How Flippers And Gentlemen Dealers Are Ruining The Secondary Watch Market
You know the type, that collector friend or colleague, budding real estate or finance mogul, owns a few watches, and wants to participate in the watch industry by extracting profits from an otherwise civil industry.
My colleague Benjamin Teisseire recently wrote an impassioned article about the demise of the grey market in favor of "certified pre-owned" and in-house preowned shops managed by brands. A recommended read indeed. Today we’re taking a look at another realm of the secondary watch market, the “flipper” and “gentlemen dealer.”
New work-arounds have supplanted grey dealing. Unless you've been living under a rock these past few years, you've no doubt noticed the HUGE premiums being commanded on everything from Rolex Daytonas to Stainless Steel Patek Philippes. It’s safe to say the market has gone completely nutty. Case in point, one of my buddies bought seven Omega Speedy Tuesdays under different email aliases, while another took a watch I brought from Europe (as a gift mind you) and flipped it for double. Some of these so-called "flippers" or "gentlemen dealers" are on the waiting lists at dozens of retailers at the same time. It’s a problem.
What’s the root cause of this issue? It's complicated. For starters, grey dealers are no longer the only ones selling excess inventory or charging a surcharge for a popular watch. Millennials are getting into the act - propelled by the popularity of horological social media and web sites. A considerable amount of men (and women) in their late twenties and thirties are trying to find a way to participate in the watch industry one way or another. I should know, I quit a day job in finance and sold a few watches to help fund this dream.
Just five years ago the traditional distribution models for watches involved brick-and-mortar retailers, intermediaries (aka distributors), sometimes e-commerce, and private sales via collectors and grey dealers. Today’s new landscape includes iMessages, WhatsApp, Venmo, PayPal, Instagram, and even Bitcoin. While brands still believe they’re selling timepieces to passionate collectors and enthusiasts, some may be shocked to find an entirely new cottage industry has sprouted from the ashes of grey dealing.
Enter the “Flipper”
Wikipedia defines “flipping” as “a term used primarily in the United States to describe purchasing a revenue-generating asset and quickly reselling (or "flipping") it for profit.”
While the process of flipping is commonplace in real estate and the stock market, it’s now running rampant in the watch industry. Most of us buy a watch for pure enjoyment purposes. A flipper, on the other hand, buys a watch with the intent to make a profit.
Yes, I know, your friends and family have told you for years that “watches are NOT an investment” and while that is still mostly true, there is significant money to be made in selling. I'll admit, I have many friends who self-identify as "flippers," I've even interviewed a few for this story.
“Flipping is inevitable in today’s market. With grey market prices sometimes 100% over retail, the draw for a good customer to buy a coveted piece and sell for a large profit is just too high. This is no longer chump change.” – Anonymous “Flipper”
These gentlemen and women generally earn at least six figures a year and have cultivated an impressive collection of timepieces. Are they collectors? Yes. But they have an incurable itch that can’t be scratched with the mere acquisition of a watch. They must monetize their hobby. Similar to their day job conquests, “flippers” cultivate relationships with retailers over time and after building up a purchase history rivaling that of a Russian Oligarch, they strike!
We all know that the more watches you buy from your retailer, the more access you'll have to coveted pieces. Once the proverbial floodgates open for a flipper, they see the potential profits that can be made. It's supply and demand. If watches couldn't be sold for a profit (over retail prices), then flipping simply wouldn't happen.
But as more and more limited production of models becomes an industry standard, secondary markups of 20, 40, and even 100 percent are acceptable to collectors. Why? Because your average collector can’t access the pieces, and because retailers are offering them to their best customers, or worse, to seedy third parties who share the proceeds of their markups. Social media helps to perpetuate the lust and desire for these watches by continually presenting images of your friends and fellow collectors enjoying the exact watch you cannot buy.
Once a flipper is in the game, they start to gobble up any and all popular models they can using their connections with retailers. For the retailer, it’s a win, because they've sold a watch. But in the flippers mind, the watch they've purchased is about to make them a few bucks. Offloading the newly received merchandise is quite simple via a post to Instagram, a text or WhatsApp message to a group chat, or just a call to a grey dealer. The potential profit is anywhere from a few hundred dollars to tens of thousands in some rare cases.
By why do flippers go through the trouble? Often, there’s no guarantee that the watch will sell. And what’s worse, if the retailer finds out you’re selling your new timepiece for a profit there’s a high probability that you’ll be off the list for that next hot model when it arrives. But most of the flippers I talk to come to the same conclusion, by purchasing multiple watches from a single retailer, the retailer is more likely to offer access to other models down the road.
Most flippers make incomes well into the six-figures, so why do they go through all this trouble to make a few extra bucks? One anonymous flipper said,
“My love of watches extends beyond owning and collecting, and I love the hunt. I find nothing more gratifying than buying a great piece well under market, enjoy wearing it for a few days or weeks, and unloading for a profit. It enables me to enjoy so many more pieces than I'd be able to otherwise [if I had to buy them}.”
Profits By The Numbers
To illustrate this topic, allow me to present three pricing examples.
1. Rolex Cosmograph Daytona (AKA the Daytona C)
This unicorn of a watch has not been seen in a retailer’s showcase for decades and is only offered to top clients. Retail price $12,400 USD. What can it sell for?? Based on consulting with flippers and grey market dealers, $21,000 on average. That's a 70% markup over retail. Making an $8,600 profit with the swipe of a credit card and flick of a finger on iPhone isn't a bad way to spend an afternoon.
2. Patek Philippe Nautilus ref. 5711
Ah the 5711, at $29,800 USD, is the current favorite, commanding HUGE premiums in aftermarket sales. Last year, the average secondary market price soared to over $50,000 USD. Added bonus if your 5711 has a Tiffany stamp, which can fetch you over $100,000.
3. Rolex GMT Master II “Pepsi”
The darling of Baselworld 2018, at a price of $9,250. With a limited number of watches available for sale right after the watch was introduced, the initial secondary market prices were exorbitant. Even now, the average secondary price is $18,500. Not a bad way to double your money.
We all know “that” guy, the gentlemen dealer
You know the type, the people who always "know a guy," that discreet DM slide after you post a watch you're yearning for, "hey pal, I can get you this watch." Of course, he knows a dealer, a grey dealer, or even a flipper hot to turn a profit. Or perhaps, he's started a small business of his own reselling watches. A gentlemen dealer is a friend, a collector, and a person who can find a way to squeeze water out of a rock.
On a practical level, the practice is pure opportunism at the expense of real collectors and trustworthy dealers. I've made the mistake of asking for a watch from a friend whom I'll now freely admit is a gentlemen dealer. The process was mind-numbing.
I spoke with Vincent Brasesco, CFO of AnalogShift, a retailer of vintage watches, who said, “despite the fact that Analog/Shift primarily sells vintage watches, our clients – just like us – don’t solely collect vintage pieces. We are constantly asked for Ceramic Daytonas, GMT-Master II’s, and various contemporary Patek models. When we quote a good client nearly $20k for a Daytona and explain that it’s the best price even we can get – that is often met with disbelief! This is a case of supply and demand not in equilibrium - to an extreme degree in some cases. Unless the end user stops paying the premium to go to the head of the line, its’ difficult to envision a scenario where profit seeking individuals don’t seek to capitalize. The reality is, this is an unregulated market with few checks and balances.”
Gentlemen dealers want to be outside participants in an industry that has for decades involved a small cast of interconnected insiders who know all the players and available watches. Fellow collector Amr Sindi (aka The Horophile) told me,
“With every hobby comes opportunism. One could argue it’s simple economics at work. There's "Watch X" that is in lower supply than current demand, and it's only natural that a flock of vultures will encircle it in the hopes of making a quick buck. At least in the old days (well, pre-Instagram anyways) dealers were dealers, flippers were flippers, and collectors were collectors. That doesn't mean that each of these types of buyers were mutually exclusive, but at least the lines were there. Now, any idiot with an Instagram account and an authorized retailer in his vicinity can figure out what pieces are worth buying to sell at a premium. Count me out.”
How we can fix this
The principal concern that many of us collectors have are that flippers and gentlemen dealers muddy the waters of an industry otherwise driven by passion, hard work and respect for value. Sure, brands and retailers are motivated by profit, but unsavory characters trying to leapfrog on the popularity of an in-demand watch for their own gains are working against the core values of the industry.
Of course, the simple solution would be for the brands to produce more product, therefore diluting this otherwise crazed market. However, exclusivity drives desirability and producing enough Daytonas, Nautilus, and Pepsis to satisfy collector demand could do more harm than good. Most people want these watches because they can't have them, and the thrill of the hunt is what drives most collectors to wake up in the morning.
But what can we do? Many brands are already enacting measures to ensure their watches go to the right clientele and as we speak, protections are being put in place to help limit flipping and grey market dealing. One idea presented is the digitization of wait lists in order for brands to restrict the flow of product only to deserving clientele. It will be interesting to see how brands adapt their market strategies to this relatively new phenomenon.