The watch buying landscape is relatively interesting as retail industries go. Most interesting or rare watches fall within the "luxury item" group given their pricing. A distinct feature of this group involves a good deal of efforts to keep prices high. High prices don't necessarily just mean high profits for the retailer. A psychological effect to the consumer of keeping prices high is to elevate the status of a product, given the existence of a suitable market willing to pay for high status goods that is. In this arena, watches that are priced higher have the illusion of more prestige, rarity, and class. While often times you get what you pay for, the price of a watch is not always going to be commensurate with ownership experience or overall satisfaction. The truth is that watch pricing is a game, and a game that watch companies fight to win.
The concept of an authorized dealer is simple. You cannot sell a watch unless the manufacturer authorizes you to do so. They will only authorize you to sell a watch if your store is nice enough, you maintain a good image, keep prices above a regulated minimum, and promise not to place watches on the gray market. In exchange you get the supreme honor of selling for them and being able to tout you are an authorized dealer. The benefit to the consumer is that they know watches purchased from an authorized dealer are real, and that warranty and service claims will be honored by the manufacturer.
To implement the authorized dealer restrictions, manufacturers of high-end watches individually number each watch. These serial numbers or "codes," can be traced back to the store authorized to sell the particular watch. Because watch pricing is inflated to a high degree, it is necessary for watch manufacturers to police this system judiciously. A watch dealer will acquire a watch in two ways from a manufacturer; either purchasing the watch flatout at a dealer price, or on a consignment basis (where the retailer does not actually buy the item, but merely "displays" it for the manufacturer who either rents the space or pays a commission to retailer when the item is sold). Both methods have plus and minuses, but the majority of watch retailers purchase watches at dealer prices from the manufacturer and then resell them. At the basis level, the manufacturer has a retail price which they "suggest" and there is a different price that the dealer pays for the watch. The difference in those prices that the dealer makes in a sale is their profit.
The system is riddled with middlemen. For instance, the distributor who sends/imports the watches takes a cut, and another big cut is given to the actual salesperson who makes the sale to the consumer. Often times the difference in price from what the retailer/dealer pays for the watch, and the suggested manufacturer's retail price is 40-60%. In order to make prices more competitive, watch sellers often want to reduce profit margins to lure consumers with better prices. While this practice benefits the retailer and the consumer, it does not the manufacturer who has already made their money on the watch. Their interest after selling a watch to a retailer is branding, and getting customers to buy more watches. Thus they want to ensure the highest possible prices.
Most watch sellers online are not authorized dealers, and that is potentially not a problem. A non-authorized seller can offer prices below an authorized seller because they are not bound by an agreement with a manufacturer. In order to maintain themselves, unauthorized retailers will "decode" watches. This is the process of physically removing the serial number or code on a watch. There are different ways to do this of course. You have the back-alley scratch it off with a sharp object - to the professional neat and clan removal. Not having the serial number on the watch protects the watch seller as each watch can be traced due to the codes. It is not so much for the gray market seller, but more for the original authorized seller that often places the watch in the gray market to begin with.
The risks of purchasing a gray market decoded watch are that the original manufacturer will refuse to service the watch, or refuse to honor a warranty. For most people this is not a big deal. There are tons of places to get a watch serviced or repaired, which are almost universally cheaper and faster than the manufacturer. Further, these places can request specific parts from the manufacturer, so there are actually only a few instances when only the manufacturer can repair a watch.
Further, some buyers may feel uncomfortable purchasing a gray market watch or one that has the serial number "wiped." This is a highly individual sentiment difficult to comment on and often comes down to the savings involved. The ability to save many thousands of dollars in exchange for some number is too appealing for most. On the other hand, you have collectors who are less concerned about the initial price of the watch because they either want to invest in the watch or simply add it to their collection unblemished.
All watch consumers should be aware of the retail landscape and where their money is going. Valuation can often be a highly ambiguous concept. You don't just pay for the materials that go into a watch. You also pay for the design, construction labor, exclusivity, marketing, distribution, and then profit to a mixture of entities. Knowing what you are buying, and who you are buying from is important. A good deal of watch stores online do not themselves have inventory, but rather work with a number of inventory partners or from distributors. The concept makes sense. Why carry a stock of $5,000 watches when you have to buy them yourself and wait for someone to buy them from you at a higher cost? Instead, you can place a picture of the watch online and once someone orders it, you can then buy it from the distributor at your wholesale/dealer rate.
The consumer can benefit from buying the right watch, at the right place. One of the reasons eBay is an excellent place to buy watches, is that there is always a large availability of new watches. Often times you are presented with a new watch at a highly discounted rate, gray market or not, these are not fake watches. Further, the availability of well cared for used watches on eBay makes it difficult to pass up.
So now the concept of a decoded watch is clear, and you are aware of the benefits and risks. In the case of any doubt, the best course of action is to talk with the seller, at least now you know what types of questions to ask.
See watches on eBay here.