Luxury watch brands give ground to grey market
But the battle for control of secondary sales continues
Not so long ago the so-called grey market in watches represented little more than a shadow trade that caused mild irritation to the manufacturers who unwittingly supplied it.
It is comprised of genuine pieces that arrive on the open market having been sold by unscrupulous official retailers at a discount to either end consumers or other dealers.
Over the past five years, however, it has grown into a multibillion-dollar industry that has compounded the woes of brands battling the headwinds of sales slumps in big markets, currency fluctuations and consumers’ more cautious attitude to spending.
Top brands are now testing a range of responses to the grey market’s threat to brand value, such as reducing stock volumes, establishing in-house resale services and, in the case of luxury goods group Richemont’s recent purchase of Watchfinder, even buying up outright those platforms that sell pre-owned pieces.
The Swiss franc’s unpegging from the euro in 2015 provided a fillip for the decades-old grey market. The franc’s value jumped by about a quarter against the euro, raising the cost of Swiss-made products just as the once booming Asian market was beginning to falter, partly as a result of the Chinese government’s crackdown on giving watches as bribes.
Brands’ conviction that strong growth in Asia would continue indefinitely had resulted in substantial oversupply of stock. Struggling retailers in Hong Kong — by far the world’s largest importer of Swiss watches in 2010-2015, according to Swiss watch federation data — had to offload watches at reduced prices.
This predicament led to Richemont — which owns Cartier, IWC, Jaeger-LeCoultre and Panerai — buying back watches from retailers to stop them being sold on the grey market. It cost the group €203m in the year to March 2018 and €278m the previous year.
Many watch brands decry the grey market for several reasons, including that unauthorised sellers are less likely to supply a warranty or dealer stamp for consumers. But the bigger problem is that oversupply and discounting undermine the value of both product and brand.
The industry’s leading players are weeding out retailers found to have been supplying discounted watches to either end users or grey market websites in order to prevent stock “leakage”.
At Longines, its chief executive of 30 years, Walter von Känel, is using a team of private operators employed by its parent Swatch Group to track down retailers supplying the grey market.
“The parallel business is a problem and we are attacking it by buying back our watches through ecommerce sites and finding out which retailers supplied them,” says Mr von Känel, presenting several bulging files containing images of watches and the details of the official outlets to which they were originally shipped.
“We then go to them, take back any remaining Longines stock and permanently remove them from our list of official retailers.”
While such a no-nonsense attitude might prove instantly effective, others believe big brands could ultimately profit from the pre-owned and grey markets — as demonstrated by Richemont’s surprise announcement in early June that it had acquired UK-based second-hand watch portal Watchfinder.
Phil Edmondson-Jones of investment company Beringea, which exited its £3m investment in Watchfinder in July following Richemont’s move, says the website’s data pool will be of particular use to the group. “The secondary market is clearly important to the retail pricing of new product, and the purchase of Watchfinder will ultimately enable Richemont to exert a little more control on the full life cycle of some of its watches,” he says.
Philipp Man, co-founder of Cologne-based Chronext, which sells new and pre-owned watches online globally, shares this view.
“Every watch we sell comes to us to be authenticated before being shipped to the buyer,” he says. “Ultimately, what we do will give the brands a better understanding of their markets . . . to the point that they will not have leakage any more and they will not have to buy back inventory.”
Some watchmakers are joining forces with online platforms in other ways. Last month, US-based pre-owned watch site TrueFacet launched a “brand certified” category in which seven partners — including Zenith, Fabergé and Frederique Constant — will refurbish pieces and provide customers with a manufacturer’s warranty.
Among the longest-established grey market etailers is Chrono24, which launched in 2003. It sells new and used watches and takes a listing fee plus 1.5-2.5 per cent of the sale price from dealers and up to 6.5 per cent from private sellers for each transaction.
Chrono24’s co-chief Tim Stracke believes the fact that leading players appear to be streamlining inventory could be good for everyone as it will help to stabilise prices. “What most people prefer is to know that the value of the watch they buy will either rise or remain stable,” he says.
Perhaps ironically, etailers such as Chronext and Chrono24 could themselves face serious competition from some of the individual brands that they have become well known for selling.
Tudor and Omega already work with official vintage outlets. Vacheron Constantin has recently started dealing in pre-owned through its Les Collectionneurs service, while independent brands MB & F and Linde Werdelin also offer used-watch brokerage services.