Luxe Investing - Invest In Timeless Watches and limited Edition Sneakers

Hi Folks, I had an interesting discussion with my fellow portfolio managers in my team last week. The discussion hovered around the greater changes that are being brought about in India's economy, which is expanding faster than most of its peers. 

With increasing spending as a result of rising salaries, more people are treating themselves to expensive luxury goods and antiques. It's overwhelming to how the Indian market is evolving and investors are looking into alternate asset classes and items like high-end watches, rare wines, whiskey, sneakers, and fine art are emerging in the Indian Economy too. 

This whole discussion led me to dig into some insights about how these alternate assets classes actually sailed over the years. Eventually, I thought be a good idea to share some of these insights with my readers. 

It's interesting to note that luxury timepieces are fast emerging as a new source of fixation for the wealthy, particularly Gen Z and millennials. Younger consumers see these watches as a combination of exclusivity, status, and good times. High-net-worth individuals (HNIs) are beginning to view them as valuable investment opportunities. The truth is that collectibles are becoming more than just sentimental items—they're becoming wise investments. One of the popular choices in this trend is high-end watches.

Well, the question is. How did we get here? 

First and foremost, a significant influence is played by the Trade and Economic Partnership Agreement (TEPA) between Switzerland and India. This transaction is expected to upend the luxury watch market in India. It would gradually reduce customs duties on Swiss watches from 22-23% to nil over the following seven years. And that's significant, particularly because India received over CHF 200 million worth of Swiss watch exports in 2023 alone. The industry has expanded at a steady rate of 11% per year for the previous 20 years! It makes sense why Swiss brands find the Indian market so alluring. And for that reason, over the next 15 years, Switzerland and other EFTA (European Free Trade Association) nations want to spend $100 billion in India.

Furthermore, according to the report published by "Knight Frank," it is estimated that approximately 60% of Indian customers purchase luxury items yearly, including jewelry, leather goods, and watches. That being said, Indians are particularly brand-aware when it comes to timepieces. In fact, compared to worldwide consumers who place more weight on price-to-value, 64% of Indian purchasers place a higher priority on brand image than price. This explains why upscale Swiss labels like Audemars Piguet, Patek Philippe, and Rolex are so well-liked in India. The luxury sector is increasing, with timepieces playing a major role, even in our cost-conscious nation. The industry is currently valued at $7 billion and is expanding quickly.

Lastly, compared to 40% of buyers worldwide, over 50% of Indians are willing to purchase pre-owned luxury timepieces within the next year or so. Because of the allure of sustainability and cost savings. Thus, the demand for luxury timepieces is being further fueled by the burgeoning pre-owned market.

You're undoubtedly asking yourself by this point, "Why do I still invest in stocks, mutual funds, and SIPs? Perhaps I ought to just buy a fancy watch instead!

But hold your horses, because this is where things become even more fascinating, so don't leap to any conclusions just yet.

Buying high-end timepieces is not the same as buying stocks or assets. Because they are a special kind of asset, watches can have somewhat erratic returns. The WatchCharts Overall Market Index, which tracks the prices of 60 premium watch models from the top 10 luxury watch brands in the secondary market, or a market where used watches are traded, shows an 8% decrease in the last year (from 65,000 to 59,700) and a good 22% in last 2 years. 

Wondering why to invest in watches at all then?

Since collectibles are actual property, it makes sense that their values will increase at least in step with inflation. Furthermore, one would assume that as the number of millionaires worldwide increases, demand will drive up prices even further.

This was undoubtedly the case in 2021 and 2022 when the index increased dramatically to surpass 95,000 in a single year. However, that tendency hasn't kept up lately, and the value of high-end watches hasn't increased as swiftly.

Why like any other asset class even this segment is subject to its boom and bust cycles. One thing is for sure, this luxury mix of investment and consumption isn't fading and is here to stay. 

Moving on ...

Well, the trend of luxe investing that started with the watches quickly accelerated to other commodities and segments. 

One such segment is our very own "Sneaks" or Sneakers. Unlike watches, these aren't limited to only HNI and UHNIs as you can get into these investments with comparatively lower investments. 

Given the price involved, investing thousands in a pair of shoes may seem like an investment, but what if we told you that sneakers are actually a growing category of investment goods?

The launching of Nike's Air Jordan 1 in 1985 marked the beginning of the global sneaker culture. When ebay emerged in the 1990s, things took a turn for the worst and helped fuel the sneaker resale market. In 2014, eBay sold 388 million pairs of shoes!

As of right moment, the Indian sneaker market is poised to surpass the market's initial boom. 

The revenue of the Indian shoe industry has been increasing positively during the past few years, rising from US$ 2.02 billion in 2018 to US$ 2.63 billion in 2023. And it's predicted to keep growing, with sales estimated to reach US$ 3.55 billion by 2028! That's an increase of 75% in just a decade!

When these figures are compared to the US, the difference is only 47%, going from US$ 18.95 billion in 2018 to US$ 27.93 billion in 2028.

Are we Indian, so Sneakerheads? 

The kind of money that could buy a few of the newest iPhones, pay for a month's rent in metro cities, or even finance a round-trip trip to Dubai! This is a result of the profound cultural change that is currently occurring in India. These days, people are gradually becoming less formal about their sneakers. The introduction of the NBA to India and the rise of Desi Hip Hop culture are two major causes of these.

Indians especially the younger generations are moving towards the street style which majorly revolves around the sneakers. 

PS: Checkout your intern's sneaks next time you meet them ;)

How does the sneaker trade works?

Reselling sneakers is an easy process. Resellers make large profits by buying limited-edition sneakers at retail and reselling them on specialized markets for a greater price. The cost of the footwear, shipping, and marketing expenses are all included in the expenses. The difference between the selling price and the retail price is what brings in revenue.

 In India, the typical net profit margin from reselling sneakers is between 20% and 30%. A piece's price increases with its exclusivity.

India provides the act with several well-known platforms. Well-known global marketplaces StockX and GOAT have made an impact in the Indian market. Furthermore, Vedant Lamba's Mainstreet Marketplace has become a dependable and user-friendly platform. It has been extremely successful, selling thousands of shoes and making a large profit.

Should you look to include these Luxe Investments in your portfolio?

To be honest there is no direct yes or no answer to this question. The answer to this will come with lots of variables and also the kind of expertise and connection you or your advisor holds in the particular industry. 

The global and Indian luxury craze is evidence of how consumer society is evolving, with sneakers, watches and even pens being now more than just a means of transportation and also a status, fashion, and investment item.

Additionally, these luxe investments come with risks and benefits of their own, much like anything else that needs spending money. Although the lack of a more populous and expansive market may negatively impact liquidity, the exclusivity and fervor surrounding sneakers sustain their existence!