The global luxury goods market has seen a rebound after a pandemic-induced slump, with the sector recording double-digit growth in 2022 throughout several regions.
The luxury watch industry was valued at $27.19Bn in 2021 and has been growing throughout 2022, with this growth being driven by increasing proclivity for premium watches, particularly among younger customer demographics.
As the world starts the transition from web2 to web3, technologies such as blockchain, NFTs and the Metaverse are providing luxury watch brands with opportunities to improve their customer experience.
Sustainable Manufacturing
As younger customers increasingly enter the market with a desire to limit their individual carbon footprints, the spotlight is turned onto the brands that supply their goods. Potential customers for luxury watches are now looking into a brand’s sustainability and ‘green’ claims – at least half of luxury consumers said that sustainability was a factor in their purchasing decisions, according to research from Deloitte.
Although luxury watch brands rely on their history and heritage at the heart of their business – this doesn’t mean that they aren’t innovative and continually looking to move forward. Brands like Chopard, for example, already understand this move toward sustainable practices and have transformed their operations as a result.
They have been a member of the Responsible Jewellery Council since 2010, and since 2013 have been rolling out a market-leading sustainability strategy. That includes sourcing 100% of their gold from fairtrade mines and recycling 70% of the gold waste from production in their own foundry.
Blockchain technology offers organisations a birds-eye view into their entire manufacturing process, giving them valuable, granular insight and the ability to verify third-party practices with certainty, drastically improving supply chain traceability.
This prevents far-away factories from illicitly tampering with the product’s components or materials in order to circumvent compliance requirements around sustainability. And importantly, it enables a shift towards circular business models rooted in sustainable practices in the luxury market.
Material Provenance
Precious metal mining and the acquisition of speciality stones such as diamonds has been a controversial issue in recent history. The social and environmental impact of the procurement process is under increased scrutiny, and customer preferences are leaning ever further towards sustainable sourcing and manufacturing in luxury goods.
By introducing blockchain into the manufacturing process, customers are empowered to verify for themselves whether the goods have sustainable origins. Illegitimate raw materials such as unethical diamonds can be phased out of the manufacturing process as only approved providers will be able to add transactions to the blockchain, and these transactions need to be verified by all other participants.
This prevents any fraudulent and shady practices in the acquisition of raw materials, providing transparency and boosting all-important brand perception in a heavily scrutinised area. The resultant transaction records are stored immutably on the blockchain and the organisation benefits from a ready-made audit trail.
Authenticity and Tackling Counterfeits
A key challenge for luxury goods brands is proving the authenticity of their products. Sophisticated fakes and unscrupulous business practices in areas with less robust counterfeiting regulations has given rise to a bustling trade in counterfeit luxury goods.
Verifying the authenticity of luxury watches was once the sole domain of expert watchmakers. This can be an expensive and time-consuming endeavour. Blockchain technology puts this capability into the hands of the watch owners themselves, often accessible by QR codes or RFID built subtly into their physical watch frames.
Digital Product Passports enable organisations to create a digital twin of their physical products that records every piece of useful product information to the blockchain – from raw materials and where they came from to a full ownership logbook. This works towards preventing counterfeit sales as well as preventing watch thieves from reselling the watch, even making it easier to validate insurance claims.
Pre-owned Markets & Resale Market Optimisation
Vintage and pre-owned markets have sprung up across the digital space in recent years. The pre-owned market was the industry’s fastest-growing segment in 2021 and is expected to reach between $20Bn-$32Bn by 2025.
Ignoring the pre-owned market is no longer viable for luxury watch brands. Prospective customers can avoid higher premium prices by purchasing these rarely-used timepieces on second-hand markets rather direct from the original watchmaker.
In Deloitte’s 2020 survey, 1 in 5 consumers said that they are likely to pick up a pre-owned luxury watch in the next year – this figure has likely increased since then, threatening to cut the original watchmaker out of a share of that sales revenue if they don’t develop a resale market strategy.
With pre-owned luxury resale markets booming, original watchmaking brands can capitalise on this growth potential by starting up their own resale market initiatives.
Cartier is a prime example of a forward-thinking luxury watch brand doing this exact thing with their Vintage Initiative in 2021. Richemont are another example with their acquisition of Watchbox, one of the largest secondhand watch resale platforms, as part of their strategy.
While pre-owned sellers provide an alternate avenue to ownership of a luxury watch for consumers, this can reduce the original brand’s control over its image. Counterfeiting is common, especially amongst well-known brands on secondhand marketplaces.
Many online marketplaces could adopt blockchain technology, which allows product information to be secured on a tamper-proof distributed database. Being able to prove the authenticity of the item, trace the item’s ownership records from the date of manufacture, and transfer ownership credentials with ease to another party in the form of a Digital Product Passport solves a key challenge in second-hand watch sales.
Having the ownership information available on the blockchain gives second-hand customers the capacity to check the credentials of the previous owners as well as receive infallible proof of their new ownership upon purchase. This provides peace of mind and is ‘trustless’, an imperative for resale on second-hand marketplaces where you may not have a brand to hold directly accountable if something goes wrong with the sale.
Resale markets also extend beyond the physical – collectible NFTs can be tied to watches and resold by the purchaser. These tokens essentially ‘follow’ the watch throughout its lifecycle via the blockchain, creating extra value whether sold together with the physical product or separately.
Ecommerce, NFTs and the Metaverse
The pandemic caused economic hardship to ripple across the world. In retail, it meant the closure of physical stores sporadically and sometimes indefinitely.
Luxury watchmakers have traditionally relied on a physical customer experience – the prospective customer can come into the store, look at the timepieces and ask the in-store expert all their questions face-to-face.
71% of luxury watch executives still place a much higher value on this in-person experience over any kind of virtual one, leading to resistance to embracing the e-commerce explosion that has been taking place in recent years.
With an increasingly digitally savvy consumer base gaining traction in the market, it’s only logical that the prominence of online watch buying will increase, possibly at the expense of brick-and-mortar stores. Brands require an approach to customer relations that reflects this new reality if they want to maintain their competitive edge.
Many watch brands may look to expand into the Metaverse to deliver a customer experience that transcends the physical, even utilising all-digital products in the form of NFTs for the first time to deliver value.
The Metaverse offers luxury watch brands a new opportunity to connect with their customers – they can enhance their e-commerce operations with fully virtual stores, tell their brand story utilising augmented reality, and continue to solidify their online market share in an increasingly digital world.
NFTs can come in the form of identification tokens, images, videos, or wearables within the Metaverse. The growing popularity of NFTs in the luxury space represents a new opportunity for brands that choose to get involved.
An NFT tied to a physical product in the form of a digital twin is becoming an important buying incentive. Brands can use them as part of their Digital Product Passport initiatives, and to deliver customised, exclusive customer experiences.
NFTs themselves can become more valuable, and separate, from the physical products. Some brands are doing NFT drops that aren’t tied to any physical products at all, opening new independent, fully digital markets.
Departing from tradition, Beyer Chronometrie, the world’s oldest watch store located in Zurich, launched the Timewarp Collection in 2021 – the world’s first solely digital NFT collection of watches. The online collection only exists in the digital space (they’re not tied to a physical product), and can be bought via the retailer’s online store and traded to other collectors on the OpenSea platform.
Luxury watch brands can even launch their own online exhibitions selling digital collectibles, setting up smart contracts in such a way that when the digital asset is sold at auction further down the line, the original brand takes a slice of the sales profit through royalty fees.
Digital Product Passports
We’ve mentioned Digital Product Passports several times throughout this article, but what are they?
Luxury items such as watches, jewellery and high-end clothing are by their nature expensive and high-involvement purchases. Much of their value comes from their scarcity in the market and the social perception of the brand name attached to them. A proliferation of counterfeits and fakes can devalue an item if the owner can’t prove its authenticity.
A Digital Product Passport is associated with a digital twin of a physical product that immutably records to the blockchain all events and transactions throughout the product’s entire lifecycle. This includes manufacturing history, material provenance and sustainability criteria along with many others.
This data can be constantly updated throughout its lifecycle. As ownership credentials pass from one owner to the next through resale, a new transaction is added to the blockchain and verified by all participants. This consensus method ensures that no forgery can take place and the new data is stored securely.
Digital Product Passports give peace of mind to consumers of luxury goods, giving them unwavering proof of the authenticity of their purchase. If they choose to resell the item, they have unalterable ownership credentials to pass on to the new owner.
They allow brands to maintain their connection with the products they sell, and customers they sell them to, throughout their lifecycle. It becomes easier to display their sustainable, transparent manufacturing practices and can have a positive effect on brand image by combating counterfeit items.
Which brands are already stepping into the web3 space?
Breitling and Ulysee Nardin are standout examples of adopting web3 technologies into their business model. As of 2019, all new Ulysee Nardin watches come with a Digital Product Passport as standard – Breitling followed suit in 2020.
Acting in a similar way to a maintenance booklet for a car, they provide owners with unforgeable ownership certification which proves authenticity. Additionally, Digital Product Passports enable these brands to maintain customer relations throughout the lifecycle, through resale and beyond.
They can enable the delivery of fully digital after-sales services – tracing repairs, applying warranties and further customer support functions. Breitling’s Digital Product Passport provides an additional channel for them to market their products and augment their after-sale or cross-sale strategy.
Their customer service representatives have a direct line of communication with each individual customer, enabling them to answer any queries and provide ongoing support. This keeps customers engaging with the brand throughout the lifecycle of the product, and the positive outcomes achieved add to Breitling’s brand perception.
Challenges to web3 technology adoption in luxury
There are several obstacles when it comes to the implementation of web3 technologies in the luxury watch market.
First of all, new technologies can be expensive, and it can be difficult to convince decision makers of the cost benefits. This is especially true of newer, more difficult-to-grasp innovations such as NFTs and the blockchain.
Equally, luxury watch executives may not recognise benefits such as an increased ability to track products and having a more transparent supply chain as a priority. It’s possible that they are happy with their current tracking and manufacturing processes already.
Third-party retailers of luxury watches may not feel the need to authenticate the products they sell. In fact, some may rely on certain ‘grey’ markets to make more profit. It’s sometimes the case that these retailers will buy fakes at lower prices and pass them off as the genuine article for higher returns.
Conclusion
Technological innovations such as blockchain, NFTs and the Metaverse are enabling watchmakers to overcome the historic and more recent challenges faced by their industry.
Blockchain-based solutions such as Digital Product Passports provide secure, accessible, dynamic record-keeping for all product and ownership information. They can guarantee material provenance, helping brands to achieve and prove they’re meeting their sustainability aims. The blockchain provides unparalleled traceability and tracking capabilities from manufacture through to the pre-owned markets.
NFTs allow for further value addition alongside physical products and enable the launch of virtual collections that can be sold independently on a decentralised network. Second-hand markets are thriving, and brands are able to maintain customer relationships throughout the product lifecycle, even being able to offer digital after-sales services.
The Metaverse is growing and creating a whole new space for luxury watch brands to engage with a younger, more tech-savvy audience. Brands are adapting their products into avatar-wearable assets transferable across gaming Metaverses, keeping their customers’ virtual characters fashionable across a new digital landscape.
With more and more opportunities arising in the digital space, one thing is certain – web3 technologies are more than just a passing fad in the luxury watch industry.