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Openwork: Inside the Watch Industry
How Global Wealth Drives The Watch Industry – Millionaires Surge, Yet The Industry Slumps – Episode 64
00:48:34
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- [00:00]
A
And this is highly topical. Now that we have a $10,200, you know, Speedmaster. I think the reason I bring that up is like, that is an extruded mass produced watch, right? I mean, in the same way that
- [00:11]
B
like, for sure it has a stepped lacquer dial.
- [00:15]
A
Yeah. I mean, let me give you the sound of the lacquer.
- [00:18]
B
But my point is this is openwork, A look inside the Watch industry, a podcast from Collective Horology. I'm Gabe Riley, co founder of Kollective.
- [00:29]
A
And I'm Asher Rapkin, co founder of Kollective. Collective Horology is an independent watch retailer based in Southern California. We carry a wide range of independent brands, including Carl, Suki, David, Kando, Fierce and more. To learn more about us and check out our available inventory, visit collectorforeology.com Asher
- [00:46]
B
this is episode 64. We're 64 episodes into this thing, which is kind of mind blowing. And now we're going to do the thing that every other podcast asks people to do, which is, hey, if you're enjoying this podcast, please give it a rate and review on your podcast player of choice. That stuff really helps us. It helps other people find the podcast. Also, just share it with a friend or if you know, anything you can do as far as recommending it to others would always be massively appreciated. And finally, we have a YouTube channel with literally hundreds of videos we've created about independent watches. And if you'd check that out and subscribe there, we'd really appreciate it. Of course, hopefully you find that content interesting. It's a little bit different than talking about the watch industry because of course we're talking about watches themselves, but we got a ton of stuff on there, so check that out. You can get there easily just by going to collective horology.com YouTube so if you do those things, we'd massively appreciate it. But today we are going to be talking about how global wealth and kind of long term big picture trends in global wealth are reshaping the luxury watch industry. And in full transparency, this is not a topic we came up with on our own, is it Asher?
- [02:08]
A
No. In fact, we found this from reporting that came out of Screwdown Crown, one of our favorite newsletters in the watch world for sure.
- [02:16]
B
Yeah. So while you're at it, subscribe to Screwdown Crown as well. Hey, let's throw in another plug. But yeah, on January 14th, the screwdown crown newsletter that came out that day was titled UBS Global Wealth Report Luxury Watch Edition. And so in that newsletter, King Flum, who is the author of Screwdown Crown, took a look at a report that actually came out last year. So this was the 2020 UBS Global Wealth Report. And this is a report that ubs, which is a Swiss, wouldn't you know, investment bank issues every year, they've been doing it for 16 years where they look at trends in wealth levels, distribution of wealth, demographics across 56 different countries. So it's not like a survey where they're asking people about how rich they are and what they, what they buy. It's more of a structural analysis of what's going on globally in the world of wealthy individuals. And King Flum reported on this. It came out in the middle of 2025, but he reported on this. And I took a look at that newsletter and I was like, oh my God, this is fascinating. And his review of it is really interesting and thought provoking, as his writing always is. He does his own analysis. We've done a separate analysis which we're going to cover here. So if you enjoy this, we're not going to duplicate what he's already created. So check out both. But I found this really, really fascinating because, you know, when I used to work in advertising, I basically had every inside an ad in ad agency. And at one point one of my jobs was what's called account planning or strategy. And a big part of that is these are the people within an ad agency who do all of the research and things like focus groups and surveys to kind of inform the direction advertising should take. And we would always tell clients to combine qualitative and quantitative research. So that would mean qualitative would be something that's not statistically significant but gives you a lot more kind of texture and insight. So that would be like focus groups or ethnographies, things like, things like that where you can really talk to people on a more granular level and then combine that with a quantitative survey or study that's statistically significant. And it's, it's interesting because like, you know, if you just ran a survey, oftentimes you'd then find a lot of things that didn't quite make sense. And it would really help to talk to people to understand numbers that came up in a survey that were kind of unexpected. Or conversely, sometimes you'd hear something in a focus group and, and it would be like easy to write off or discount. But then you'd see the numbers in survey data as well and be like, oh, this thing that I just assumed was like a fringe opinion actually is Statistically significant. And that's what happened here for me. Like when I went through this report and read it, all of a sudden it put into sharp focus a lot of the things we talk about on the podcast all the time. The state of the watch market, different differences around the world in terms of which countries or markets are up and down and what's happening with for watches. So many of the themes you talk about really came into focus by looking at this much more structural and rigorous and statistically significant study of what's going on with global wealth. So I think it's really interesting. There's a few, about four key areas we're going to focus on today. Fahim King Flum focuses on a few others. Of course you can check that out. But really the core of this study, Asher, was this idea of the glowing, the growing group of millionaires in the $1 to $5 million category. So people who have a net worth of $1 to $5 million. And what this report does is it takes basically like a 25 year look back and looks at the growth of this segment of people and this is really where the growth in wealth is happening. Which is interesting because so much of the discourse politically is about billionaires. But there are a lot of people and inflation probably helps with this, who are, who are growing their wealth and specifically entering into the cohort who are sort of prime watch and luxury buyers.
- [06:20]
A
Yeah. And just to clarify that, I think there's a, when you talk about billionaires, you know, there's a consolidation of wealth in a small number of people versus a growing segment of wealthy people.
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B
Yeah.
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A
Which is what we're seeing here. So it's slight, slight distinction but, but an important one at that. So let's talk a little bit about the EMILY phenomenon which.
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B
So EMILY is the, is the acronym for this group of 1 to 5 million DOL net worth folks.
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A
And just to paint the picture, I'm just going to give some statistics here as background. Approximately in this demographic there are 52 million people which represent, who have somewhere in that space of 1 to 5 million dollars in total assets. What's fascinating about that is that number appears to have quadrupled since the year 2000. These people control somewhere in the range of $107 trillion of total global assets and represent 87% of all millionaires globally. The majority of these people live in North America. Somewhere in the 43 point. I think the number is 43.2% or
- [07:25]
B
they're most likely to live in North America.
- [07:26]
A
There you go. Followed by Western Europe, which is 26.2%. And then the next largest segment is greater China, which is 12.9%. And I think it's interesting to look at this. I mean, obviously there's a lot that goes into that number because we can debate how inflation impacts that. We can debate, debate all sorts of different elements that go into the significant expansion of this group over the last 25 years. But it's also important to look at why this is the industry's sweet spot. When you have one to $5 million of net worth, a 10 to $50,000 watch is within reach.
- [08:09]
B
And certainly a $10,000 and below watch is, Is something that's a purchase you can, you can consider.
- [08:15]
A
Yeah. And I think what's important, that too, especially. And this is highly topical now that we have a $10,200, you know, Speedmaster, just a very attractive, but still just, you know, run of the mill 3861 Speedmaster.
- [08:28]
B
I want to hate that watch on premise and on price, but I don't know, I love it.
- [08:32]
A
Yeah, no, it's a nice looking watch, but still 10,000 bucks. And I think the reason I bring that up is like, that is a. That is an extruded mass produced watch. Right. I mean, in the same way that, like, sure.
- [08:41]
B
It has a stepped lacquer dial.
- [08:45]
A
Yeah. I mean, the sound. Let me, let me give you the sound of the lacquer. But my point is, my point, though, with all due respect to the crew, is that is a mass produced product, and we talked about this before, that there are, you know, hundreds or thousands of watches that come out of the Omega factory on a daily basis. So they're mass produced luxury items. And if you see growth in this segment of people who can afford to buy a $10,000 Speedmaster and have it be additive to their life but not destructive to their finances, that is a critical, critical group for growth. So what's behind this? A few things. One is real estate appreciation. I mean, here in the United States, in certain markets, we have seen some absolutely obscene levels of real estate appreciation. The Bay Area is one that we've seen down here in Los Angeles, certainly Texas continues to grow dramatically in this way in certain parts. Certain areas of New York, the Northeast, certain areas of Florida, for example.
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B
Any other areas you want to listen, what about the Big island of Hawaii or maybe Juneau, Alaska?
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A
I don't know those, but I know anything about this. I'm just mentioning. But I think the thing that I bring those up, and this is why it's critical is those correlate to very strong DMAs for watch sales.
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B
Yeah, they do.
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A
So we see that. We see that.
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B
Yeah. And this is the classic wealth effect, right? Which is, you know, the more you're worth on paper, whether you have the cash or not, the more you're worth on paper from your real estate holdings or your stock holdings or bonds or cash on hand, the more you, the more you're likely to spend money because you're feeling rich.
- [10:25]
A
That's exactly right. So when you combine that with a very aggressively growing stock market, for example, here in the United States, and I don't want to go off on like the K shaped economy or whatever, but the bottom line is if you are on that more positive side of the case, so to speak, the, the market has added significantly to the perceived value of your wealth. And all of this has come together in to create a growing class of people who can afford that 10,000 to $50,000 segment of serially produced or at the high end and mass produced at the low end of that 10 to 50k range.
- [11:02]
B
One thing that was interesting in the study is it breaks down regionally generally how this, Emily, this one to $5 million segment, basically the share of their wealth, like how much of it is in real estate versus stocks versus cash.
- [11:15]
A
Oh, that's interesting.
- [11:16]
B
Yeah, it was interesting. In the, in the United States, real estate is very high. Stocks and bonds are also very high. Cashes are relatively low compared to other regions in the world. And then in other regions you see cash being a much more significant percentage of people's, of people's wealth. What's interesting though, however, is if you think about it, that that doesn't exactly seem to correlate to how people spend their money. You would assume like, oh, if I have more cash on hand, I'll spend more money. But what's interesting about the wealth effect is really has nothing to do with how much cash you have and it has more to do with your wealth. And in fact, real estate is one key driver, but a big driver of, of the wealth effect in people's belief that they're rich and have money to spend and are in the mood to spend are stocks and bonds because those are of course valued on a second to millisecond to millisecond basis. Yeah, it's easy to open your brokerage account and, and see things going up or down. Whereas you know, real estate is forced savings. You kind of hold on to it. You don't. People don't as much think about their Real estate as, as their wealth as they do paper assets like cash, stocks and bonds. And of course in, in markets where that are more mature with banking and financial instruments, you have a much greater ability to take on debt to, to buy things. So it's interesting. And the amount of cash you have doesn't really correlate to how much money you spend.
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A
I may have missed this in the report. Did you see, are they, are they lumping crypto into, into the sort of like stock and bond?
- [12:48]
B
No, crypto would be like other assets.
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A
Okay.
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B
They're not including that and it's pretty nominal. Yeah.
- [12:53]
A
That's interesting. So it's. So within the Emily Group, crypto was relatively low in terms of the percentage of assets because I did not, I didn't.
- [13:00]
B
Crypto gets a lot of attention, but its penetration is extremely low. And even if it has growing penetration through things like ETFs now where crypto
- [13:09]
A
is available and which would register in this instance as, as a stock or a bond.
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B
It's a good question. I don't, to be honest, I don't know how exactly they're, they're counting that. I'm guessing it would be, it would be counted as other. But even if crypto penetration is growing, the share of, of crypto wealth in the global economy is. It's, it's a rounding error. It's very low.
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A
Interesting.
- [13:32]
B
And I don't have an opinion on crypto. I really don't. I'm just telling you what the, what the data suggests. And you know, the bull case with that for that would be, oh, crypto has a long way to run. And of course the bear case for that would be crypto's a rounding error. Just ignore it. Yeah.
- [13:47]
A
And you know, I suspect that those sorts of things also impact the way this particular cohort spends. I mean, if you are wealthy on paper. Right. So if your net worth is 4 million, $5 million, but your assets are tied up in investments in your retirement, in your home, et cetera, and you have relatively limited cash on hand, it may very well also impact what you're willing to buy. So that could also drive some value conscious purchases. So you could feel you could be 5 million, you know, worth $5 million, but only have $100,000 or $50,000 of liquidity available to you. I think that's probably very common.
- [14:26]
B
It is. But again, you know, consider that, let's take the US as an example. There are a lot of instruments financial that are available to you to keep buying stuff, even if your cash Is tied up in other, other, oh, 100%.
- [14:38]
A
But I'm just talking about like pure cash.
- [14:40]
B
Yeah, yeah. Oh, there's certainly. But I think, you know, that's why this, this segment of the market is really the core of the sub $10,000 things. Once you get into watch purchases that are $50,000 and up, you really need to have cash to be able to do that. There's no. What we do have to customers who bought watches like that on a credit card. But again, to have the credit to do that, to have a no limit card or whatever, you, you really need to be in another category of sure, you need to be.
- [15:09]
A
The majority of sales that we've made over $50,000 have been on a wire almost.
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B
Yeah, yeah, exactly. So I think this Cohort, the sub $1 million folks, really represent the heart of that, that sub $10,000 watch market. The thing that I find interesting about this structure structurally is it says two things to me. Number one, in broad strokes, and again, you pointed out, this Data goes back 25 years. In broad strokes. This explains a lot to me about the growth of the watch market. If you step back and think about the watch market as a normal person, you're like, how on earth are people still buying mechanical watches in the year 2025? And a big driver of it is this. These are luxury objects. They're just luxuries to own. These are luxury objects. And a big driver of it is the growth of global millionaires. And there are just more people to buy these things now, even if a mechanical watch is a less relevant object from a utilitarian standpoint. So that underpins the watch market. However, the kind of contradicting fact there, which I found interesting, I did a little bit of digging, is as much as this segment of people is growing, as much as global wealth is growing, the watch market has grown, but is actually underperforming the growth of millionaires. So in other words, the rate of growth of this, of this Emily segment and of millionaires in general is more aggressive than the growth of the watch market in the last 20 to 25 years. And certainly in the last few years as the watch market has struggled, yet the number of millionaires continues to grow. It really points out the challenge that the watch market is having in sort of keeping up with the pace of global wealth. So there's two ways to look at that, which is this is great news for the watch industry. Structurally, demographically, the number of people who are in the sweet spot to drive the core of the watch industry which is $10,000 and under are growing. I think the challenge is, oh boy, if you want to take advantage of that growth, you may need to rethink some things because these people aren't buying watches, maybe at the rate that they quote, unquote, should, which. Which I found fascinating.
- [17:32]
A
Yeah, it is. And I think that's a good place for us to look at a transition into just a breakdown of this geographically. Yes, there's some really interesting numbers here that I saw certainly around North America, which is where we're focused from a business standpoint. Within North America, there are 23.8 million millionaires. Now, a couple of interesting ways to put that into context.
- [17:54]
B
That is wild considering the population of the country. That's a lot of millionaires.
- [17:59]
A
Well, so that's one point I was going to make. So now when you. Well, it is and it isn't. So look at it like this. When you, when you look at it from the context of the global population of millionaires, almost 40% of the global population of millionaires are within North America. So that's a massive consolidation.
- [18:15]
B
More than one in three millionaires in the world, as in the US Specifically, not just North America, the United States,
- [18:22]
A
but within the United States, millionaires make up 6.8 to 6.9% of the total population. So let's look at that. And if you, just to give you a con, just to like put that into context, that basically means that when you tack on everybody above that, so net worth of 5 million plus the vast majority. So almost 90% of the country is nowhere near that.
- [18:54]
B
So but the growth, the growth is Fast. So in 2024, there was like a 12% growth in the number of millionaires in the United States. That's, that, that's got to be the fastest or certainly at the top worldwide in terms of the rate of growth of number of millionaires. So I hear you. And both things can, both things can be true, but this explains a lot structurally why the, why North America and the US in particular, continues to be such a source of strength for the Swiss watch market.
- [19:23]
A
Absolutely. I think the greater point that I'm making, and we hear this often when we talk to watch brands, is the United States is a country of 345 to 348 million people. What a tremendous opportunity that is. And it's true. But the segment of the audience that they're speaking to is not 348 million people.
- [19:43]
B
Yeah, but it's not this, that's true of any market around the world. And if you, I would guess if you look at the share of millionaires in the United States versus most other countries, it's probably higher.
- [19:53]
A
Absolutely. My point is sometimes, and I think, I think the gross numbers of population and the consolidated wealth of a country can give a little bit of a, Of a wealth mirage, an audience mirage of how big the addressable audience is within that group.
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B
Fair enough.
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A
You see what I'm saying?
- [20:10]
B
Yeah, yeah.
- [20:10]
A
So, like, what we're really talking about here is like 30 million people within the United States that are the addressable audience for $10,000 and up watches realistically, which is somewhere in the range of like 1 in 10, 1 in, you know, 11 people, give or take, within the country. That's a pretty big share, don't get me wrong. But it's not 348 million. So it also helps us understand why some, why there aren't as big of a presence, for example, of some luxury brands in smaller countries. Because if we know that the largest consolidation of wealth.
- [20:46]
B
Great point. This explains the Hong Kong effect. Why is there a Rolex dealer on every street corner in Hong Kong? Well, there's a greater consolidation of wealth in a smaller geographic area.
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A
And you could ask the other question of, like, okay, well, why is there, like, you know, one or two. I believe there's only one. I think there's one paddock dealer for the entirety of the Republic of Ireland. You know, it's just a much smaller population. So the addressable audience in the Republic of Ireland that could potentially buy, you know, a paddock is significantly smaller than what would exist in a larger country. Makes sense, of course, but sometimes you don't think about that because Republic of
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B
Ireland's a relatively wealthy country.
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A
It's a country. It's a very wealthy country, relatively speaking. So you go to, you know, and you're. And you're kind of surprised.
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B
Dublin is a global city.
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A
Absolutely. So my point is, like, when I went to Dublin, I was sort of shocked by that. I'm like, oh, there's only, like, there's a Rolex dealer, there's a Battic dealer. Well, if you look at the addressable audience, that's why.
- [21:44]
B
Yeah. What's, what's interesting is, you know, you pointed out the numbers for, for North America and the U.S. if you look at greater China, there's really a structural challenge here. So remember, we said in 2024 there was an 11.98, so let's call it 12% growth in the number of these Emily millionaires in the United States well, in China, it was 3.42%. Now, that's great. That's growth, but that's a deceleration from historical rates, certainly in the last 20 years in China. So the rate of growth of millionaires in China is slowing. And this really complicates the picture because like we talked about in our 2026 predictions episode, if you're looking at the unpredictability and the volatility of the United States market under the current administration and all the trade challenges there have been, and you're saying we got to diversify here, man. Like we can't have all our eggs in this basket. We have to opportunities. The first place you're probably going to look at is Greater China because it's just another big market that's been historically fast growing. And you're thinking to yourself, well, yeah, let's put the gas foot on the gas back in China. Well, you have a structural challenge there now, which is the growth of these millionaires in China is growing, but it's modest, it's slowing, and it's a lot slower than other places in Asia and around and around the world. So the challenge at the US with the US Market for trade come at probably the worst possible time given the context in China and the general slowdown of the watch industry overall. And this explains why you're seeing things like a decrease in exports. So there are, and again, I'm not an expert on China, but aside from the slowing in the rate of growth of millionaires, there are also policy issues in China that are, that are dampening Swiss watch exports. They were down 25% in this same time period. So it's, it's challenged.
- [23:49]
A
Yeah, it's tough. And that, that also sparked me to look up some numbers for India, for example, which is another market with significant fanfare right now in terms of potential. Let me just paint a picture of that country too, which I believe, if I'm not mistaken, is the most populous country in the world. So just for some context in that you have over a billion people in India, so massive country physically and population wise. Around the year 2000, there were less than 10,000 people in that country who had over US$1 million of net worth. Today, that number is closer to a million people with over US$1 million of net worth. So the growth from 2000 to 2025 is dramatic, it's staggering. But as a segment of the population, it's a tenth of a percent.
- [24:41]
B
Hey, it's Gabe. Openwork is proudly ad free and there's no paid subscription. If you'd like to support the show, please take a moment to subscribe, rate and review on your podcast platform of choice. Please also check out and subscribe to collective horology on YouTube where you'll find hundreds of videos we've made on independent watchmaking. You can find our channel@collective horology.com YouTube and of course, you can always support the podcast by picking up a watch from over a dozen independent brands along with our Latest merch@colusive horology.com thanks for listening and for your support. Now back to the show. Yeah, so this is interesting. You know, in wa, in the watch industry we've seen this and in any industry and in life there's always like, you know, the, the headline du jour, in this case the country du jour, which is very much India. We talked about the growth of India. Europa Star had a whole, had a whole issue dedicated, dedicated to, to India. It was a topic at the gphg and there's a ton of headroom there. There's a ton of growth there, but
- [25:45]
A
it's still massive headroom there.
- [25:46]
B
To your, to your point, it's still a relatively small market and if you're thinking, if you're a watch executive.
- [25:52]
A
Well, no, it's a massive market with a minuscule addressable audience.
- [25:56]
B
Yes, and that's what I meant in terms of addressable, addressable audience. Especially considering the geography of, of the country. Now if you're, if you're a Swiss luxury executive and you're looking for other opportunities around the world as you're like, I gotta diversify. China is, is challenging right now. The US is. Where else do I go? Well, you could look at Eastern Europe. They've had a 12% growth in the number of these 1 to 5 million dollar net worth folks. But of course those are, that's a fractured geographical area. It's a smaller addressable audience. These are smaller countries. You could look at the Middle East. Oh, the good old Middle East. They'll buy watches. Well, there's a 5.8% increase in the, the, in this population in those countries. So that's half the rate of growth of the United States.
- [26:44]
A
Yes, but I do overall population of high net worth individuals writ large.
- [26:49]
B
Oh yes, a share of the population. Yes, but again, these are smaller. Smaller.
- [26:53]
A
So, so you might. So this is where the numbers look weird, right? Where it's like, are there many wealthy people in the Middle East? Absolutely.
- [27:00]
B
And there's also plenty of businesses there already addressing that opportunity. Exactly. Then you're like okay, Western Europe, good old Western Europe, down 1.54. So Western Europe is actually the only geography that is, is decelerating and losing people in this, in this one to $5 million millionaire population. So there is nowhere to hide geographically. And this certainly again, if you look structurally at what we're seeing in the watch market, which markets are, are, are growing or at least resilient, which markets are struggling either dramatically or slowing down. This explains a ton. It's not just about who wants to buy a watch and who likes watches and what's in vogue. There are structural wealth drivers and economic drivers that underpin all of this stuff and put it into focus.
- [27:54]
A
So one thing as we move into this next topic, and you were pointing this out, but I'm reminded of an anecdote myself of this. When I was working in tech, there was a senior leader in the division that I was in, this was something like 12, 13 years ago now, who was wearing a Gold Yacht Master on a Oyster Flex the first year it came out. And you know how quaint that watch was like $20,000 when it came out.
- [28:22]
B
Didn't you help him get that watch?
- [28:23]
A
No, I didn't, but I remember seeing it. And you know, there must have been
- [28:29]
B
some other senior executive who wanted a Gold Yacht Master on Oyster Flex who you helped probably.
- [28:34]
A
But my is I remember seeing that watch and that watch was not attainable for me financially at that point in my life. But thinking, my God, that is a dead set.
- [28:43]
B
Probably still not attainable for you financially, let's be real.
- [28:46]
A
Not at the current price. No, but, but my, but anyway, my point is I saw that and there was an effect and an impact on me, you know, and I also then felt some pride for wearing my quasi rare Batman, which was less than 50% the cost of that, but it was still a little bit of peacocking and signaling. And I think what we saw in general as we look at this, this is not unique to my own personal experience. It's true anecdotally and statistically, as we've learned from these reports, that where there are large inequality, gaps in pay, for example, like that gentleman who I'm thinking of, made, I am positive, many multiples more than I did in annual salary. I and other people also within that organization, when reporting to people like that, wanted to demonstrate their hierarchical ability up to and down. And wealth can be demonstrated in this way through the vector of luxury goods, watches being one of them. And if you think about it, you see this at different scales in different ways. Right. So like in tech, maybe it was luxury watches. In advertising, we saw this with fashion a lot.
- [29:58]
B
Oh, for sure, Good point.
- [29:59]
A
You know, like lots of, like, you know, how many guys and gals were walking around canned and they're like Balenciaga kicks, you know, know, like it's, it's, you know, you know what I'm talking about though, right?
- [30:10]
B
Yeah.
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A
Like, it's a very particular thing and it broadcasts a very particular message. And I find that interesting because in some cases you probably have a lot of people, and I mean, I'll out myself on this one, who spent beyond their means on luxury that they liked and admired because they liked it, in my case, but also because there was an outward projection of it.
- [30:32]
B
Real talk. It's true.
- [30:35]
A
And I think, I think that is like, I remember when I got my very, very, very first Rolex, I was working at Apple. It was the first time I could afford that. And I remember what it felt like to walk around wearing that because it felt like I had achieved something, which I suppose I had, and that I was pushing that message out. And that is, we can debate all sorts of different things, but part of luxury is about that transmission of message.
- [31:02]
B
Yeah. And I think. So what we're talking about specifically here is next finding that's highlighted in this report which I'm calling. These are sort of. They're intertwined both networking and. Or network and inequality effects that are happening here. And they kind of work. Work together. So within the report, they highlight a study that showed there's a report that looked at 680,000 employees and all manner of different corporate jobs. And what they basically learned was that the more inequality there was in a workplace, like you're describ describing inequality of wealth in a workplace and status. And really the more hierarchical essentially a workplace is, the more luxury spending there is across all income levels. So it wasn't just the boss buying the gold Rolex. It was the people who report to the boss and the people who report to them. In other words, the more. And this was, we saw this all the time working at Facebook. I mean, there was an extreme and extreme inequality of wealth among employees. Because of course, there are people who work within tech companies. We were not one of them who were, you know, software engineers or people who had skills that were of high value to the organization, who were paid many, many, many more times. We were, you know, I was once in a meeting room at Facebook and someone left their backpack in the meeting room. And, you know, most backpacks at the tech company look the same because at that point in time, everyone had like a black Patagonia Facebook issued backpack.
- [32:39]
A
I still have it.
- [32:39]
B
And so I was looking for something in the backpack to figure out whose backpack this was so I could either give it to the person or give it to security so they could get their backpack back. And what was in there but their comp letter. And my eyes popped out of my head when I saw how much this person, it was a software engineer, based on the job description on the comp letter, not just on the salary, but in particular the shares of company stock that this person had been issued in the millions. So you had that going on. Then you also had people who, you know, worked there from the early days and it didn't matter what they did, but if, you know, you had been working at, at, at Facebook for, for 10 years just by the virtue of the company going public or by being there at the right place and right time, you had a lot of money. So there were, there were people within this organization who had extreme wealth. And to your point, they showed it off. And that created this culture of pressure around, around other people in the organization. And one of the things I remember about watches working there and this, this point, the, makes the point perfectly was there were people who had awesome watches, like cool watches, and I would notice them. And there was a difference between the people who had really cool watches, but no one else around them on their team had cool watches, and the people had cool watches, and everyone else around them and on their team had had cool watches. And that was whether or not the person was a manager or not. If the person was a manager, a manager of people, and they had a cool watch, it was far more likely that the people on their team who reported to them would have cool watches too. So I remember you once told me you went into a meeting with this team of people and the manager had on a Rolex and all the, all the men in the room who reported to that manager had Rolexes as well. Well, I also know some of the guys who had the coolest watches there, and women too, had some of the coolest watches. They were individual contributors. No one reported to them. They had no power over anyone and no one else around them had cool watches.
- [34:43]
A
That was the dream, wasn't it? Was it the IC8, the equivalent of a director?
- [34:47]
B
Yeah, that's, that's the dream. And so this is. Obviously we're, we're making the point here from anecdotal experience, but I think people see this everywhere in the study of, of 6, 680, 000 people points this out, which is luxury spending isn't just driven by wealth. In fact it's. There's almost this turbocharger which is the greater inequality of wealth you have, whether it's geographically. So for instance, Hong Kong is a great example. In Hong Kong you have people who are massively wealthy, extreme levels of global wealth in Hong Kong, and you also have people who live very modest lifestyles. But you're more likely to see a taxi driver Rolex in Hong Kong, sure, than anywhere else in the world. So it's true not just within corporate cultures, but geographically as well. That's why you see places like New York, Los Angeles, London, other places and geographies that have extreme levels of wealth. There is more likely to be luxury consumption. Singapore from Singapore is another great example, more like more likely to be luxury consumption, not just from those ultra wealthy people people, but from everyone. Which, which I find, which I find really, really fascinating. So this, this is one of those things that just like it clicked and it explained a lot and I think it put, you know, statistically significant numbers to something we see all the time. Yeah.
- [36:11]
A
And it also helps explain a lot of things that might seem quizzical, you know, on their surface. Like this helped me understand why paddock closed doors in the United States, for example, example, like it makes a lot of sense, like to consolidate X amount of inventory across a smaller number of doors in strategically identified DMAs that we know, that they know have the growth that they want to see, you know, in terms of their audience.
- [36:37]
B
Oh, interesting. So like you keep cities like, you know, New York, LA and Dallas open, but maybe you close St. Louis.
- [36:43]
A
Right.
- [36:44]
B
Which sucks if you're in that area. But it explains maybe why certain metro areas are prioritized relative to others despite population.
- [36:52]
A
Exactly. Because if you look more, if you peel it back, you know, you might say that like, you know, the greater Miami area is a huge city, which it is, but there are bigger cities in the United States that don't have, as you know, the level of attention, for example, that Miami gets. And there's a reason why that is. And there's only so many watches, realistically. So you do have to close some doors. You can't just, you can't just put it all over the country, you know, and expect people, even though, and this is of course like this a whole other topic because, you know, watch buyers are going to go where the watches are, not necessarily to their local retailer, even though that's what watch brands want them to do. But putting that aside for a moment, that's why we probably saw closures and openings in different places.
- [37:37]
B
Yeah. When I worked in advertising, one of my clients was Audi and This was about 15 years ago where they were really trying to grow the brand and the prestige of the brand in the United States. And they had a focus, a 17 market focus. They were only interested on growing their sales in 17 key DMAs. So these are, you know, metropolitan designated marketing areas. Yeah. Designated media areas. Yeah. Or maybe they're marketing areas. Whatever.
- [38:03]
A
I'm a marketing guy. So everything looks like.
- [38:05]
B
But you know, they were only interested in 17 markets and they were exactly the markets we're describing. It wasn't the seven necessary. There was overlap, but it wasn't necessarily the 17, the 17 biggest markets. It was the 17 wealthiest markets. And in some of these places there is extreme inequality and that I don't think this was part of any sinister plan like we're going to exploit this thing. But the focus was on the areas that had the highest level of, of wealth, not necessarily the highest level of population. Because you want to create this effect of you're a luxury brand and you want to create this effect, the structure, sort of network inequality effect of all of a sudden everyone is, is driving this car or this thing is becoming popular and it catches on across the, across the board. The best way to take advantage of this, this network effect and, and sort of this, you know, these more K shaped DMAs being more likely to engage in luxury spending is, is to do that. So it's, it's a strategy that luxury brands of all stripes kind of employ for, for better or worse, or maybe they don't even realize that they're doing it. But one thing that is happening under the COVID here, which is this, this next and final aspect of this report that I found really interesting, which is generational wealth transfer. So a lot has been made about this in financial markets and financial media, which is boomers are the wealthiest generation. They are not getting any younger and are reaching the point where they're passing their wealth on either interestingly to their spouse. And so there's an estimate in here that in the next 20 to 25 years, $9 trillion of wealth will be transferred not from generation to generation, but to spouses. But even bigger than that, in the next 20 to 25 years, an estimated $74 trillion globally will trade hands between, between generations. And what this does is we talked about, you know, cash and liquidity and wealth and the wealth effect, this transfer of wealth does is give someone a significant, it's called in the financial planning business they call it a liquidity event. Gives someone a lot of money really quickly and puts money burning a hole in their, in their pocket. And there, there's a lot of discussion that like, well, this generational transfer of wealth and the wealth effect and spending it will create will be good for the luxury industry and people catering people industries catering to high net worth adults. But of course there are differences in the way generations spend their money and want to spend their money.
- [40:50]
A
Yeah, I mean there's that and then I think a component of that too is like just statistically people are living longer in a lot of these parts of the world. So you know, that's another, that's another whole other conversation about that. But as the average lifespan of a person increases, the delta before that transition of wealth also grows.
- [41:11]
B
Yeah, and I think, look, there's a season for everything in life. And one thing, one insight I came across around wealth and money and how to spend it and all that stuff was this a book called Die with Zero. Basically the idea is, you know, so many people when they think about financial planning and wealth are trying to accumulate as much wealth as possible and pass it on. And the basic theory of this book is like, look, wealth is a tool. Use it to live your fullest life. And you know, if you have a life that's really worth living that you got the most out of, you'll probably die with no money, not millions to pass on to your heirs. And by the way, you may need more or less money at different points in your life. And generally the older you get, the less money you need. You know, older. Let's just think about, you know, purchases of material goods.
- [41:58]
A
You have it all.
- [42:00]
B
You have it all. You to some extent, a lot of people in older generations lose interest in some of the things that younger people are, are interested in or they just can't do them. It becomes harder just to get on an airplane and go on an expensive vacation. Yep, you can't do it, you know, so there's a season for everything in life. And a lot of luxury spending isn't really concentrated in seniors quite frankly. And so you're right, the longer they have longer their life expendancy expectancy and the longer they're holding on to money, that's not necessarily great for the luxury
- [42:36]
A
industry either or just I would argue,
- [42:38]
B
well, we need to start a watch, a watch brand for seniors. You know, those like jitterbug, cell phones. Cell phones. Someone needs to do jitterbug watches for seniors. Okay, I think that's where we leave it. Well, here's the thing. I look sure a bridge too far. Here's what I'd say about this. You know, in this, in this report it basically says, hey, look, you know, there's this generational wealth transfer that's going to happen. But beware that Millennials and Gen Z don't spend money and don't allocate their wealth in the same way that boomers do. Boomers are far more likely to spend their money on material goods. Gen Z and Millennials are far more likely to be interested in experiences. And we hear this all the time. Here's the On a previous podcast we talked about the spending habits of Gen Z and how Gen Z are far more likely to purchase a watch pre owned. Now there's two ways to look at it. You could say like, hey, that's just the mindset of this generation. They're always going to be this way. They prefer vintage things and all that sort of stuff. And like they'll be buying watches pre owned from now till the time they're six feet under. What's more likely than not though is that this, these generations aren't static and that buying watches pre owned right now for Gen Z is something of a necessity. They have left less, less wealth. They need to find value. When I was younger I was more likely to buy a watch pre owned. So so were you. And as they grow up, I would suspect that Gen Z will be more likely to buy watches new. And so I think the word of caution here of like, well don't expect Gen Z and Millennials to buy as much luxury goods doesn't really hold water because maybe today they won't. But in 10 years and in 20 years, as they reach their peak earning and peak spending spending years, I think they'll be far more likely than they are now at their, you know, the season of life they're in to be spending money on stuff versus experiences. So, so we'll see all of this stuff though. What's so interesting is like you know, you got to learn to accept the things that are out of control, out of your control. Like we talk about this pod on this podcast all the time. Like hey, if the watch industry wants to see growth, they have to embrace risk taking and offer more value. And like all of that stuff is true. But I think what this also points out is like there are structural forces at play in the world and in wealth and in how people can and do spend their money that are also drivers of the things that we see fundamentally in the watch industry.
- [45:18]
A
Yeah. Although just as a counterpoint to that, I think the, I mean, look, we, we are so focused on a microcosm of the watch world of independent watches, where I do think things like risk taking and all the stuff that we talk about is probably more true than in the mass market. Because while the things that, while the things that we sell are absolutely luxury items, there's. There's no two ways about it. I do think the motivations behind, you know, like a David Kando buyer versus a grand comp, you know, purchaser and paddock are not, they might be somewhat aligned, but they're not the same thing. So it is a, it is a very different. It is a very different and very, very small, relatively speaking sub segment. So I'm with you on that. But yes, when we look at this from the perspective of LVMH, the Swatch Group, Richemont, etc. Yeah, totally. 100%.
- [46:13]
B
Yeah, exactly. And you know, it's funny, one of the things I would say is like, okay, not everything is within your control. There are these broader trends going on within global wealth that underpin the luxury goods industry and watches in general more broadly, beyond just watch enthusiasts. Awesome. So if you were to say, like, hey, look, there's this global segment of these emerging millionaires, they're actually growing at a faster rate than the watch industry is growing. They're growing in different parts of the world generationally, they're going to get younger. What do you do to take advantage of that opportunity? And then also if you take into effect like that, that sort of, that the network effect of luxury and people wanting to signal status. What do you do with all that? Well, maybe the answer for all of that, that is not to make a better watch, not to be more creative. And I'm being really cynical here, but it's not to make a better watch or be more creative or take more risk. Maybe the answer to that is like, you need a better ad campaign. Yeah. You know what I mean? Like you need to focus on, on branding more. And that's how you take advantage of, you know, people wanting to buy your goods to signal status or to be top of mind when people come into some. To some money and have some, and have some discretionary funds to spend. So that's the difference between the watch market writ large and probably the way most of the people on this podcast think, which is watches aren't an investment. Watches are fun. They're a hobby, they're an art form. And we, of course, want to see risk taking and creativity and value. So that's what we will continue to stand for. So how about we leave it there?
- [47:50]
A
Awesome. Sounds good.
- [47:51]
B
All right, so no jitter bug for watches? Absolutely not. All right, well, thank you for listening. Openwork is, of course, a production of Collective Horology. You can find us online@collective horology.com and while you're at it, please get in touch with us. Send us your questions, your thoughts, your feedback, suggestions. We love to get that stuff. And to do that, you can email podcastollectivephorology.com.