility: an Omega watch almost certainly played an important role in the first summit of Everest. Before getting into those details, let's start by exploring how I came to understand the relationship between Pugh and Rolex.

A Precipitating DM

A few months ago, legendary watchspotter Nick Gould, aka @niccoloy on Instagram, sent me a DM regarding some archival records he'd found. When he contacted me, I'd been publicly sharing hints about my book on Rolex in a variety of ways. I'd made it somewhat clear in this messaging that the book was based upon archival records regarding Rolex, so I think this may have been related to his outreach.

Nick mentioned that he hadn't been able to access the archival records he'd found and he was wondering if I could help. I was willing to do so, but at that moment I did not want to open up another "vein" in the mine of research, as it were. Doing so often means you don't finish the project you've already started and I really wanted to get my book on Rolex out the door. So, I tabled the issue.

Now that my book is out, I've circled back and obtained a copy of the archival records. They are truly fascinating and they shed light on cold climate extreme adventuring in the 1950s. While reviewing the materials, I learned of a particular Rolex watch of great historical significance. I have been able to identify the current owner of the watch.

Summit Through Science

Very few adventuresome feats are the product of a solo effort. Take, for example, the US Navy Blue Angels demonstration squadron. At an airshow, you look up and usually see six planes flying around. None of those pilots are flying their jet due to their own efforts alone. If Wikipedia is to be believed, they count as colleagues more than 100 other individuals who make any given flight demonstration possible. These include maintenance technicians, logisticians and the like.

Adventure in extreme climates is usually the same although the "teamwork" dimension, in this case, is often more apparent. For example, Sherpa guides were and are a vital part of any expedition to Everest. Their elite mountaineering skills were particularly indespensible for the earliest missions to Everest. Sherpa Tenzing Norgay summitted Everest alongside New Zealand's Edmund Hillary.

The archival records I described earlier come from the papers of Griffith Pugh, a man who was arguably the most important member of the team that first summitted Everest in May, 1953. Without Pugh's scientific work on the physiological effects of cold and high altitude, it would be reasonable to doubt whether the 1953 British Mount Everest expedition would have succeeded. Elite Swiss mountaineers failed to summit Everest just before the British succeeded, an outcome that could be explained by the fact that the Brits had Pugh and the Swiss did not. Yet, Pugh's contributions were largely unacknowledged until his own daughter published a book on his achievements in 2013.

A bit of background on Pugh: he served as a medical officer in the British army during World War II. His military service brought him to Britain, Greece, Crete, Egypt, Ceylon, Iraq, and Jerusalem. His future was heavily shaped, though, by the time he spent at the School of Mountain Warfare (Cedars School) in Lebanon. After the war ended, mountaineer Eric Shipton, CBE, approached Pugh and asked if he would participate in an early Everest expedition. Pugh agreed and he used the venture to study the physiological impact of high altitude. Based upon his research, Pugh made a variety of recommendations for mountaineers, including overnight use of oxygen and diets high in sugar. In a conversation with one of Pugh's family members, I learned that he also recommended important alterations to a wide range of equipment used in Everest expeditions. There is a fascinating collection of YouTube videos describing Pugh's work.

Pugh's insights regarding physiology and equipment were so valuable that they were his ticket to membership in the 1953 British Mount Everest Expedition. This is the famed climb culminating in Edmund Hillary and Tenzing Norghay atop the Everest summit. They were the first to ever reach the highest point on Earth. Pugh accompanied the team on the attempt.

The Rolex Collaboration

Archival records make it clear that Pugh contributed to horology through communication with Rolex's London outpost, both before and after Everest. Much of the archival communication involved the 1953 Everest expedition. As I detail in my book, and as is detailed elsewhere, Rolex endeavored to get watches in the hands of the 1953 Everest mountaineers. It is hard to determine if the watches actually made it to the summit. Indeed, a letter to Pugh from Rolex's director in London, R. A. Winter, suggests even the manufacturer was unsure if the watches were worn by expedition members.

Roughly six months after Hillary and Norghay summitted Everest, Winter asked Pugh, in writing, "I would like to know most definitely if you wore your Oyster Perpetual all the time you were on the mountain." Pugh replied, "I did not wear it all the time on Everest, as I had to use a stop watch for my experiments, and another watch I own had a 12-hour stop watch incorporated." We will return to that "stop watch," aka chronograph, later. This exchange between Winter and Pugh leaves us with lingering ambiguity over whether expedition members did bring the Rolexes to Everest in 1953. If Pugh's statement was equivalent to "all the time on Everest, I did not wear it," that would imply Rolex was not worn by Pugh on Everest. If his statement was equivalent to "some of the time on Everest I wore it but not all of the time" that would mean that Rolex shared wrist time with at least one other watch.

In 1953, the majority of Winter's dispatches were dedicated to pleaing for the return of Pugh's Rolex watch. In late 1953, after the summit, the company's London office collected all of the Rolexes that it had provided for expedition members. The London office then shipped the timepieces to Geneva for an "overhaul," which included re-polishing of the case and replacement of the crystal, among other things. Pugh was the last of the expedition members to ship his watch to London and he needed multiple reminders to do so. This was in keeping with Pugh's reputation as a bit of an absent-minded scientist. Reportedly, on at least one occaison in England, Pugh completely forgot where he parked his car. He told the police it had been stolen and they located it for him.

To be fair, Pugh may have also tired of returning his Rolex for service (a sentiment many present day owners would probably share given service delays). After he returned from Shipton's 1952 British Expedition to Everest, he was asked to send the watch to Rolex in London so that they could, in turn, ship it to Geneva. Within a twelve month period, Pugh had been asked to return his watch to Geneva twice. At least in 1952, his watch was given some priority in servicing. The turnaround was estimated at 2-3 weeks. Interestingly, Winter mentions that Rolex planned to take and keep photographs of the timepiece. There was, however, an additional benefit to the 1953 service. Rolex offered to engrave the caseback to commemorate the successful summit attempt. I will return to this engraving later

We've now seen Pugh's first contribution to horology at Rolex: he wore a timepiece at least once on an Everest expedition and reported on the watch's performance. He also helped Rolex by sending his watch back to Geneva twice so that the company could inspect a timepiece which had experienced some of the most extreme mountaineering conditions. In addition, there was a timekeeping performance puzzle which Pugh presented to the brand. Based upon a late December letter sent from Winter, it seems Pugh reported that his Rolex was not keeping great time. Winter notes that none of the other 1953 expedition members had this issue. Pugh did admit to having dropped his watch roughly three feet onto rock. Watchmakers in Geneva had apparently determined that the balance pivots were slightly bent. After repairing this issue, and conducting other service items, the watch's timekeeping was restored. Correspondence suggests that this repair took some time, though. Winter's Secretary confirmed that the watch was mailed back to Pough on August 20, 1957, more than three years after it left Pugh's hands (there is some chance that archival records are incomplete and this could have been the third round trip made by the watch).

Post-Everest Collaboration

In late 1957, Pugh wrote to Winter and thanked him for returning his "arcticised" watch. He expressed a note of concern to Winter. Pugh was part of the Commonwealth Trans-Antarctic Expedition (CTAE), lead by Edmund Hillary and Vivian Fuchs. This was the first successful attempt to cross the entirety of the Antarctic via the South Pole. Pugh indicated that the team needed to navigate by sextant because compasses would not be reliable at the pole (north is in every direction, more or less). Using a sextant would require reliable measures of time and radio checks for time would be infrequent. Pugh inquired if there was a particular watch which would be reliable in such circumstances.

The weight of this question can not be overstated. Rolex's reliability, or lack thereof, could have a huge impact on the ability of the expedition to survive life-threatening conditions in the Antarctic. Winter replied to Pugh that, based upon his limited experience with navigation in the Royal Air Force, Pugh's watch should be able to handle the task. Winter clarified that inaccuracy was not the concern. Rather, any inaccuracy must be known and consistent in order for Pugh and his team to navigate successfully. They would simply correct for inaccuracy. Winter also supplied a fascinating bit of information regarding Oyster Perpetuals of the era. He stated:

We find that, speaking in terms of degrees centigrade, our watches (regulated as they are in a normal temperate climate) will vary about .23 per second per day per degree centigrade. If, therefore, you are going to work in sub-zero temperatures down to (say) 20 or so degress frost, making a drop from normal temperature of just over 40 degrees centigrade, this would be equivalent to dropping the rating 15 seconds a day from a normal temperate day in London

Winter then asked for the watch's present "rating," in order to plan an adjustment to the watch's timing for the CTAE. In a responding letter dated September 13, 1957, Pugh replied that he would begin to take the watch's rating, which is our first hint that he had some level of skill in horology.

Pugh also offered details regarding work he would do on Rolex's behalf. This effort undoubtedly supplied data the brand would not have otherwise. Pugh had access to a cold chamber, presumably near his "base" at the Medical Research Council Laboratories in Hempstead, England. Pugh's experiment involved placing his Rolex on the wrist of a subject. The watch was covered by clothing worn by the subject. Watch and wearer would then spend some time in the cold chamber, which was registering -30 degrees Celsisus (-22 Farenheit) at the time. Pugh then measured the temperature the watch achieved and planned to send that measurement to Rolex. In the same letter detailing this plan, Pugh mentioned a report from an advance team in Antarctica indicating that Rolex's "chonometer" was performing better than others due to an "absence of large fluctuations."

Rolex-London received Pugh's measurements from the -30 C test, along with his watch, in early November, 1957. In one week the watch traveled to Geneva, was "adjusted" by Rolex, and returned to Pugh (a service timeline anyone would be envious of). Pugh then conducted a second experiment once the temperature of the cold chamber was lowered to -40 C (-40 F). In this case, the subject was Major Adam, who wore the watch under protective clothing in the chamber for a daunting 48 hours. Pugh then recorded performance measures for the watch.

Only a few months after this experiment was concluded, the CTAE met with success. After, Pugh sent his watch back to Rolex - London for service once again. In a handwritten note to Winter he requested "re-oiling" of his watch and the addition of an inscription to read "South Pole Jan 1958." It is with this note that the horologically important archival records end (among those records which I was able to obtain).

Finding the Watches

Much as I did with my story on the strontium-laced GMT watch, I decided to see if I could locate the Rolex mentioned by Pugh in his archival records. I did find it. It is not easy to get in touch with descendants, but I managed to find an email address for one of Pugh's family members and begin a dialogue regarding what I had found in the archives. The family is and was incredibly generous with details regarding Pugh and his watches. It was with great relief that I learned the family knew the exact location of the Rolex. They sent me pictures which I share below with the owner's permission. In many ways this moment was the most exciting part of this project.

Pugh's Rolex Oyster Perpetual, likely ref. 6098.

I do not have measurements of the watch or the assessment of a watchmaker, so in what follows I describe, to the best of my ability and based upon photographs, details regarding the Rolex. The photos sent by the present owner are presented here. I believe Pugh's watch is an Oyster Perpetual in steel reference 6098 "Bubbleback" with a light colored dial. This particular design has a number of nicknames, including Ovettone (Egg), pre-Explorer and the "Everest." The time-only watch features applied baton indices ending at a point directed at the dial center. The indices are doubled at 12 and a small applied coronet is just beneath. The dauphine hands are lumed and there is a dot of lume above the flat end of each index. This lume is likely radium and it would have been vital in the overnight conditions encountered on Pugh's various expeditions. The words "ROLEX," "Oyster Perpetual," and "Officially Certified Chronometer" adorn the dial. Beneath the 6 o'clock index, the word "SWISS" resides.

The caseback of Pugh's Rolex Oyster Perpetual.

What physically distinguishes this watch from all others are the caseback engravings. They are as described in the archives. The first engraving, on top, reads "EVEREST" followed by "1953." Beneath that there is the engraving "SOUTH POLE" followed by "JAN 1958." There is one more engraving beneath this of Pugh's name which curves along the interior edge of the caseback.

Pugh's family also shared photos of a second watch owned by Pugh: an Omega three register chronograph. I believe this is the timepiece with a "12-hour stopwatch" which Pugh claimed to have worn during the Everest expedition. Indeed, the photos shared by Pugh's family show a 12 hour accumulator at 6 o'clock. This watch is harder for me to identify. In all honesty, it bears close resemblance to a Lemania reference 174, minus the tachymeter scale. Indeed, very similar watches have been described by dealers as a reference 174-3 (2451) holding the legendary caliber 321 (the caliber behind the first Omega Speedmaster in space). On Pugh's watch, the sword hands are lumed as are the arabic numberals.

The caseback of Pugh's Omega Chronograph.

There is a "flat four" and "hooked seven" that differentiates the watch from many other contemporary designs. The crown appears oversized and the watch has long pump pushers. All lume is intact and the watch is generally in good condition (there may be a small region of pitting on the caseback).

The present owner of the watches is a highly trustworthy steward of these historically important timepieces. Too often we lose these treasures to the passage of time. I am glad that, in this case, there is little to worry in that regard.

Conclusion

Pugh's contributions to the fields of horology and physiology are an important reminder of the vital role science plays in accomplishing seemingly impossible tasks. While the work of scientists is too often unsung, my hope is that with this post there will be greater appreciation for how important Griffith Pugh is and was in the history of horology, Rolex and extreme climate exploring. Pugh's story also adds an important page to the history of Omega: we now know that this brand was present during the conquering of Everest. That moment was an important waypoint in Omega's ongoing role at even more extreme altitudes found in outer space. While there is common knowledge that Rolex and Omega vied for position on James Bond's wrist, we now know that their rivalry also included the wrist of adventurer and scientist Griffith Pugh.

Sources

Pugh Obituary

L.C.G.E. Pugh Papers. MSS 491. Special Collections & Archives, UC San Diego Library

A screenshot of preowned listings for the Chronomaster Sport. It was priced below retail on the day of the Bloomberg story.

I checked Chrono24 soon after the Bloomberg story dropped and you could buy a Chronomaster Sport for around $8,000, which is well below the retail price. This is strike one for the Bloomberg story. Let's turn to the next strike.

A day or two after the Bloomberg story, Topper Jewelers sent me an email stating that Zenith models were back in stock (I subscribe to their email distribution list, the timing of the Bloomberg story and the email I received is also curious). Topper is a Zenith authorized dealer on the west coast of the United States. I visited their web page and it turns out you could add a Chronomaster Sport to your shopping cart and click checkout (a screen recording of me doing just that is below). That is not consistent with a months-long or yearlong waitlist. Sure, Topper might have had a few people on their list, but it just couldn't have been very long (or exist at all) if inventory was available online. About 48 hours later and you can still buy these watches on Topper's web page (in fact, you can also buy the second design mentioned in the Bloomberg story but I digress). So, that is two strikes.

Really, this is enough to show that the Bloomberg story is, at minimum, exaggerated and even potentially false. The third strike for me was the DMs I exchanged with a number of extremely knowledgeable people in the watch industry. We're talking a GPHG jury member and the like. To a one, they stated the Bloomberg story was false (I will grant there was someone I highly respect who stated there were "no reasons to doubt" the claim but I hadn't shared my reasons yet).

This is where the greatest risk lies for any watch brand. If information about your brand is sussed out as false by knowledgeable collectors, you stand to lose them as buyers. Sure, you might reel in uniformed buyers who think they can buy a Chronomaster Sport at the retail price and flip it for a tidy $3,000 return (or whatever). Those buyers will feel burned, though, when they find out that their watch actually lost value the moment they walked out of the boutique. A brand really risks losing buyers of all stripes when these kinds of highly inaccurate stories circulate.

I don't know exactly how this inaccurate / false information about waitlists was born. The reality is that brands relying on distribution through authorized dealers do not always know the true state of play at the consumer touchpoint because they do not directly interact with buyers very often. However, it is clear that some skepticism regarding wait list claims is in order.

NB I wrote Bloomberg and stated my concerns with their article but they did not reply. At least one additional story about supposed waitlists for Zenith references are now circulating, but the models in question are still readily available at multiple online retailers.

A graph of average Rolex asking prices that omits the origin.

The graph published by the analytics company is designed with a vertical axis starting at a value of $12,000. In other words, the analytics company omits the origin from their graph. The resulting line reminds me of that mountain Richard Dreyfuss' character was obsessed with in the movie Close Encounters of the Third Kind.

I've included a picture here for reference, the actual formation is called Devils Tower and it is in Wyoming. The end impression is that Rolex prices skyrocketed quickly, mostly during the pandemic, and now they are collapsing.

But what happens when we include the origin in the graph? Visually, we get a very different impression and it isn't nearly as dramatic. I present that image here.

Average Rolex asking price, origin included.

This graph is also more accurate. We see a slow increase in asking prices and then an almost equally slow decrease. If we use a ruler to measure the distances traced by the line, the first graph makes it appear that the Rolex index increased by over 600% in less than a year. This is absolutely not what happened to the index. In reality, the index increased by 29%.

Average Tudor Black Bay GMT asking price, no origin.

This is not an isolated distortion from the watch industry analytics company in question. I also recovered the data from a graph they published showing the asking price for the Tudor Black Bay GMT. Their published figure, which I recreate here, leaves out the origin and seems to suggest that the Black Bay has recently shown a fairly precipitous drop in its value.

Average Tudor Black Bay GMT asking price, origin included.

When you include the origin, the decrease looks far more modest, which is the true result when it comes to the reported asking price. If we believe the analytics company, the Black Bay GMT asking price decreased by roughly 10%. This is still a noteworthy decrease in value, but dollarwise it amounts to about $475. It is good to know this is happening, but it isn't really precipitous.

According to Mark Twain, British prime minister Benjamin Disraeli once said, "There are three kinds of lies: lies, damned lies, and statistics." This sentiment has, unfortunately, resonated with many. Really, though, it is not statistics that lie. Instead, when proper practice is not followed in data analysis and inference, the result is often misleading. The good news is that I've also seen signs that watch data analytics companies are responsive to feedback and trying to do better. Let's hope that trend continues.

My book on the history of Rolex marketing is now available on Amazon! It debuted as the #1 New Release in its category. You can find it here.]]> Fri, 29 Jul 2022 18:17:56 +0200 https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwUcOWGCJFySnUoy9CZgXDJO <![CDATA[We Now Have Four Wrists]]> https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwW9aslOGEnrBXMq2h3ehXEp There is an insightful piece of advice I've heard from longtime watch collectors. It is this: you only have two wrists and they are extremely valuable property. Think carefully about what you buy and ask yourself if a watch brand has earned the right to reside on your wrist.

Saraswati, the Indian goddess of wisdom, music, art and speech.

It recently occured to me that wrist real estate has doubled for many people these days. No, I'm not referring to some kind of surgical grafting of additional limbs. I'm talking about the "metaverse." Before the advent of this buzzword, I generally refered to this space as virtual reality, so I'm going to stick with that for the purposes of this post.

A bit of background: back in December I bought my family an Oculus Quest 2 from Facebook (now Meta). This is a wireless VR headset with accessible pricing. One of my kids had tried out a game call "Job Simulator" in the past and loved it. I thought I'd bring one of these headsets into our family and see what happens. I also thought there were decent odds that it might end up collecting dust in some corner of the house as everyone lost interest.

It turns out that the Quest has been way more popular in our family than I expected. My spouse loves a workout app and I use that now and then. I enjoy a few games as do both of my kids. We're still using this product on a regular basis.

One of the problems with using VR of the Quest variety is that it is very easy to lose track of time. You can't take out your phone to look at the time (hands occupied with controllers) and you can't see anything in "meatspace" because you've got two screens strapped to your head with all of your other vision blocked out (there is "pass through" of video around you but it isn't very detailed). If you press a button on a controller, a menu pops up with the time but it is really a bit jarring and could possibly lead an app to crash.

It then occurred to me: why isn't a watch available on one (or both?) of those additional virtual wrists? A wristwatch offers the same advantages in both cyberspace and meatspace: it keeps you in the moment. If you check the time with your phone, there is a huge risk that your attention will be sucked into some kind of DM or social media platform and you'll lose whatever connection you have with the moment. In fact, I've read that a lot of the mobile app space is devoted to figuring out how to make that distraction irresistable. A watch does not carry the same risk. You might momentarily become distracted by some design element but basically you look at the watch, get the time, and then you're right back in the moment.

The exact same rationale exists for a VR wristwatch. Let me illustrate this with a video I took in the VR game called "Warplanes WWI Fighters."

In the video, you'll see that popup menu I mentioned earlier, it displays the time. I click Resume and then I'm back in the game (this was the very start of a "mission" and you can see a number of planes off in the distance if you look closely). You can see that my actual hands / controllers are rendered in VR as gloved hands and I'm motioning with the controller to show how I could check the time if there were a wristwatch in VR. There isn't, so my only option is to take off the headset or use the popup.

I don't want to come across as pollyanish about the possibility that the watch industry will start offering virtual versions of their product. Doing so would require a whole lot of negotiating with developers of a VR platform (in the case of Quest, Facebook / Meta) as well as game developers. However, leadership at most of these platforms is very eager to make VR as appealing as possible, especially when there is revenue potential (we'll get back to revenue in a minute). The watch industry would also need to convince app developers to allow their virtual product inside their app.

On the other hand, the cost of rolling out the virtual version of a watch should be minimal. Three dimensional renders and models of watches are standard practice in the development process. Adapting these design files to virtual reality is entirely feasible. There is also precedent for other manufacturers to bring their products into VR. Both Apple and Logitech collaborated with Meta / Facebook so that certain keyboards could be presented and used in VR. Further, there are real complimentarities between the historical and cultural experiences portrayed in virtual reality and the history of timepieces themselves. What if you could wear a special edition Seamaster while completing a James Bond mission or start the chronograph function on a Speedmaster while trying to time the engine burn during a VR version of the Apollo 13 mission? The list goes on and on.

Virtual reality represents an opportunity for the watch industry to increase the value proposition when it comes to timepieces. If you buy a particular watch and you can still wear it when you're using your virtual wrists, the reason to buy it is that much more compelling. In addition, there is a real risk that the Apple Watch will become more competitive if the traditional watch industry does not offer a virtual extension. Rumors are swirling that an Apple VR product is in the offing in the very near future. If there is one thing we can predict, it is that Apple will do everything it can to ensure that all its products, watches included, have functionality that is integrated with their VR headset. Traditional watchmaking has been remarkably resilient in the face of smartwatch ascendency. That may not continue if smartwatches outperform traditional watches in the virtual realm.]]> Thu, 14 Jul 2022 23:47:32 +0200 https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwW9aslOGEnrBXMq2h3ehXEp <![CDATA[Watch Market Finance Cosplay Part Deux: Price is not Ask]]> https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwWGOyXJX6mCs--bbeigX9oC This post started as an investigation into whether the crypto "winter" does actually explain recent changes in luxury watch prices. I was motivated by a Bloomberg article containing this claim (as well as subsequent discussions of that article). As I started working on this post, though, I realized that the data referenced in the Bloomberg article is so bad, my plans had to change. Fam: we have a problem. People publishing numbers relating to the watch industry do not seem to understand some very fundamental concepts when it comes to markets (I'm going with this possibility rather than a rather more troubling conclusion: they understand and they're actively misleading people). Those same people are making statements and drawing conclusions based upon some very shaky foundations.

So, this post is going to explore why a lot of the numbers we see when it comes to the watch market do not actually measure prices. Many claim to report prices, but that is not what they're doing. This is becoming a bit of a theme on Horolonomics: the fact that someone has a number does not mean that number measures something you are interested in. I have a whole lot of sympathy towards those who are pushing us towards the use of data in order to understand the watch market. But poorly measured data is really no different than visiting the oracle at Delphi and having her roll the chicken bones or read the tea leaves or whatever it is she did. In fact, mismeasured data may be way worse than no data at all because it could lead you to inappropriately suspend your skepticism.

A price taking market. Not how much of watch trade works.

Let's get into it. There are a lot of ways a market can be structured. One is what we might think of as "price taking." This is like the supermarket: they post a price for an item on their shelf. Then, you go in and buy it at that price. So, there is no difference between what the supermarket asks for an item and what you pay.

The important thing to note is that very few online platforms for luxury watches operate in this way. Instead, we see a whole lot of asking prices for watches. What we don't observe is the closing price: that is, the price actually paid for a watch (for that matter, nor do we observe the "bid," which is the price buyers are willing to pay). When people say "price" for an item in this type of market, what they're really thinking about is the closing price. This is the amount of money that changes hands. The closing price is an agreement between buyer and seller about the object's value.

Let me give an example of why this is a problem for so-called watch market data providers. Subdial defines their "market index" for watches as follows: "Our data model is proprietary, it is updated daily with listings from around the world." So, they basically scrape a whole bunch of numbers off of a whole bunch of watch platforms. Here's the thing: these are asks. They are what the seller wants you to pay. They are not closing prices. Closing prices are much, much harder to obtain.

Here's why this is a problem: suppose I post a vintage Omega pie pan Constellation on a watch forum scraped by Subdial. I list it for $3,000 but I know it doesn't warrant that amount. But I think, "hey, someone out there might actually go for it." Into Subdial's database goes an entry that says a Constellation price is $3,000.

Now, let's say I get a DM from someone and they say, "look, that thing is not worth $3k but I'll give you $1k for it." I give up the ruse, agree to sell at a closing price of $1k and we carry out the transaction on Venmo or whatever. I mark the listing sold in the forum. So, Subdial has the wrong number in their database. The price is the actual closing price of $1k but they record it as $3k.

No amount of handwaving is OK in this situation. The price simply is not $3k. Please know that I'm only mentioning Subdial here as an example. There are many many people now publishing mismeasured "price" data. These publications are kind of like the National Enquirer (tabloid) of economics: they get a whole lot of attention but John Travolta did not actually marry an alien (the price of a Constellation is not actually $3k).

Bid ask spreads before and after the Great Recession.

I know some of what I bring up here might risk seeming pedantic. But particularly now, when liquidity is lower and there is a whole lot of uncertainty due to the high risk of recession, asks are probably really really far off from closing. We know this from the US Treasury bond market, where bid ask spreads (the difference between what a seller will accept and a buyer will pay) spiked during the Great Recession of c. 2008 - 9 (see the included graph). So it's quite likely that the asks masquerading as watch prices right now are more inaccurate than ever.

I do believe that, in general, more information is better. However, it is very important that anyone publishing or discussing numbers honestly reports the limitations of those numbers. Right now, that seems far from the case when it comes to secondary market watch prices.

My book on the history of Rolex marketing is now available on Amazon! It debuted as the #1 New Release in its category. You can find it here.]]> Sat, 09 Jul 2022 21:43:19 +0200 https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwWGOyXJX6mCs--bbeigX9oC <![CDATA[Royal Oak Reference 5402 Sales Numbers]]> https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwWZZMNNnXPQotKEpFgimKzx One premise of economics is that human behavior often follows certain predictable paths. It isn't always the case, but it often is. For example, every semester I poll my students with a certain question and every semester the results of the poll are perfectly predictable because there are two laws in economics which almost always hold. Of course, I would be hypocritical if I didn't also follow a predictable path and I'd venture to say that I follow a law of behavior that applies to almost all empirically-oriented economists. It is this: when we see a table of data we want the spreadsheet.

Yesterday, I virtually attended a talk hosted by the Horological Society of New York entitled "The Royal Oak: from Iconoclast to Icon" delivered by Audemars Piguet's Heritage and Museum Director (Sebastian Vivas).

A fairly rare red-dialed Audemars Piguet Royal Oak I photographed at a Phillips Auction preview.

The Royal Oak is a horologically famous watch design celebrating its 50th anniversary this year, you can read more about it here. Sure enough, Mr. Vivas presented a slide during the talk and I immediately wanted the spreadsheet.

Unfortunately, a data-driven economist in these circumstances ultimately ends up doing fairly khafkesque work. That is indeed the case when it came to the Royal Oak sales slide. At one point I kind of chuckled at the fact that somewhere in Le Brassus, Switzerland on a bit of computer memory, there is a spreadsheet of numbers that was converted into a slide deck. The deck was put up on a screen in New York City, converted into bits that went across the internet via Zoom, landed on my computer monitor, I captured the picture, processed it with image manipulation and OCR, and now I have the spreadsheet which still sits on the drive in Le Brassus. The norm when it comes to communicating numbers seems to involve entropy that often has to be reversed.

In any event, I decided to offer the resulting spreedsheet for download, it is available here. I'd just kindly ask that if you use this data, you thoroughly document the source to include Mr. Vivas, the talk at HSNY and this humble blog. Throwing a few links back to these sources would undoubtedly be appreciated.

I also wanted to offer a somewhat barebones analysis of the data and my own interpretation of the numbers.

Sales trend of all AP Royal Oak reference 5402.

Let's begin with the figure presented here. Some have claimed that the Royal Oak didn't find many buyers when it was introduced. The data certainly doesn't match this claim. A sale of almost 500 examples during the first year of availability does not strike me as a lukewarm reception given that AP was a fairly small company in 1972. There was double digit grown in sales (between 10 and 17%) in '73, '74 and '77. There was a decline in Royal Oak demand in '75 and '76, but these were the years when the OPEC-induced energy crises was really starting to bite. It isn't surprising that sales of a watch, or anything really, slumped in those years.

In 1977, sales of steel Royal Oaks decreased by an additional 15% but AP found a solution to this retrenchment in demand: make the watch in precious metals. This is apparent in the next figure, presented here.

Sales of AP Royal Oak reference 5402 broken down by metal.

In '77, the sale of two-tone (steel and yellow gold) and yellow gold references allowed total 5402 sales to resume double-digit growth, which lasted one more year. Following the 1978 peak in 5402 sales, demand declined year-in and year-out. By 1990, sales were hardly noticeable. However, the Royal Oak Offshore was just around the corner which was then followed by many additional riffs on the theme. AP thrived in no small measure due to the enduring popularity of Royal Oak variations.

One final note on this data: there is one lonely 5402BC which was sold in 1972, roughly five years in advance of the other precious metal examples. The provenance on this progenitor white gold Royal Oak is undoubtedly fascinating. We can only hope that in future years the story is told.]]> Tue, 07 Jun 2022 21:47:14 +0200 https://api.follow.it/track-rss-story-click/v3/IcuRW0MbYwWZZMNNnXPQotKEpFgimKzx