Certified Pre-Owned Watches – AD’s FTW

In my post Who Will Own the Pre-Owned Watch Market? I explored the possibility of manufacturers selling certified pre-owned watches through their authorized dealers [AD’s]. RF challenged me to put some meat on the bones: to restate the need for a manufacturer-run certified pre-owned watch program and explain how it would work. First, there’s no question . . .

Authorized Dealers Need to Sell Certified Pre-Owned Watches

Authorized watch dealers are hurting. Between the lockdowns, manufacturers continuing to build out their boutiques and the pandemic-fueled eCommerce binge, AD’s need a way to jumpstart their own eCommerce efforts and get people in the stores (whenever that may be). A trade-in program offering premium pricing would be a differentiator from the gray market and other competitors.

What follows is an outline for a Certified Pre-Owned (CPO) watch program for a high-end manufacturer with a price point over $5k, a sales channel made up mostly of AD’s (with a few company-owned boutiques) and some (but not all) model lines facing waiting lists.

AD Certified Pre-Owned Watches – How It Would Work

AD’s offer top-of-market pricing for certified pre-owned watches on a purchase of a new watch

The manufacturer’s authorized dealer would take a pre-owned watch in trade, then send it to the manufacturer for like-new refurbishment (e.g. Racer88’s Rolex Yachtmaster restoration). The CPO trade-in program could be restricted to own-brand products – where market prices and service costs are easy to calculate, and the CPO watches can be sold without “polluting” the store with competitors’ brands. Off-brand watches can be shuffled off to the gray market – or to a separate CPO business owned by the manufacturer.

No matter how they slice it, manufacturers are going to have to offer a decent price on trade-in watches. Unlike used cars – which are hard to sell and relatively local – the watch market is nationwide (if not global). It’s easy to transact in this market; shipping costs are de minimis compared to the value of the item. The competition on trade-in vs. the cash available on third party sites will be consequently greater, pushing manufacturer prices towards “market.”

Fortunately for the authorized dealers, the margins on new product are high enough (usually 40 percent) that trading a pre-owned watch for credit on a new watch allows them to offer more than in-cash. And it removes some of the grubbiness of the transaction.

Certified Pre-Owned (CPO) watches priced at a premium 

What about selling? Here, the manufacturer warranty, stamp of approval and refurbishment process need to combine to make certified pre-owned watches a premium product. Better than anything offered by the third party sites. In fact, the entire experience should be indistinguishable from new. New box. Papers. The lot.

We’re staking out the extreme high end of the market. Pushing the ceiling up for desirable pieces, where a Rolex CPO steel, panda-dial Daytona could sell for 50 to 100 percent MORE than a new Daytona at retail. Manufacturers are going to find the retail clearing price for desirable pieces to ensure everyone is making money and that people can walk into an AD and walk out with a new timepiece.

Taken collectively, a manufacturer’s CPO program will create a ceiling for both trade-ins and retail pricing. This leaves enough profit – I estimate a 20 to 30 percent gross margin – to make this scheme attractive,

The Effect on the Pre-Owned Watch Prices

What would happen if the large the large high and manufacturers adopted a CPO program? What would happen to the existing secondary market?

The first pass answer: nothing much. There simply aren’t enough pieces or demand for trade-in programs to materially affect pricing one way or the other – at the beginning. As AD-run certified pre-owned watch programs become more integrated into the market, we would see pricing adjustments ripple through the overall pre-owned watch market.

As described above, manufacturer-supported, AD-run certified pre-owned trade-in programs would establish a maximum for pre-owned watch pricing. If you can get the exact same watch from a manufacturer for the same or less than an independent seller, there’d be no reason to buy a used watch from a third party. AD CPO programs would also create a minimum price for buying; the trade-in programs will offer an unlimited call for pieces and overprice third party buyers.

The AD’s/manufacturers would, in essence, create a pricing band for pre-owned pieces. In this respect, the new CPO watch market would resemble the used car market, where dealer pricing forms both an upper and lower limit on market value.

Is this price banding necessary? For the consumer (yes, you’re a consumer, not a collector or whatever idiotic term the other sites use), probably not. Supply and demand will still be the major factor determining market value.

But a manufacturer-supported certified pre-owned watch program will put the manufacturer’s thumb on the scale, in a market where they currently have zero control. With some relatively sophisticated thinking, it could be a life saver for authorized dealers. For consumers, it would make buying a luxury watch – new or used – a more secure and satisfying experience. For Swiss and German watchmakers, control is everything. So . . . win-win-win! Your thoughts?