The Grey Market Is Dead! Long Live Certified Pre-Owned!

Certified Pre-owned has been a buzzword these last few years. Its principle tackles some significant issues in the watch industry: secondary market, excess inventory disposal, and more. But with the explosion of e-commerce, the industry has created a dangerous Wild-West-like marketplace of which brands need to control. Let's take a more in-depth look with help from a few of our friends in the industry.

In an interview, Breitling’s CEO Georges Kern, emphasized bluntly, “Mechanical watchmaking's priceless luck is to produce perennial products. A timekeeper does not become obsolete like a popular smartphone.”
 

What Kern means is that, if well maintained, watches can last a lifetime or even be passed down to the next generation. It’s what makes watch collecting so appealing. Moreover, as the general standard of living increases, more potential consumers enter the market, eager to flaunt their good taste.
 

It is a blessing for all brands. However, for some collectors, the suggested retail prices of today often remain the ultimate hindrance to acquiring another new timepiece. Naturally, a secondary/grey market satisfies these cost concerns and creates a solution which helps collectors quire their next watch at a lower cost outside of a brand boutique.

An additional byproduct of this secondary market is the supply of today’s top models (usually at a premium) to those collectors who tire of waiting on their retailer’s list and crave the latest mechanical beauties at any price. With the internet, selling and buying options have multiplied. But so have the various e-commerce platforms for watches. Coupled with the fact that when supply exceeds the demand, problems arise.

Distribution’s role is to make the latter two meet. When there is unbalance, a parallel (grey) market emerges. The dumping of unsold inventory by brands through such channels is usually a public secret. But it’s clear; the grey market stems from these overabundant stocks.
 

For François-Paul Journe, who pioneered the reselling of his timekeepers in 2016 by creating his own Patrimoine Service, “the grey market is born from most brand’s over-production. As long as it persists, it will exist. With our limited output (of 900 pieces per year), there is no issue.”
 

Recently, brands have embraced their ever-growing production. Unsold watch inventory can be dizzying… and loads more come in every year. Until recently, stocks were discreetly disposed of by retailers, distributors or even brands directly on the markets mentioned above. With the explosion of e-commerce, this grey market has become difficult to hide, and discounts have sky-rocketed. As excess volume increase, the impact on brand image starts to be felt. Richemont's buyback of close to 1 billion Swiss francs worth of product over these past two years is indisputable evidence of the magnitude of the issue. At the end of the day, the game was getting very risky for brand image and perceived value by the end consumers.

According to analysts from Kepler Chevreux in Zurich, the current secondary market amounts to around 5 billion USD. By contrast, today’s luxury watch market accounts for approx. 47 billion USD (2017 FHS numbers of export price multiplied by 2.5 to represent MSRP). Adding up the large volumes dispatched by brands since the explosion of the craze for mechanical watches more than 20 years ago, this valuation seems largely underestimated.
 

Based on FHS numbers since 2000, it can be deduced that the market for available Swiss mechanical timepieces could reach more than 400 billion USD! No wonder current projections see the Certified Pre-owned demand outweighing the new market within five years. One understands why the brands finally got concerned about it.
 

Richemont’s recent takeover of Watchfinder, a pre-owned watch specialist, is a clear sign that groups show a strong will to put some order in this horological wild west which was becoming uncontrollable. As Georges Kern underlines, “It is urgent that the secondary market structures itself. Today it is still dominated by the grey market, where consumers have no guarantee on what they buy. Brands have the opportunity to create a clear and transparent channel in which overstocks can be sold safely.”
 

Patrick Hoffmann, executive vice-president in Switzerland for WatchBox, certified resale specialist founded in 2017, specifies, “It is not a new kind of business. The automobile industry has been doing it for decades! The watchmaking industry challenge is to become transparent, so the final consumer realizes the true value of the products.” The same logic can apply to other major certified specialists, like True Facet or Crown & Caliber: the timepieces offered are certified, sometimes even by the brand directly, all in full transparency.

Tackling this market will enable brands to regain control over the discounts offered hence monitoring better the residual value assigned to their name. It will also work as a reassurance for the mechanical watch lovers who will then be more inclined to pay more to have a certification of authenticity and a double warranty of origin and functionality. Finally, it will comfort the collectors on the lower depreciation of their growing collection of beautiful timepieces. Everybody wins here.