The Ultimate Shill, adnotated.

Having just stumbled across Velociphile’si diamond in the rough, and with no guarantees that bitrot won’t take hold of his sorely underused blog any day now, let’s reprint and adnotate this Patek Philippe-themed gem entitled “The Ultimate Shill” from November 29, 2005ii :

“As a collector myself I may buy for my museum but, it is a private deal. We are not manipulating the auction market.”iii

So says Philippe Stern, but Patek Philippe has been supremely successful in conjuring a frenzy for its line of current wristwatches. What has Patek Philippe allegedly done specifically? Well, at the start of the 80s, Patek started aggressive buying of their vintage pieces on the second hand market “for their museum”. A strategy allegedly proposed and developed by Alan Banbury (acclaimed horological expert who was a personal consultant to Philippe Stern during the creation of the museum collection) to reawaken interest in the brand. Crucially they also made sure the results were loudly accounted in the press as evidence for the mounting value of old watches. Remember up until this point, that watches were really not bona fide collectibles. That all changed, particularly when the Calibre 89 fetched $3.7 million.iv Suddenly, this event created a market among collectors for wristwatches.

Apparently, many of the pieces in that 1989 auctionv were ones bought previously at auction for many times less some years before. Had Patek Philippe bought and held them for the 1989 auction or were they from private owners? Either way, this had the effect of pushing up prices steadily; for both vintage, but more importantly, for their continued new product. All in all, a finely judged marketing strategy that has paid dividends for the company, as well as certain auction houses.

And you only have to look at the PP magazine to see regular direct or subtle references to the performance of their watches at auction implying the constant investment potential of practically any piece with Patek Philippe on the dial.vi

So when the company seems vague or keeps shtumvii about whether a particular line is due for the chop or not, they are just continuing their strategy; let rumour do the rest. As an example, take the latest surge in 5070 (you know, the one that’s basically a finely finished vintage Speedmaster)viii and 3712/1a (a 5055/5085 movement in a Nautilus case).ix Strategically placed rumours, certain high profile and arguably ludicrous sales at auction (when the pieces are still in dealers if you bother to look) works wonders.

Of course, the huge jump in prices is a function of the interaction of buyers AND sellers. Has Patek’s “so called” manipulations benefited the brand? Yes, certainly, but has also benefited some of the lucky owners of Pateks by luck or judgement.

Question is, PP seem so far below the supply-demand equilibrium point, with so many wait listed watches on deposit in dealers. Why not produce more? I think the answer is two fold. Back to Mr Stern:

“The first thing we look at is in creating demand and adjusting production. The worst thing is to over-produce. We currently do not have the resources to increase production significantly. This will only be done if we find the right watchmakers. Our limitation is in finding the right people. After that, the challenge is in ensuring the quality and good reputation is maintained. We will be increasing volumes slowly though.”

I agree there is a resource limitation, but there’s another issue. The usual rule of luxury goods production guidelines is always produce one item fewer than demand, but I don’t think this applies so simply here. A Patek Philippe must remain a dream, an elusive and exclusive piece so it will never hit supply/demand=0.99; more like 0.5.x Otherwise their ability to charge a premium would disappear disproportionately quickly in relation to the closeness to the market limit – in an irreversible flash. I’ve seen this in the car industry, it’s a wonxi way ticket of brand suicide.

Mr Stern is no fool and is in the game for the long run, through ups and downs, boom and bust, operating at this level gives huge protection against the impending burst of the watch bubble.

And in their defence? Let us not forget the lucky (or smart) who reap the benefits of this alleged situation.

In addition, Patek are one of the few who are trying to do something about limiting production and feeding secondary markets at least on the serious pieces.

At least unlike so many pretenders in the luxury market, Patek is backed by real historyxii and substance and the indisputable quality of their products relative to what else is available and comparable.

So it is that Patek now enjoys a Ferrari-like reputation among collectors : they’ve the best heritage, they make a very fine product, and they diligently protect their future by investing in their past.xiii And this is what it means to succeed in the post-accuracy era of watchmaking.xiv
___ ___ ___

  1. After a bit more digging, it looks like V is still active on the WatchProSite forums. []
  2. Archived. []
  3. Even though confidence man par excellence Aurel Bacs will swear on his mother’s grave that manufactures have represented no more than 5% of total bids in his gavel-bearing career to-date, there are barely 5% of watches worth bidding on at any given auction!

    “Do you really think you can manipulate the market with 5% [of] buying ?” he asks rhetorically ? When it’s on only 1% of the watches being bid, carefully selected for maximum impact and 5x pricier than average, ummmmm ya! I do! Not that the Nautilus needs much help to keep its prices sky high, but the 1518, 1463, 2499 have certainly benefited from timely raises of the paddle, and it’s entirely probable that the sexy 2526 is next. Mmmm… love me that first-series enamel dial with pinned hour markers. How not ?   []

  4. The only platinum 2499 not in the Patek Museum (there are only two total) was also sold at this auction for CHF 418`000 ($253`000 at time of sale). It would later be owned by Eric Clapton for about a decade before being sold at Christie’s in 2012 for CHF 3.4 mn ($3.6 mn). This works out to an appreciation (or currency devaluation) of 10-12%, depending on which currency is your yardstick. []
  5. This auction was none other than “The Art of Patek Philippe” hosted by Antiquorum on April 9th, 1989. It was the first “thematic” auction of its kind and it helped to mark the 150th anniversary of the brand. It also launched an entirely new concept in watchmaking to that point : the limited edition. So in a weird way, the largely forgotten 3960 was the forebear to every RM, ROO, and Big Bang out there today. []
  6. With a newer issue sitting on my desk, I can certainly confirm that PP is still leveraging this subtle psychological trick to great effect.

    Quote unquote important Patek auction results 2018

    []

  7. “Shtum” is a Londonism meaning to keep quiet.

    Speaking of which, how great is Urban Dictionary ? It renews whatever faith in crowdsourcing Wikipedia killed. []

  8. Quality over quantity, yo. []
  9. Pretty over ugly, yo. []
  10. Thierry, appointed President in 2009 and now the fourth in the Stern family line to head-up Patek Philippe, has got this “0.5 supply/demand” ratio coursing through his Swiss veins even today, 13 years later. Whatever you do, don’t make too many!!!1

    Following a similar strategy is relative upstart Richard Mille, though RM has built his brand through the use of celebrity ambassadors à la Hans Wildorf (Rolex) rather than through vintage market manipulation, the input of world-class marketing and the output of limited supply is essentially the same. []

  11. One ? Maybe I’m missing a joke here. Perhaps that the “won” is the South Korean currency and Kia/Hyundai cars are mostly crap ? Except SK cars have always been value propositions, never objects of desire to be plastered on a kid’s wall everywhere from the favelas to Montreux. Anyways. []
  12. The history of Patek is one of continuous innovation, most recently with its pallet lever, escape wheel, balance spring and balance made of Silvinar (vacuum-oxidised silicon co-developed with the Swiss Centre for Electronics and Microengineering). But of course there are countless others in their 180-year history. []
  13. Though Ferrari also protects their future by producing “extras” of “limited edition” models, which is really just their sprezzaturan way of accommodating VIPs and creating artificial fraudulent scarcity all in one fell swoop. But then again, Patek has been accused of the same (most recently with the “50” steel 5004 examples in 2011). []
  14. Today is not only the post-accuracy era because of quartz movements, although that’s certainly part of it. We’re also in the post-accuracy era because it’s never been more common to own more than one watch (yay consumerism!), and as soon as you own more than one mechanical watch, at least, chances are that you’re setting the time/date every time you strap it on. Yes, there are watch winders available to keep your automatics running when they’re not getting wrist-time (even for manual movements), but these are expensive and debatably damaging to the mechanisms. So if one of your watches is off even 20 seconds/day and you wear it for three days before taking it off for two weeks, how is the watch really improved if it’s suddenly accurate to 5 seconds/year ? This is asked rhetorically because I’m afraid the answer is pretty subjective at this point.  []

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