DAVID BUCKHAM: Inequality in a luxury watch

Lockdowns, insurrections and riots aside, the insanity of our world today is best exemplified, ironically, by the auction of a luxury Swiss watch. On July 21 2021, in the midst of the pandemic with economies worldwide on their knees, a Patek Philippe Nautilus Ref 5711 with an olive green dial sold at auction for $490,000 — 10 times its retail value.

To be clear, if you were to walk into a Patek Philippe store and ask for the 5711, and were it available, its retail price would be $52,000. It is to all intents and purposes an uncomplicated timepiece, manufactured in steel rather than gold, and therefore theoretically less expensive to produce and in theory also less desirable.

However, owing to a combination of scarcity, prestige, the new reality of being stuck in your home for months on end and the explosion of social media influence, there has been a sea change in the nature of global demand for fashion, particularly high-end brands.

Because of the limited number of watches that the likes of Patek Philippe, Audemars Piguet and Rolex manufacture, only their most loyal and well-connected customers will be offered new watches from retailers.

Thereafter, the only way to purchase one of these watches is through the resale market, often at a much higher price. This has been the case for many years. Since the onset of the pandemic, however, prices have soared.

In 1971, Audemars Piguet, the Swiss watch company founded in 1875, faced an existential crisis. The rise in popularity of quartz watches produced in Japan had caused an upheaval in the industry. The new technology, mass-produced in the East, dealt a huge blow to the age-old Swiss watchmaking fraternity. Audemars Piguet, its revenue significantly diminished, needed to make a bold move to reinvigorate its appeal.

At the time, the company’s research showed there was rising interest in steel watches, particularly in the Italian market. So the company hired Gérald Genta, a supremely talented watch designer at the peak of his powers.

On the evening before the opening day of the Basel watch fair in 1971, Audemars Piguet’s MD called Genta and tasked him with designing an "unprecedented steel watch" — but he needed the design by the following morning. By the time dawn broke, Genta handed the struggling Swiss watch company a design that would change the history of the watchmaking industry forever. The name of the watch was the Royal Oak.

Not long after, Genta would change the fortunes of another globally renowned Swiss watchmaker — Patek Philippe — founded in 1839 in the picturesque Vallée de Joux.

In 1974, sitting in the restaurant of a Basel hotel, Genta noticed some Patek Philippe employees across the room. As Genta recalls in an interview in 2009, he summoned the waiter to bring him a piece of paper and a pencil. Five minutes later, he handed the Patek employees a sketch of a watch that would become an iconic piece in the company’s collection for decades. It was the Nautilus — a steel diving timepiece inspired by the portholes of a ship and named after the submarine of Captain Nemo in Jules Verne’s science-fiction classic Twenty Thousand Leagues Under the Sea.

But back to the 2021 auction. At 10 times the retail price, the sale surpassed even the most fervent estimations.

After the mass social upheaval generated by the pandemic, and then properly kicked off by the murder of George Floyd, it put a punctuation mark to the word that best encapsulates our unique era: inequality.

Throughout the pandemic, while many have struggled financially, there has been a simultaneous surge in demand for luxury goods of all kinds. The influence of social media and sports personalities explains some of this demand, but the real explanation is the world’s vast increase in money supply.

Since 2008, when the US Federal Reserve introduced its first quantitative easing programme to soothe the roiling markets in the aftermath of the global financial crisis, it has flooded the financial system with dollars.

Instead of pursuing a stimulus policy grounded in long-term, sustainable value creation, such as building dams, roads and other infrastructure, the US government, facilitated by the Fed, has opted to paper over the yawning economic cracks by printing excessive amounts of money.

Between 2008 and now, M2 — a common measure of all dollars in circulation in the US financial system – has tripled from $7-trillion to more than $21-trillion. In theory, this monetary policy is supposed to help the wider economy, including small businesses and the average worker, withstand the devastating effects of economic shocks such as those presented by the crisis in 2008 and the pandemic.

In reality, however, a disproportionate amount has benefited relatively few, who have, in turn, invested their excesses in assets such as equities, cryptocurrencies, real estate and luxury goods. The ultimate result is that the gap between the haves and the have-nots is growing at an accelerating rate. These are uncharted waters.

Never has the world been flooded with so much money, and yet never has the gap between Wall Street and Main Street — the chasm between the 1% and the rest — been wider.

*Buckham is CEO of management consultancy Monocle Solutions, and one of the authors of the new book The End of Money