What does Trump’s $100,000 watch tell us about the future of luxury goods?

We write about watches on our finance blog for several reasons. First, watches measure consumer confidence. Hardly anyone needs a watch, and the few who do would be best equipped with a Casio F91w. So there’s a lot to read about regional changes in demand for more sophisticated and flashy things.

Secondly, Swatch and Richemont are listed, as is Watches of Switzerland, so it is market-related content. Third, privately owned watchmakers expect us to reproduce their chatter while respecting the secrecy of their business practices, and frankly we’d rather not do that. Fourth, our readers often click on watch stories.

That’s why we take notice when a new watch microbrand appears. For example:

The Victory Tourbillon is the limited-edition flagship watch series from Trump, a versatile leisure and lifestyle brand. The ticket price is $100,000, which is why FTAV was concerned about the surcharges.

Tourbillon means there is a rotating cage around a tick-tock bit. The idea is to make the clock mechanism more accurate by minimizing the effects of gravity. Even though this probably doesn’t help, people appreciate the extra technical effort.

However, tourbillons have become much less special in recent years, with Chinese factories producing decent reproductions and simulacra of Swiss craftsmanship and Swatch’s own ETA movement maker being able to supply the most complicated parts in kit form. Few manufacturers design their own movements from scratch, and at the super high-end the arms race is to make everything as thin as possible.

Or to put it as an old meme:

The Trump Victory Tourbillon isn’t particularly thin, but it says “Swiss Made” on the dial, so it can’t be a Chinese-made movement. (There are many rules for advertising with Swiss origins, including that a movement must be assembled in Switzerland.) ETA actually only makes movements for Swatch brands these days, which limits things even further.

The website says:

The Trump Victory Tourbillon is equipped with a Swiss-made TX07 tourbillon. Each watch consists of over 200 individual parts, all of which work together perfectly and deliver outstanding performance.

. . . which means nothing. However, the site also includes a close-up video of a movement with a distinctive symmetrical plate above the balance wheel:

This is a telltale sign of a BCP T02. The T02 movement, designed by Olivier Mory, is sold to small-batch watchmakers such as Yema, Aventi and Louis Erard. Time & Tide says Mory discovered “the cheat code” to make Swiss tourbillons affordable.

Mory confirmed via email that he delivered the Trump Victory Tourbillon movement to an outside watch assembly company, adding:

We use the standard price list for our tourbillon range, which is around $4700/movement for batches in size 100-200. With this batch size we are usually very competitive for a movement that is 100% made in Switzerland.

(Mory also sent us a schematic of the movement, which lists suppliers for every gear, spring and pin. The information contributes nothing to this post, but in an industry dependent on secrecy and nonsense, such transparency is important like a breath of fresh air.)

So whatever, let’s get going. Movement: $4,700.

Another Swiss watchmaker that avoids woo-woo is Code41, a kind of watchmaking BrewDog. Members of the online community vote on designs and receive detailed data sheets for each construction, including the tourbillon, developed in collaboration with Olivier Mory’s BCP Tourbillon in 2022/23.

Code41 offers a whole host of detailed information on wholesale watch parts costs on their website. Quality and complexity greatly influence the dial, but for simple construction, dials start at around $10 and cases can cost up to $25. According to Code41, better quality could mean $50 for the face and $80 for the body.

Retail prices for watches are typically six to eight times the assembly price, but Code41 only sells direct and therefore charges a markup of 3.5 times the cost. The tourbillons sell for around £12,500 ($16,700), which translates to a wholesale price of around $4,800. It’s therefore safe to assume that the cost of parts other than the movement itself is unlikely to be more than $200 for something aimed at the high end.

This does not apply to the Trump Victory Tourbillon, which, according to the website, features “approximately 200 grams” of 18-karat gold “across the band, case and clasp” and is “decorated with 122 VS1 diamonds.” All we have left to apply is the acrylic backplate, face and some fixings. We erred on the side of caution and added $200 for these items, but judging from the photos, it’s most likely an overestimate.

Still, two hundred grams of gold is a lot of gold. It’s about the weight of a hamster, putting the Trump Victory Tourbillon in the same weight class as larger examples like the Rolex Deepsea, which has a US list price of $52,100 in gold.

The spot price of gold at pixel time is $2,648 per ounce, so 200 grams of 18-karat gold is equivalent to about $19,000.

Then there are the diamonds. VS1 means a diamond that is slightly imperfect. The value is five levels below the flawless value. So if diamonds were valued like bonds, they would be around BBB+.

But there isn’t much information at this end of the diamond market. Certifying the quality of a stone that weighs less than a quarter of a carat (about 4mm in diameter) is a waste of money. The stones encrusting the Trump Victory appear to be 2mm at most, so even with a VS1 clarity rating, any estimate of value must be an estimate.

A single pinhead-sized diamond might retail for $15 (or a fraction of that if grown in a lab). We will be careful here too. It’s not unreasonable to assume that 122 pinheads in VS1 clarity would cost around $2,000, although it could be much less.

Here are the results so far.

Movement: $4,800
Gold: $17,000
Diamonds: $2,000
Face, hardware, etc.: $200

Round the cost up to $25,000 to account for assembly and we’re probably in the right ballpark. As Dolly Parton said, it costs a lot of money to look this cheap.

The big topic in Swiss watchmaking right now is hyper-premiumization. The watch resale market bottomed out last year, causing some problems for speculators and meaning waiting lists are less important, but the big brands have been able to counteract the lower volumes with higher average selling prices.

Swiss watch export data in August showed that precious metal sales rose 21 percent in value terms and steel watch sales fell 10 percent. Watches with a wholesale price of more than 3,000 francs ($3,500) were the only category to see growth, likely thanks to gold and platinum watches, which cost on average 25 times more than their steel counterparts.

However, that still means that only around 30,000 Swiss precious metal watches are sold per month, with most of those sales occurring in Asia or to Asian consumers. Morgan Stanley estimates that bling only accounts for 2.6 percent of the market volume.

The top class of Swiss watches (i.e. Rolex, not particularly closely followed by Vacheron Constantin, Patek Philippe, Audemars Piguet and Richard Mille) account for three quarters of Switch exports in terms of value. This is the market in which the Trump Victory Tourbillon competes.

And the winning pool is even more unevenly distributed than these numbers suggest. Privately held companies Rolex, Patek and AP rake in estimated operating margins of around 40 percent. But state-owned watchmakers report operating margins of about 20 percent for their watch division, due in part to portfolios that include halo brands. Richemont-owned Lange & Söhne, for example, is unlikely to make a profit despite regularly costing more than $50,000 per unit.

Morgan Stanley estimates that in addition to major sellers such as Omega (Swatch) and Cartier (Richemont), “a large number of other brands in the portfolios of listed companies were unable to cover their cost of capital.”

But of course, the Trump Victory Tourbillon is a made-to-order watch sold directly to consumers through a website with a zero marketing budget, because items like this are all the publicity it needs.

There are very few operating costs added to the $25,000 material cost, so the operating margin is probably not much worse than the ~75 percent gross margin. If Trump sells all 147 tourbillons, that’s an estimated operating profit of $11 million. That’s decent.

Margins of 75 percent are no exception. Morgan Stanley estimates that Moonswatch, Swatch’s co-branded disposable fashion collection, which has sold more than 3 million units in the last two years, has a gross margin of around 80 percent.

The difference is that Trump’s watch is in a market segment dominated by the Big Five as well as several hundred loss leaders and vanity projects. These manufacturers have high fixed costs because they are largely vertically integrated and have very high inventory levels. They are increasingly exposed to a very small segment of an Asian-dependent market that is extremely sensitive to exchange rates, policy incentives and capital controls. This makes them more vulnerable to a prolonged downturn in which operational relief will be brutal.

Does this make Trump’s asset-light and demographically targeted approach to hyper-premiumization a potential path forward for the Swiss watch industry and the entire luxury goods sector? No. Of course not.

Further reading:
— Is that the sound of a luxury watch bubble bursting? (FTAV)
— What the Watches of Switzerland warning says about Rolex demand (FTAV)
— Clocks stand still (FTAV)