“Watch brands can no longer ignore the phenomenon of second-hand,” monochrome.com insists. “Their clients have larger access to information and to this market. It cannot be left in third-party hands only: the watch brands need to play the game one way or the other.” Are we about to see Rolex, OMEGA, Seiko and other major players elbowing-out vintage and gray market watch dealers to claim a piece of the multi-billion dollar pre-owned watch market? A better question: should they? . . .
At the moment, the used watch market is a non-starter for the big boys. With a couple of notable exceptions, manufacturers shun pre-owned programs. Nor do they buy and sell their own watches on the secondary market. And yet, again, the pre-owned watch market is worth big bucks: well north of $10B. Who better to steal market share from secondhand dealers and websites like Chrono24.com and watchfinder.com?
Theoretically, it’s a win-win: manufacturers get another source of income, buyers get to buy from a if not the trusted source. So why can’t you walk into a Patek Philippe Authorized Dealer and buy a fabulous pre-loved Nautilus? There are a few important issues to overcome, not including watchmakers’ inherent conservatism. (Hello? Have you met a Swiss company?)
First, the manufacturers’ pre-loved watches would compete with their new timepieces. Given that watches are not a high-wear item, given that the manufacturer would have to warranty the used watches, buyers would naturally stray from the case displaying box fresh watches to the case showing only slightly less worn but a lot less expensive and otherwise identical (for all practical purposes) pre-owned models.
But, you say, the used market already competes with the new market. Patek, Audemars Piguet, Rolex, Vacheron, Grand Seiko, IWC and the rest might as well make some money off of pre-owned watches. Not so fast.
If you look at the income statements of any of these manufacturers, their gross margin on new watches is somewhere on the order of 50 percent.
It’s hard to imagine that the used watch market could deliver that kind of
obscene healthy profit. The manufacturer would have to buy the pre-owned watch on the secondary market then repair and refurbish it to a level approaching new (or risk dinging their reputation).
Don’t forget: the manufacturers would have to do so while competing on price with independent vintage dealers using non-union watchmakers. While the process is certainly feasible, the margin on the final sale is highly unlikely to hit the magic 50 percent. The value add for is simply not high enough.
That said, not every business line within a company has to deliver the same gross margin as their primary segment. The lower margins on pre-owned watches might be repaid by higher turnover/footfall/page views, leading to greater cash flow and/or customer engagement, leading to greater sales of higher margin new product.
Might. [See: comment on Swiss conservatism above.] At the same time, a big move into the pre-owned watch market business requires a different go-to-market and distribution model. Since many of these big players have few or no direct dealers/web sales, they will either have to build out these capabilities or partner with authorized dealers. (Some already do, although it’s nascent at this stage).
That’s a huge issue. There are a lot of players in this market already – one where 100 percent of the profit accrues to the retailers. So manufacturers need to offer a lot of value-add here to the channel or muscle their way in (more on that in Part 2). Regardless, it’s a set of capabilities that the European brands generally lack.
Bottom line: manufacturers selling pre-owned watches isn’t a slam dunk. However, it makes so much sense I can’t see it not happening.
All of these manufacturers have indicated they’re not going to produce a significantly larger volume of their most desirable pieces. Regardless of the merits of this approach (and whether you think they should be raising prices), it’s in their best interests to have an obtainable (not necessarily affordable) entry point into their collections.
Used pieces can be used as an entry-level items for people just getting into watch collecting. The ability to walk into a dealer and buy a like-new piece shouldn’t be underestimated. As mentioned above, it keeps people in the brand, as opposed to going elsewhere.
At the moment, prices for highly desirable watches remain below the market clearing point; having a lower-priced line of like-new watches would give manufacturers cover to raise prices on new-new pieces. And this can be achieved without the shenanigans of sub-lines or brand dilution. I guarantee, if I were running a watch company, I would be looking at this very carefully.
It also makes sense for us, the watch buying public.
While the used market has become Very Online over the last decade, its nature hasn’t changed significantly. There are small dealers and traders who use sites like Chrono24, and larger “aggregator” sites that buy and sell like Crown & Caliber. However, all the of the typical problems of a used market exist, from adverse selection, to counterfeits, to people simply wanting something perfect.
At a stroke, the manufacturers can fix all of this. Watches returned to a fully functional, like-new state? Of course! Five year warranties and authorized channels? Yes please. I recently had a Seamaster serviced by Omega and the watch I got back was indistinguishable from when I bought it new, 20 years ago.
The idea here is not to replace the used market. It’s to supplement it: build a new, higher tier for enthusiasts who value such things. There will always be a place for watches with patina, just as there are both fully-restored and “driver’s” cars.
This makes tons of sense. I’m excited just thinking about it. In Part 2, we will envision how to build something like this, paying attention to the all-important distribution channels and relationships between the manufacturers and the market.