Between January and April this year, Patek Philippe had the watch collecting community totally keyed up with its big bang announcements. It all started with the discontinuation of the Nautilus ref. 5711, arguably the most wanted luxury steel watch in the world. Soon after this declaration, the brand introduced ref. 5711’s end-of-series model — the ref. 5711/1A-014 with a sunburst olive green dial. Whether this watch will garner the same fanatical fans as the original steel and blue dial reference is something we will know only in a couple of years.
Apart from the Nautilus, the next most significant launch from Patek Philippe this year has been the ref. 5236P-001 In-Line Perpetual Calendar. Inspired by a pocket watch from 1975, the ref. 5236P-001 offers the most innovative and user-friendly way to read the calendar information on its extremely elegant dial. The subject of three patent applications, this watch was in the making for nearly five years, but its concept first struck Thierry Stern when he was around eight years old. He tells Revolution’s founder, Wei Koh, in a recent interview, “I was maybe seven or eight years old. I don’t know, to be frank, since it was such a long time ago. But the decision to officially come out with this watch was taken five years ago. It takes a long time to develop such a product. For me, when it comes to real watchmaking, it is important that Patek Philippe is the first one to develop a timepiece with a function like this.”
Stern reveals, “Every year at Basel or now Geneva, I cross my fingers and hope the others don’t have the similar idea or the knowledge to do what we have done. Luckily, [in this case] they didn’t and I am very pleased about it. If somebody else had launched a product like the ref. 5236 last year, we would have had to cancel it. But that didn’t happen. So, let’s cross our fingers for the next one because there will be some others for sure.”
Thierry Stern’s grandfather, Henri, had a fancy for perpetual calendars with linear displays. His father, Philippe, would often talk about these gorgeous pocket watches in their museum which, in part, have come to inspire the making of ref. 5236P. “The prime consideration with regard to ref. 5236P was how easily one could read the date [with the single aperture in-line display]. I remember speaking to my dad about it. The challenge was to keep it thin enough,” says Stern.
“All these years, we had been learning to use new technology that would allow us to build a movement like this one. I grew up looking at museum pieces like the 3448 that present the most beautiful date displays. I also like the ref. 5970; it reminds me of a fond memory about my grandfather. I think all this is part of my education and I like the fact that we have the past on one hand, and then on the other hand, the way this watch has been built and designed is something very strong and young at the same time. This is what makes it quite beautiful. I know this piece will definitely be very successful,” he says. (Read more about the ref. 5236P In-Line Perpetual Calendar here.)
Over the past decade, the demand for steel Nautiluses has created an unprecedented interest in Patek Philippe amongst younger collectors, but Thierry Stern has always been cautious about overplaying this sensational steel saga in the larger scheme of things. As the fourth generation owner of the 182-year-old company, he wants to carry forward Patek Philippe’s legacy as the world’s most prestigious watch brand with limited production, select dealers and an unmatched product offering.
Thierry joined the company in 1994, became its vice president in 2006 and finally took over as its president in 2009. Over the last few years, several luxury groups have shown interest in Patek Philippe but the Stern family is not willing to sacrifice the company’s independence at any cost. Although Patek Philippe doesn’t make its financial results public, a recent report by Morgan Stanley and LuxeConsult on the Swiss watch industry, recognizes Patek Philippe as the fourth most significant brand as measured by turnover, with sales estimated at CHF 1.16 billion in 2020. The report states, “While Patek Philippe sold ‘only’ 53,000 watches last year (our estimate), the brand has one of the highest average selling prices (CHF 35,200), which explains the importance of its turnover and its 5.8 percent share of industry sales. Patek Philippe’s desirability has never been as high. The brand’s new and old watches trade at significant premiums to official list prices on online platforms.”
However, unlike the other brands in the top five — Rolex, Omega, Cartier and Longines — Patek Philippe has a much smaller production number. While Rolex is believed to make more than a million watches, Patek Philippe makes just 62,000 watches a year. Of these 62,000 pieces, steel watch production is limited to around 25 to 30 percent. “One of the key ingredients of any luxury brand is to manage the scarcity to remain desirable. Patek Philippe manages this very well by keeping its distribution very selective. For instance, it has only two points of sale in China [in Beijing and Shanghai]. It tries to keep a balance between all the markets. The production volumes are kept at levels that remain coherent with the overall brand positioning,” says Oliver Müller, founder of LuxeConsult and a contributor to the market share analysis in Morgan Stanley’s report.
“Despite its strong brand equity, Patek has also refrained from exaggerated price increases. The most recent example being the new Perpetual Calendar ref. 5236P, which is very reasonably priced at CHF 110,000 and could easily be sold at a much higher price. One should also bear in mind that the entire Patek Philippe collection is not made of blockbusters such as the Nautilus or the Aquanaut,” he says.
According to Thierry Huron, founder of The Mercury Project, a Swiss watch and jewelry consulting firm, independent brands were the clear winners in 2020 and Patek Philippe was one of them. “In an interview with GQ in 2019, Thierry Stern had said, ‘I can never be Rolex, producing larger quantities, and I don’t want to. We’d be successful but we wouldn’t be Patek Philippe.’ This is Patek Philippe’s secret to success. Not only does the company manage to create a buzz among watch collectors but it retains the status of an absolute luxury brand, which can afford to choose its customers,” says Huron.
“According to the data from Chrono24, the prices for the Nautilus rose from USD 35,558 in June 2017 to USD 71,232 in June 2020 to USD 113,569 in June 2021. The ref. 5236P (Quantième Perpétuel en Ligne) has been the most celebrated launch in the first half of this year. The brand also managed to maintain its exclusivity through a selective retail network. It brought down the number of retailers worldwide from 392 in September 2020 to 377 in June 2021. In the USA, the number of retailers went down from 73 to 64 and in Hong Kong, from 12 to seven,” he says.
The problem, as Stern puts it, is not to open a boutique but to have the stock there. He says, “To be honest, we are already quite full. Every retailer is asking for more pieces, so I really have to be very vigilant when I open a new place because I know that it will be a difficult task for us and for the retailer to sell watches. We are not willing to increase our quantity by 20 percent every year; not at all. We may be increasing maybe one to two percent or sometimes three percent. It depends on the new product we launch.”
Besides being prudent about its distribution network, Patek Philippe has never encouraged ecommerce by its authorized retailers, except on very rare occasions like through the lockdown in the UK last year. To support retailers who have worked with the company for over 100 years now, Patek Philippe relaxed its policies regarding e-retail during the pandemic when boutiques and shops were shuttered and customers were stuck at home. “Thierry Stern’s management of the brand’s heritage has been simply stupendous. Be it the museum in Geneva or providing the extracts for the watches from its archives, monitoring the date of production and original date of sale for every Patek Philippe made since 1839, these are attributes unique to Patek Philippe,” says Huron.
“The brand’s performance at auctions is also incomparable. Fourteen Pateks priced above CHF 1 million were sold during the first five months of 2021 as compared to just 13 pieces in total in 2020. Overall, 151 watches priced above CHF 100,000 were sold at different auctions during the first five months this year,” he says.
Sailing Through the Pandemic
In June 2020, Patek Philippe announced the completion of its new production facility in Geneva, which has brought together all its ateliers under one roof. Built at a cost of USD 600 million, this state-of-the-art manufacture with its impressive size (10 floors and a length of nearly 200 meters) anticipates the company’s growth in the next 20 to 30 years.
Having lost one-sixth of its production days due to the lockdown in Switzerland last year, Patek Philippe sold 53,000 watches and the company suffered a loss of around 20 percent. However, despite this dip in revenue, Thierry Stern remains positive. “We have always been pushing work with local clientele, which is quite logical in one sense, and, thanks to this strategy, we could go through the pandemic without too many damages. The figures are still fantastic. So, we are very grateful. The pandemic did not allow us to reach the target that we had in mind but we are still quite successful,” says Stern.
“I always keep in mind this good advice from my dad. The other thing he told me was to have a strong collection to emerge from a crisis. This is why we are here today. If you come out with a successful product through a crisis, you will always be successful. The only difficult thing is to find the right product. At Patek Philippe, we are quite creative, so I am not too worried about that. I hope we will not face another crisis very soon but, in case we do, we are still ready,” he says.
Patek Philippe could probably have reduced the negative impact during the pandemic by shifting inventories, but that would have contradicted the brand’s long-term strategy. “My dad has been through two major crises in the past and he helped me prepare for something like this. He told me to always keep a reserve and not spend all the money. So, on the financial side, we are always prepared for a crisis. I won’t take out all the dividends just to enjoy. I like to be sure that I can secure Patek Philippe’s future, so I always keep money on the side for these kinds of problems,” says Stern.
The Balancing Act
In March this year, Patek Philippe announced that starting from April, no extract would be provided for its watches manufactured from 1990 onwards and only one extract would be provided per watch every five years. The price of the service also increased to CHF 500. This news upset the watch collecting community and forced Thierry Stern to give this decision a second thought. “To be clear, I’m not here to help people who are reselling our watches on the secondary market and who want to protect the name of the end client whose name is on the official certificate,” he clarified in an interview with Revolution’s Ross Povey. “This is why I was thinking of doing it. It’s important that I protect my clients and Patek Philippe. I’ve been working on this all my life, as has my father, and this I will continue to do.”
He then asked the question, “Was it wise to add so many years to this new system? This is the question that we are still to ask ourselves today. We will still do it, but I think we will reduce the number of years.” (Read the complete story here.)
In recent years, requests for extracts from Patek Philippe’s historical archives from auction houses, dealers and individual collectors have gone up significantly. According to Stern, the decision to limit the number of extracts from the brand’s archives was his way of protecting Patek Philippe collectors. “I think I am good on the commercial side but when it came to this decision, I made a mistake. It is not a big mistake but it is still a mistake and I don’t like mistakes. But we are all human. I talked to my dad about it and he said, ‘No, you were not wrong at all. Your goal is to protect the collectors and by doing something like that, you are protecting them. But it just went too far [in terms of the cut-off date].’ So, we decided that a 10-year ruling would be best,” he says.
Having said that, Thierry feels his customers should keep their certificates safe. “Watch out when you buy a Patek Philippe, it is an expensive watch, so keep your certificate. It is like for your car, you don’t lose your gray card for your cars; it is the same for the watch, you have to keep it,” he says.
For Thierry Stern, Patek Philippe’s greatest strength all these years has been his family values. He continues to follow in his father’s footsteps and is working towards realizing a grand vision for the company over the next few decades. “The past is very important for me because it shows me what is still really classical and, more importantly, something that will always stay beautiful. The Patek Philippe Museum is important for the younger generation working with R&D. They need to go to the museum, study and feel challenged to do better than what has been done in the past. The only difference is that in the past, they didn’t have the tools that we have today to miniaturize all those beautiful parts,” says Stern.
In terms of movements, Patek Philippe is already working on its lineup for 2037. With a clear plan on everything that the brand will be bringing out over the next 15 years, Thierry Stern is in a happy place. “For me, it is important to build a new generation of managers and directors in the coming years. It is important for us to guarantee the customers, retailers and our own people here in Geneva, that there will be continuity. So, in the coming years, I will have to secure the future of Patek Philippe and it is something already in the pipeline. My kids are already involved in the business and they know the products. We are not going to disappear. I will be gone one day but Patek Philippe should continue. We are here for nearly 200 years now and there is no way we will stop,” he says.