Luxury Markets and the Coronavirus

Part
01
of one
Part
01

Luxury Markets and the Coronavirus

The COVID-19 pandemic is affecting most aspects of life for all, socially and financially. At least, one area still seems relatively safe to invest in, high-end collectibles. While still subject to some rumblings of the overall economy, most segments of these markets seem to hold onto their value, at least in the long run.

Art

  • The COVID-19 pandemic is resulting in the cancellation of upcoming art auctions, which may best gauge the overall health of the collectible art market as datapoints may not be available from the vast majority of private sales.
  • The art market tends to lag the overall economy by quite a bit. Even the early days of the last recession saw a seemingly unstoppable art market. On the same day Lehman Brothers collapsed, one work brought in over $200 million on the evening of September 15, 2008. Later that fall, the art market did tank but then didn't start to recover until long after the recession ended in June 2009.
  • On March 16, Christie's and Phillips have postponed most of their spring sales events indefinitely. Phillips had postponed all events until at least mid-May. Soon after, Christie's moved to combine its previously scheduled London and New York auctions into one event in New York in late-June, where it will be auctioning Impressionist, modern, post-war and contemporary art. Phillips is also combining New York and London events into one week of auctions in New York in late-June.
  • Both Christie's and Phillips are keeping events from late May to July in place as previously scheduled. Sotheby's has rescheduled some mid-April auctions but has not yet committed to future dates.
  • If the economy takes a huge downturn as a result of the pandemic, the art market may soon follow. However, auction houses may be more discerning as to what they offer for sale in public auction and instead focus on private sales.

Cars

  • The COVID-19 outbreak is affecting upcoming major auctions for car collectors. Barrett-Jackson is rescheduling its annual auction event from April to October 2020. Events planned for March and April by Mecum Auctions have been postponed without any new dates announced. RM Sotheby plans to hold its scheduled March auction as an online-only event.
  • The most recent auction event at Amelia Island did take place in early March 2020 amid early outbreak concerns. The two-day auction was apparently a great success, with bidder registration exceeding that for the 2019 event. Sales topped $35.8 million with 94% of all auctioned properties being successfully sold. Final sale prices exceeded expectations, including 1990 Mercedes-Benz 560 SEC AMG 6.0, which sold for nearly double its pre-sale estimate.
  • Hagerty is a company that insures classic automobiles while providing valuation services and offering a community to automotive enthusiasts. It publishes a monthly market index (updated the 15th of the month) to track the strength of the North American collector automobile market. It has indices for its overall market and seven segments, ranging from Affordable Classics to Blue Chip with Ferrari in its own class.
  • The overall Hagerty Market Rating (HMR) declined for the second consecutive month for March 2010, falling 0.11 to 62.55. The five-year low was 61.91 in December 2019. The five-year high was 71.95 in May 2015. The rating for March does not account for the recent dip in the stock market or the recent wave of cancellations due to the coronavirus outbreak.
  • The HMR stayed between 55 and 60 for most of 2007 before falling below 55 late in the year, bottoming out in the 47 to 48 range in mid- to late-2009 before steadily rising to the all-time high of 71.95 in May 2015. This somewhat tracks with the last recession, which began in December 2007 and ended in June 2009.
  • On March 12, 2020, Hagerty posted an article evaluating the potential effect of the coronavirus pandemic on the collector car market. It noted that the market typically reacts to five economic factors: the stock market, oil prices. residential real estate prices, unemployment and automobile loans. Potential impacts of the coronavirus outbreak would likely be seen through those factors. For instance, the recent and precipitous drop in stock and oil prices — at least partially caused by COVID-19 concerns — would likely have the most immediate impact.
  • Any immediate impact will mostly be on the under-$100,000 segment. Cars selling above that price point are more likely to hold onto their value.
  • Real estate prices aren't likely to affect values of cars with exception to those that are highly leveraged. The effects of unemployment and automobile loans would be more gradual, depending on the length of the current crisis.

Watches

  • Despite a big drop in Chinese shoppers due to the coronavirus outbreak, sales at luxury retailer Watches of Switzerland have remained strong. "Demand for its high-end watches was so strong that they had been able to maintain sales despite the number of Chinese visitors to its stores falling". However, their competitors in Switzerland and Hong Kong had been far more badly affected.
  • "Demand for luxury watch brands in the UK and the US continues to exceed supply."
  • Trading figures for the group showed "revenues of almost £258 million in the three months to January 26, almost 13% up on the same time last year."
  •  Rolex is outperforming other brands, which helps Watches of Switzerland as the number one Rolex retailer in the UK.
  • "The Watches of Switzerland Group has 127 core showrooms across the UK and US, including 22 dedicated single-brand stores in partnership with Rolex, TAG Heuer, Omega and Breitling."
  • One expert notes that "roughly 97% of all watches that hit the market in Switzerland won't rise in value."
  • Chinese tourists have traditionally been the biggest buyers of Swiss watches. However, it was predicted that while the coronavirus pandemic has currently dampened Chinese demand for luxury watches, in the future China's wealthy will likely continue to favor Swiss luxury watches.
  • In 2019, even before the impact of the coronavirus, companies in Switzerland were struggling to move the same number of watches as they did in previous years, as it was partly affected by Chinese imposed Visa restrictions. Luxury groups such as Swatch, Richemont and LVMH are particularly at risk due to the drop in Chinese sales.
  • Even before the coronavirus made an impact, timepiece makers were already struggling to convince shoppers about the value of luxury timepieces.
  • One expert notes that the best pieces to invest in would be the "Rolex Daytona (steel and bicolor), Patek Philippe Nautilus, and Audemars Piguet's Royal Oak, as these brands and their various models are among the 20 priciest timepieces sold at auction. Other models and other brands, may result in investors waiting as long as 50 years for the timepieces to rise in value."
Sources
Sources