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Study Confirms Watch Industry Retail Sector Hurt By Gray Market & Excess Inventory

Study Confirms Watch Industry Retail Sector Hurt By Gray Market & Excess Inventory Featured Articles

In addition to writing about new watches and reviewing them, I also participate in a lot of watch industry consulting and studies. I’m deeply interested in the larger business of producing and selling watches, as well as determining problems our industry faces and ways to resolve those problems. The watch industry has endured for generations because of the beauty and appeal of timepieces. However, the industry is not immune to changes in the market as well as its own (often stubborn) hesitation about adapting to a changing consumer environment. There are some major issues facing the retail side of the watch industry today – and I’m always eager to work with those entities seeking to educate the industry about these problems as well as offer potential solutions. My goal, as well as that of the overall aBlogtoWatch team is to serve as a consultative voice for both watch consumers and the industry which we work so closely with.

With that said, I found it interesting that a research project I recently consulted with discovered a lot of empirical data to support a few theories I had about issues facing the watch industry. Regularly speaking to a range of stakeholders in the watch industry ranging from the media, to watch makers, brands executives, retailers, and consumers gives me a unique perspective on the pulse of the industry as seen from a variety of angles. The diverse nature of those who I regularly interview and speak with offers me a broad look at what is going on, offering a top-level perspective unavailable to many people who hyper-focus on only their niche areas within the industry. Getting back to the point, working with Blueshift Research out of San Francisco, we were able to confirm my theories that the watch retail industry (at least in the US – but likely in much of the world) is being severely harmed by the size of the gray market sales of watches as well as the related concept of inventory glut.

Study Confirms Watch Industry Retail Sector Hurt By Gray Market & Excess Inventory Featured Articles

Over the years, I have touched on each of these issues in a range of articles that we’ve produced on aBlogtoWatch. Going back only a couple years, I want to bring your attention to my article “Explaining What’s Wrong With The Watch Industry in 2014,” where many of these topics are discussed. Later in 2014, I analyzed the state of the watch industry’s problems in Hong Kong here, where a lot of these topics came up again in discussing the specific issues facing the extremely important Hong Kong watch market. In reference to the issue of gray market problems and inventory glut, I suggested that the watch industry itself sell unsold inventory directly to consumers in this article here from 2015. Finally, industry captain Jean-Claude Biver echoed some of my sentiments about the watch industry’s retail problems in my recent interview with him at the beginning of 2016.

As you can see, I’ve been developing these concepts and conclusions over time per my expansive view of the watch industry from a truly international perspective. It is natural to be curious about the industry you are working in, and it is important for me to understand how changing economic, consumer, retail, and marketing environments affect things like how watches are sold and distributed. Too often, members of the watch media maintain an exclusively “product-driven” view of the industry commenting sometimes solely on new products and trends. For me, it is more important to understand the full stream of how watches are conceived, produced, marketed, distributed, sold, resold, and serviced. Ignoring any one of these areas causes a lack of understanding when it comes to being able to describe how the entire ecosystem comes together.

Going back to Blueshift Research, the question they were trying to answer in their research project was whether or not the weak watch retail market in the US was a short-term or long-term issue. In order to answer this question, they needed to first understand the reasons for why the US watch retail market was weak, and then determine if the problems were caused by external factors such as market conditions, or whether the problem was systemic – which means flaws in the retail model itself.

In consulting with Blueshift on the project, my main theory was that the issue was in fact the system, with limited amounts of external forces affecting the watch retail ecosystem as a whole. I pointed to two major issues that, in my opinion, do and would continue to contribute to the long-term negative outlook of watch retail in the United States – and the world. I want to clarify that I also said “people aren’t buying fewer watches.” The irony of the weak authorized watch retail market is that watch sales volumes are high. The problem, I explained, is that watches are not sold via the “official” authorized channels. Thus, watch sales are high, but the official numbers coming from the authorized channels make it look like sales overall are down. This is a major issue and something that I needed the larger industry to understand.

Study Confirms Watch Industry Retail Sector Hurt By Gray Market & Excess Inventory Featured Articles

What is happening is that the traditional channels for selling watches aren’t able to compete with the culture of discounting which has stemmed from the proliferation of gray market (channels outside the officially authorized retailers) sales. The gray market survives because of their ability to sell timepieces at a discount below retail prices. This is because they are still able to make a profit. These mostly internet-based retailers do not have traditional overhead costs of retail locations or other expenses and are able to make money by selling watches at a lower margin. Moreover, they are often able to purchase stock at lower than wholesale amounts in many instances.

The gray market is thus able to sell new timepieces at significant discounts. We all like discounts, but here is where the consumer typically does not understand the bigger picture. Because the watch industry itself is able to “dump” unsold inventory directly to the gray market (traditionally, the gray market only survived through the sale of small amounts of unsold goods obtained from retailers), it is able to sell off massive amounts of unsold watches and maintain a “blind-eye” approach to what happens to it. Now, this causes other problems. Consider that a watch company that was once used to demanding $5,000 for a watch in a retail environment is now seeing their watches sold for $3,000 on the gray market. The new “street price” of that product becomes the de facto price consumers are now willing to spend. In order to combat this, the watch brand raises retail prices based on the notion that the street price will incrementally rise along with it. So using this example, if the $5,000 watch that sells for $3,000 wants to make more money, the brand simply raises the retail price (which is rarely actually realized) to $7,000. Now, the street price (which is often a fixed percentage lower than the retail price) increase as well. The brand hopes that consumer will now be happy with the “discounted price” of $5,000.

This is one of the major reasons why retail prices have skyrocketed over the last decade or so. Yes, there are other factors, but the gray market has caused the “Invicta-fication” of watch prices at even the highest end (“retail price $10,000, but yours for $5,000!”). My assertion is that the gray market’s size and reach has caused retail prices to soar to unreasonable levels – often because those prices are rarely actually realized. I don’t like it that it is the “chump” who goes into an authorized dealer and pays full retail. This is a sorry state for the watch industry to be in, and the utterly widespread culture of discounting creates a sentiment of distrust and suspicion on behalf of the consumer when they are asked to pay anything. For this reason, I feel that the watch industry has a serious reason to put actual effort into combating the gray market.

Study Confirms Watch Industry Retail Sector Hurt By Gray Market & Excess Inventory Featured Articles

How do they do this? Well, for one thing, they need to stop producing as many watches. “Inventory glut” means that they are producing more watches than the market can bear. Most watch brands do not sell directly to consumers but rather sell watches in bulk via wholesale and depend on retailers to sell everything to end-consumers. This is what is known in the industry as the difference between “selling-in” to the market and “selling-through” to the consumer. Sell-in might look high because of the wholesale model, but sell-through to the consumer is not nearly as high because of pricing and demand issues.

Addiction to the wholesale model has hurt the watch industry because it simply doesn’t work in our modern world. We are past the point of watches being necessarily sold as a commodity (especially at the high-end), and with the introduction of the market globalization via the internet, factors such as currency fluctuations, transshipping, regional price discrimination, and the ease of global sales via the internet has made the traditional models for selling watches ponderous at best, and obsolete at worst. The future of the watch industry is in careful market control, price consistency and preservation, inventory glut prevention, and marketing efficiency (knowing who you are selling to and exactly how to reach them).

I cannot share with you the full 44 pages of the Blueshift Research report on “Inventory Glut and Gray Market Plaguing Traditional Watch Sales Channel” because this is what the company sends to their paying clients and that is how they make money (so sharing it all here would not be in their best fiduciary interest). I have, however, been able to show you the summary page and part of where my contribution was placed. It feels good to see data and research support my theories and observations about the industry that I work to serve. It can be frustrating and challenging to understand the extremely complex ecosystem that makes up the watch market. I think there is relevance here for all areas of the watch industry from brands to retailers, as well as consumers who themselves have to navigate this complicated arena. When it comes to the consumer, my goal is to simplify the process of buying watches, create less hesitation before making purchases, and offer clear sales channels to purchase watches that serve the needs of watch brands and consumers alike.



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  • In true Orwellian fashion of “Double Think”, many watch buyers wants to pay “Internet Prices” for watches but also say candidly that they won’t buy a watch they have not seen in person.

    So they want to have retailers out there so they can go try on watches and then turn around and try to buy the same watch from the gray market. So of course there are problems with this model for authorized dealers and it’s not really their fault.

    The issue is that only a few watches are truly commodity items (Rolex Submariner comes to mind) that people are likely to buy without trying it on provided they trust that a watch is really NIB (new in box) and that the Internet seller is legit. But for the majority of watches, I think people still want to strap the watch on before pulling the trigger with whichever seller.

    The question becomes, what should the industry do? Should the brands hold watch fairs to acquaint potential customers with their watches and then let customers buy directly from their Brand websites? To do so would be to acknowledge and cement the death of authorized retailers. I’m not sure major brands are ready for that step. Especially with the global impact that would follow if they tried it in a national market first.

    As I’m sure everyone knows, watch brands price their watches so that retailers get their “taste”. If you look at “mall rents” or the price of doing business in any luxury goods location, you can understand why retail mark-up is what it is. And if business is slow, you still have to pay rents that sometimes are 6 figures a month.

    So if you only sell direct (via the Internet), then your “suggested retail price” will be the “discount price” (as there is no retailer). But the flip side of that is that it means that you can’t effectively sell your watches to retailers as there is no mark-up for them to live on. So as a brand, you pretty much have to pick a model (direct or retail) and price accordingly.

    Sorry about the long comment, but as Ariel is pointing out, this is a sticky wicket without any clear way forward for brands and retailers.

    • PleaseSpellRoman4AsIV

      I can fully justify the notion of trying it first at an AD then buying it online for a big discount. This is what I did for my last watch purchase and intend to keep doing this until things change significantly. For me this is part of the “customer experience” – the first part of the hunt is selecting the watch that I want to buy (by internet searches and trying them on in ADs) the second part is to getting it for the best price – which is pretty much on the grey market.

      As long as the price gap will be as big as it is today (on my last purchase it was 30%) any conscious customer will be doing this. Not much advertising or anything else can be done about it. If the gap closes to less then 10% people will buy again from ADs, because the price gap compared to the in person buying experience will balance out for most people.

      I think at this point in time it seems easy to point to what’s happening at the oil market: too many players refusing to lower production which is hurting the prices.

      • Unless retailer are able to slash their costs (free rents and minimum wage employees) I doubt you will see the gap narrow to 10% as you are asking for.

        While you can justify to yourself the “try at AD but buy online” model, don’t expect retailers to be around for the long haul if everyone follows your lead.


        • PleaseSpellRoman4AsIV

          Don’t get me wrong I am not saying that this is the right way to do things. But unless things change it is hard for me to see why people would not follow the “rational” behaviour. To turn the argument the other way: the ADs are suffering because the watch industry is making too many watches and bumping them on the grey market: so should I as a customer pay the price of this issue and support my local AD even at these inflated prices that Arial mentioned?

          Another comparison that comes to mind is tax avoidance: why would Google, Apple, Starbux, Uber, etc. pay “extra” taxes if they can get around them legally? The only way to tackle this is to change the environment – in this example the EU and other tax legislations.

          • Oh, I’m not blaming you at all. But you can see where this leads in the longer haul as there will always be a significant price spread between online and brick and mortar. People vote (at least in the short term) with their wallets.

          • PleaseSpellRoman4AsIV

            Yes, people will always vote with their wallets and their short time interests in mind. And yes, I can see where this leads in the long term:

            1. The brands will kill of AD competition first with flooding the grey market with cheap watches.
            2. While killing the ADs are the brands will finish building their network of boutiques and online retail capabilities. Feel free to call it vertical integration if you wish.
            3. The brands will stop selling to the grey market and take control of all their sales via the boutiques and direct online.
            4. You can imagine the rest…

            I already see signs of this happening and not too happy about it. E.g. GO introduced their boutique exclusive Sixties Iconic watches. From the pictures I really like both the red and grey versions, however I really need to see them in person to decide if they are as good as they look on the photos. Without seeing them in person I simply cannot decide if I want to buy any (or even both) of them. However I live in London, and the closest GO boutique is in Paris… So, should I spend the time and money to go to Paris to see 2 watches in person that in the end I might not decide to buy at all? Even worse, I might get too excited and make a rushed impulse purchase and end up with 1 or 2 watches that I do not like that much at the end of the day? If they had a boutique or AD in London all of this could be prevented.

          • cluedog12

            Brands cannot stop selling to the grey market entirely unless they collude with one another and agree to destroy inventory that fails to sell.

            Brands may eventually decide to directly participate in the grey market too, which would be a bit ironic.

        • error406

          I wouldn’t discard that option for the long haul given two rapidly spreading developments:

          1) Online retailers are starting physical stores to serve exactly that need. Part of the cost problem is the inefficiency of retailers is not having an online outlet that covers the vast majority of sales, although some have managed to successfully make that pivot.

          2) The cost of rent of retail space, one of the biggest cost factors for retailers, will continue to drop as physical stores lose their economic relevance.

          Yes, there won’t be any future for solo retailers without online business, but the basic model of try offline, buy online is perfectly feasible. Especially when manufacturers stop dumping overproduction into the grey market.

        • cluedog12

          It’s a perfectly rational behaviour and, in the majority of cases, nobody will know or care how you bought your watch. The astute retailer will clandestinely diversify into grey market sales.

    • commentator bob

      The third option would be to set direct prices but pay retailers to keep demos on hand as a merketing expense.

    • cluedog12

      Plenty of people will visit a store to “test drive” a watch, then buy online. As more grey market “success” stories spread through the Internet, it is perceived as less and less risky to buy online. In addition to grey market sties, authorized retailers compete against one another on global marketplace sites like Chrono24.

      The interests of manufacturers and retailers do not align perfectly, so retailers must take the initiative to increase their control of the global marketplace. If they do not, many will be squeezed out by brand boutiques on one side and the grey market on the other.

  • Tommy

    Technology is driving market efficiency. Consumers segment themselves. This trend has existed forever. The grey market is just one more sales channel a watch company can tap into. Rolex has done math that identifies limiting grey market availability helps their economics. Other brands have different math. Why different math? It all has to do whether a company is publically or privately owned. They each have different required investment return horizons. Limiting grey market availability is good for a brand and unit margins, but requires significant discipline and a massive short term economic hit to make the strategic pivot. If a publically traded company tries such a pivot it is a massive risk in destroying the brand if investors abandon the initiative mid-project.

  • commentator bob

    Rolex prices are up significantly and they do not have inventory control/discounting issues. Blaming customers seeking discounts for the massive price increases is backward.

    • Mathew J

      How many of those ‘in the know’ shop with trusted sellers though instead of going to authorized dealers. I would agree with the majority, most non authorized dealers offer better service, have a better understanding of the brands and products, and typically have far better pricing. If the dealers could compete from a price perspective it may be a different story, but the high prices and on average poor service hurt them.

  • Pierre Savard

    Two recent events are not discussed much in the recent news but perhaps they are covered in the full document: the CHF was unpegged and oil prices went down which off course impacts many oil-producing countries and their currencies. Did this lead to less sales at the AD level and inventory glut (which then feeds the grey market)?

  • Concerned1

    The bottom line is prices are too high, so it drives people to the gray market. All luxury watches are grossly overpriced, especially Rolex.

    • srs144

      Indeed, MSRPs are a joke. “67% off!!” a watch that is 3x overpriced just means you are getting it for what it should have been priced for all along

  • Benjamin Low

    The issue is not the grey market. That’s like a taxi company complaining that uber has won the market over by cutting costs and delivering better prices. The problem is the current boutique retail model – it’s too expensive, plain and simple, for the retailer to operate.

    Perhaps stores should set up their own ‘official gray market’ rather than trying to resurrect the dying official retail system. This is true in the age of digital disruption and true for watches, racing bicycles, electronics, and other high-value consumer goods. Crying about it or working against consumer expectations won’t make it go away.

  • Mark Baran

    Your article is dead on Ariel. Nothing in the Blueshift Research data (that I can see here) surprises me. The aftermarket watch retailers stared to take advantage of internet technology around the millennium. This use of technology started to seriously alter the industry landscape about twelve years ago. The watch industry reacted to the technology defensively. And they have been paying the price ever since. Nothing is going to change until the industry takes a pro-active role to embrace technology; and, begins to take the same active role in “sell-through.”

  • Marius

    The extreme greed of most Swiss brands is starting to turn against them. Did the Swiss really think that they could forever increase the price of watches, while in the same time also increase the production? How stupid can one be?

    I’m thrilled to see the watch industry experiencing serious problems, and all I can say is that it couldn’t have happened to a nicer bunch of c**ts.

    • Husbardo

      It worked for the car companies building bigger more luxurious and spendy SUVs, right?

      • Marius

        You are absolutely right about the car industry, but the difference is that cars are easier to acquire thanks to solutions such as financing, leasing, buy-back, etc. When it comes to high end watches, very few ADs and essentially no boutique will offer you financing solutions, so you have to pay the whole price up-front. For instance, if you want an AP Royal Oak you have to have $17,000 immediately available.

        • iamcalledryan

          I think it’s less about car dealers being able to offer financing. I have been offered financing, split payments, from boutiques and other AD’s. They have that capacity and have been using it for some time. Nor is the issue about AD’s not stocking the full portfolio: I have also been to an AD, not found the exact watch, and arranged for them to ship it in and call me. I didn’t end up buying so there were clearly no strings.

          The main difference between this industry and the car industry is how closed it is. The “Swiss” element is a huge barrier to external competition. There was a time when “made in America” meant a lot and allowed greater elasticity in pricing as well as barriers to entry from foreign manufacturers. But gradually that eroded and inverted. Today there is far more variety and competition and the global industry does not work as one cabal.

          But the “Swiss” isolationism and protectionism is strong and enables them to work as one, differentiating themselves from outsiders – “of course this costs more, it’s Swiss and everyone knows Swiss is best.” But the more we discover about Japan, about Germany, the U.K. and US, about products of equal merit, even with identical movements, the more the price elasticity fades.

          This whole issue is linked to the strength of the “Swiss Made” mark, as well as the monopolization of parts production. The wider the global pool of quality mechanical watches, the better the pricing will be for the consumer. But so long as the consumer is dependent on the “Swiss Made” mark and so long as the producer needs to rely on a Swiss conglomerate to compete, the less easy that will be. EVEN STILL, there are limits to how high the protected price can go while taking demand with it, and we are witnessing the delayed aftershock of a limit that has long since been exceeded.

      • Tony NW

        Not really an apt comparison. When Mercedes priced themselves too high in the early 80s, they suffered from the competition and had to reduce their prices. And the top Escalade provides actual features over the top Kia… but would lose sales to Kia if priced too high. The MSRP profit margin on an SUV, to the plant, is less than 20%, not this 400%+ that Swiss watch makers would get.

  • Elijs Dima


    Is buying online, direct from the manufacturer (brand) the way to go, if (for example) I’d want to “support the industry” and/or “vote with my wallet”? I’m thinking specifically of manufacturers like Nomos, who offer a direct online storefront.

    Then again.. are brands like Nomos (and Stowa, and Autodromo, and so forth) even part of “the watch industry” as it’s portrayed commonly? (i.e. all those retail chains, swiss megaconglomerates with carefully price-positioned, creatively-lobotomized subbrands etc.) And should we even try to save/care for that type of watch industry?

  • Rick

    Interesting article. The only subject you didn’t mention was the warranty issue, if that is even really important, that gray market offers their own and not authorized dealer/manufacturer warranties. How significant is this? By the sound of your article, not very even though some gray market suppliers are much better and more qualified than others. The profit of the manufacturers given the deep discounts by gray market (which still makes a profit) for the retail prices asked is almost shocking. Thanks for writing about this.

  • DanW94

    Bottom line, the end consumer wins here. We get the benefit of significantly lower prices through the gray market, while at the same time taking advantage of the traditional AD model to physically handle our potential purchases. Win-win for us. Until the brands figure out a better way to manage their inventory or create their own on-line presence at competitive prices the gray market will flourish.
    That being said, I do think there’s a place for AD’s. I agree with the comments below that in a price range of a few thousand dollars and up, people definitely want to handle and try on a watch before purchase. If the AD’s dry up, how do you do that? Brand boutiques are to few and far between for the majority of us.

  • Ulysses31

    It almost sounds from the tone of the article that the consumer should feel guilty for not wanting to pay extra for fictional heritage, imagined prestige and marketing bull. It’s normal to want the best deal – it’s not a problem isolated to the watch industry either. Brick-and-mortar retailers in diverse sectors have all been suffering the same pressure. Internet shops offer vastly more choice and value.

    Nothing beats handling a product you want to purchase but in my experience, the traditional stores never stocked the products I wanted to sample anyway so little has been lost with the move online.

    The major manufacturers need to eat a slice of humble pie and change the way they engage with the public because these days it is easy to become better-informed about actual value and where to find the best deal. It was fun and fruitful while it lasted but we live in a globalised economy and the retailers need to respond with innovation instead of using tricks like RRP manipulation.

    Let’s see more humble retail spaces that are cheaper to rent, perhaps pack in more variety, or use dummy models just to allow a potential customer to get a feel for what they are planning to buy. Get rid of the fluff, just present things plainly and simply. In Japan you walk into a hi-fi electronics store and see aisles full of high-end headphones and other expensive audio products stacked like loaves. It may be crude but you pack in a lot of products in a small space. I love places like that because no one is trying to pressure you into buying anything; you can just browse (and ogle) whatever you want. It’s like being a kid in a candy store.

    • Marius

      I completely agree with your argument. The major problem with AD`s is that the majority of them has only a limited number of watches from each brand on display. Theoretically, the AD has the benefit of allowing you to handle your desired watch, but in reality, I have visited countless AD`s who didn’t have the watch I wanted to see available.

    • Ariel Adams

      I would never suggest that consumers spend more than they have to, and it if sounds that way then it is a misunderstanding. Basic economic principles dictate that consumers will always seek the greatest value. That doesn’t necessarily mean the rock bottom lowest price, but rather the best mixture of price, convenience, and other potential intangibles.

      I am further suggesting in my arguments that the watch industry should offer a more streamlined approach to the sales and pricing of watches. The deeply fragmented system for selling timepieces has to a large degree (in my own opinion) contributed to a lot of prices that could easily be lower. The industry seems to be subsidizing the inefficiencies that they have helped create and because of comfort or fear, they are not actively seeking to change a business model that is frankly, outdated.

      • Tony NW

        It did -sound- that way, Ariel. Glad to know that’s not your message.

        One challenge you have here is that while you’re the watch expert, most of us are experts in something, many of us in various forms of business. Only an industry insider would look at the grey market effects as a problem of import controls; business folk see it (and prescription costs vs importing from Canada) as a problem of trying to retain artificial inflation across borders for the same product. They shouldn’t be selling ANY watches without warranties, so that’s a red herring. And it shouldn’t cost a $2500 mark up to stock a watch for a month.

        The Omega/Costco case is just the tip. If the watch is identical, why should I pay three times as much to let the official importer import it rather than having Guido from the Bronx do it?

        • Joseph Kreidler

          Perfectly said, really this article is full of holes, the not the least of which is the 2nd attached Blueshiftideas jpeg that lists no less than 5 substantial reasons for the market issues but ‘The Grey Market’ as a cause is argued for by Ariel and Mark…..this doesn’t pass the newspaper test obviously.

      • PleaseSpellRoman4AsIV

        Would be good if you updated the article with this comment. I think it sums things up better then anything else 😉

  • JC

    Great content, Ariel. FWIW, you are doing some great work.

    The Sell In problem (into the Grey Market) is going to crush this industry. Musical chairs for the time being, but the music is running out. Even as recently as a few weeks ago Swatch Group came inline with their reduced December quarter expectations, and they had the gall to continue to suggest revenue growth of “well over 5% in 2016”. Seems like rather than giving up the ghost they are willing to ride this Thelma & Louise act clear off the edge.

    You know they were taking the piss when they single out the following as growth/revenue/volume drivers: “The new METAS certified antimagnetic Omega Co-Axial Globemaster collection, the Speedmaster 57 Vintage Dial, as well as the Swatch Sistem 51 were the year’s (2015) main bestsellers and made a substantial contribution to the good sales results in local currency.”

    “Main bestsellers”…. my ass. Other than on Instagram, 99.9999% of us on here have not seen a Globemaster in the wild, let alone a Speedmaster 57 Vintage Dial. Bestsellers… Pffft. Those watches are taking up warehouse space at Grey Market dealers everywhere.

    That right there exemplifies the problem with Sell In. Swatch recognized all of that as revenue (and earnings) when not one of those watches has made it into the hands of consumers.

    And to put things in perspective… Swatch Group isn’t the size of tiny Seiko (which has HALF the market cap of YELP!). Swatch Group is a behemoth. It is valued at the same level as Adidas & Swisscom & Philips & Électricité de France & State Street & Volvo & Telenor & Archer Daniels Midland & Mitsui… When this game of musical chairs ends…it is going to end badly for Swatch Group. And rightly so. Screwing your customers is not a viable business philosophy that works long term.

    Somebody get the guillotines & chopping blocks ready…

  • iamcalledryan

    Another good Sunday editorial!

    I see this as very similar to the car industry and the publishing industry, where huge volumes of sales are heavily reliant on fire-sale new old stock. The watch consumer, like the car consumer, or the book buyer, is either going to pay the premium to get the newest now, or hold out a bit to make a big discount. Many opt for the latter, and who can blame them.

    The industry needs to read the market better and make less watches, but better.

    • egznyc

      Who can blame them? Well, not I! If I really like something (but don’t require it for survival) then I am willing to wait to get it … Or wait to get it for less.

  • 2sly

    Allow me to chip in, as someone who actually works on the business side of this beautiful industry. To me there are 2 sides to the gray market which you have to have in mind.
    1) The side watchmakers are “okay” with is the side that allows them to get rid of unsold inventory, as you mention. This unsold inventory being most often that not discontinued references, ie inventory that can no longer be sold through brands’ own stores or authorized dealers. Think of it as “past season” sales if you will.
    2) The other side, which to me is much more hurtful to the industry, is – to make it short – the side of the gray market that is actually able to put their hands on NOVELTIES at a discount. And here, the main source of supply is the authorized dealers, who buy from watchmakers (the sell-in you mention), and then resell not to the end client, but to gray marketers.

    In the first case, as a consumer, you are able to get a watch at a discount, but a different watch than what the brand and its authorized retailers are offering you at the moment. If you’re okay with that because it’s actually the watch you wanted, or because you can’t afford the fixed retail price of current products, then everyone’s “happy”. In the second case though, there’s the distortion you talk about: price gaps, consumer perception, etc…

    Additionally, the overstocking of watch retailers have been an underlying issue of our industry for quite some time now. This little bubble called “Chinese clients” tended to improve key performance indicators of watch brands, and make believe that inventory would be sold as quick over the next year or two, as it has been during the peak of the bubble. Almost 2 years after Xi Jinping anti-corruption policies in China, and an additional slowdown of the country’s economy, and therefore of Chinese client’s confidence in shopping, every brand is realising that they might have pushed sell-in a bit too far…

    So what are the solutions now? I wish I had them all ahah but it is no coincidence that we can see a general trend of the industry towards more value for the consumer: extended guarantee, more innovation, lower pricepoints, etc… coupled with a somewhat more honest approach to marketing (not yet at the point it should be tho, to be honest). It is also no coincidence that own-retail channels are constantly becoming more and more important for watch brands. Just look at how many boutiques Omega opened over the last 10 years, same remark for the LVMH and Richemont brands and for most independants, same remark for Rolex to a certain extent, but based on a different model (monobrand yes but not own-retail).

    Anyway, coming back on the US issue, where the discounted culture is maybe more important than in other continents, I don’t believe the current weakness of watch sales will be a long term phenomenon. For a few years, every brand have been tackling these issues in collaboration with their trusted authorized dealers. Give it a couple more years at the most for the situation to clear. Inventory buyback programs are being completed, production resizing has been undertaken to adapt to a sell-through dimensioning and no longer based on sell-in, retail channels are being improved as well through more training, more service, and more guarantees for the end client. The gray market is always going to exist, but it does not necessarily have to be a bad thing 😉

  • cg

    I have always been offered a discount at Authorized Dealers, not huge like Gray Market but it is there if you ask. I have bought in both environments. I have no need to try a watch on as long as I stick to familiar sizing I like. Hopefully as the market does stabilize pricing (Gray Market driving it down) you will see the high volume producers sell even more at a price point more people would consider a good affordable deal. I see boutique sellers shrinking radically and being forced online if they want to maintain the price and marketed exclusivity. Unless the market gets totally destabilized by the coming electronic watch revolution. Can’t start my car or turn on home security with a Rolex.

    • commentator bob

      Your car is not what a Rolex is intended to turn on.

      • cg

        Oops! No wonder my Milgauss only tells time! Ha!

        • iamcalledryan

          Get an AMVOX and a DB8 I say!

          • cg

            I was thinking of getting a Tourbillon Linked Interphase Moon Diameter Pilot Repeater w/Back Track Space Car Rendezvous Oil Filled Movement with the Liquid Pressure Regulator Powered by a Quartz Actuator made from Rare Earth Ceramic Axial & Co-axial Garage Door Coordinators. You know, the one shrunk from 52mm to 42mm on purpose. On second thought… maybe not.

          • iamcalledryan

            Those are SO 2015…

  • commentator bob

    A bit ironic that in an article on watch retailing the first picture has the author in a Sinn backpack.

  • IVA the LT

    I really don’t have much sympathy, I find a lot of AD’s don’t even want an educated watch buyer, they want the chump coming in to put their name on his wrist and then boast about what he spent. They want the iSheep customer base, the ones who will pay more for something based off a logo and implied prestige, even if they are overpaying. There is a reason that the remarkably average (by 2016 standards) iPhone has the market share it does, even though Apple employs some of the most transparent price gouging on the planet. I mean, how else could you get away charging $100 more for a 32gb iPhone than it’s 16gb counterpart unless your customers are sheep? A 16gb microSD card costs a whopping $5 (at retail no less) and takes 10 seconds to install. I’m sure Apple pays less than $1 for the same chip, has a machine install it in 2 seconds, and charges a 10,000% mark up for their trouble(and that is accurate, 100% mark up of a dollar is $2, can take the math from there).

    I don’t know where these AD’s are that are discounting 25-30% either; if that was the case, I would surely have purchased one of my two dozen (and counting) watches from one. The reality is that when I walk in, even if they have the piece I am looking for, I likely know more about it than they do, along with what he street price should be. When I ask why I should pay full price, the ONLY answer I get is: you are “guaranteed” authenticity (as if they gray market watches aren’t real) and that lovely warranty. It’s all about the pomp and circumstance of the retail buying “experience” to them and we should apparently be tripping over ourselves to pay them a mind boggling sum to stoke our ego for 30minutes while we purchase a watch.

    Should of seen the whites in the lady’s eyes the other day when I was looking at a Monaco at a local TAG AD and I casually mentioned that I could buy the same $5,500 (plus tax) piece online for $3,500 out the door (no tax/free shipping). Or that I wasn’t worried about the warranty because it’s Calibre 11 is a Sellita based movement, just like the Oris I was wearing at the time, and that it was almost impossible to have $2,000 worth of repairs in the next few years. That factory warranty isn’t worth the paper it’s written on for most watches.

    As far as Rolex goes, their business model is probably the right one, I just hope the other manufactures don’t follow suit (without a price reduction mind you) because my watch buying will dry up accordingly. Rolex is one of the few brands I would buy at an AD for a couple reasons. First, the steel models (I have zero interest in the concept of “precious” metals and stones. Gold is an inferior, soft metal; diamonds are nothing but shiny rocks IMHO) have negligible discounts online and most AD’s will fudge the sales tax for you if you press, essentially closing the gap. And second, a Rolex with full papers, actually has real world value, as Rolex’s are one of the most copied and faked watches on the planet.

    • Behind_da_Curtain

      You can get good deals on genuine Rolex BNIB with papers and warranty on the grey market. Just need to do a little homework.

  • FilmEditorFL

    I wonder what the analysis is on the income/customer line (or cutoff if you will) that people will make the jump from say $500-$2000 watches to higher end ones? As someone under this line, I see the market differently. I see a world where I can obtain a quality $3000 watch for maybe $1500, which in a way puts me in that next level, but keeps me in the lower lever in terms of actual spending. Does the data suggest this is unique to the $500-$2000 range? If I can pick up a nice $3000 watch at TJMaxx for $800, I’m going to buy it.

    To a watchmaker, they likely don’t care where the revenue is coming from, just as long as the spigot continues to run. Another poster mentioned whether a watch company is publicly or privately owned. For many companies, this is a big deal.

    Just my random thoughts from my point of view.

    • I’ve read the study (it’s long) and it offers observations from a number of sources (including Ariel Adams) and they pretty much say the same thing. So unless you really want to part with the money, trust that the conclusions Ariel has given here are the summarized version.

      • FilmEditorFL

        Thanks for the heads up. I’m just a read the study kind of nerd.

      • Boogur T. Wang


        • Yeah, it’s 1.1 MB and 44 pages. I read it as part of the ABTW process, so I’m not free to distribute it.

          • Boogur T. Wang

            Thanks – I understand.
            See email.

  • Sheldon Smith

    Ariel, another great article! Thank you.

    The article mentions that one of the reasons for watch consumers to eschew authorized dealers is because of the lack of marketing towards new watch consumers. I’d like to suggest another reason for going with the gray market is that I have found after purchasing watches from both channels is that gray dealers know their watches, whereas the sales staff at an authorized dealers were just hired out of the car business.

    Like many of us who follow A Blog to Watch, I travel around the United States and Europe for both business and pleasure, and invariably when I am in a new city, I visit both gray and authorized dealers to see watches that I have read about and to discuss them with sales staff (Btw, my wife is good with this drill). With the exception of one notable authorized Rolex dealer and one Panerai/Brietling dealer both located in Carmel, I’ve found that the only sales staff who know watches are gray dealers.

    My theory here is that gray dealers do not have quotas to fulfill and the sales staff are working there because they choose to and are hired because of their watch interest and knowledge, which is not necessarily the case for authorized dealers.

    As a watch enthusiast and dyed in wool mechanical watch wearer, I purchase watches from either gray or authorized dealers who know their watches, allow trades, and who understand my tastes. Yes, I agree.. The retail channel is broken, partially because of the lack of training for its sales staff.

    Thank you again for bringing a spotlight to this long languishing issue in the retail watch industry.


    • Joseph Kreidler

      More Truth, thank you!

    • Sevenmack

      True. Especially since many gray market sellers are really watch collectors selling off watches to fund new purchases. The guy selling his watch on Watchuseek’s F29 will know more about the Grand Seiko he is selling than the AD monkey at Wempe. In light of this, it is better to go to the more-knowledgeable seller passionate about watches than someone who is just selling watches for a living.

  • FrankD51

    Good article, but didn’t we already know this intuitively? Just by observing what’s been going on for the last couple of years any observer would have come to the same conclusion.
    Bottom line, the manufacturers are producing too much stuff at every price point at prices that are too high for the market to absorb. Ergo, the grey market is used by them to get rid of excess stock, then they introduce new models to keep the merry-go-round going. Stop the insanity before you pull the whole thing down.

    Fifteen years ago AP was way overproducing, there were AP dealers on every street corner it seemed, prices were in free fall (gold perpetual calendars for $12k NIB, etc). Solution, get rid of a lot of dealers, rationalize production, and stop the price cutting and bleeding into the grey market. Today AP has one of the better business models, you don’t see Royal Oaks discounted heavily all over the net. The rest of the market has to do the same. But it takes discipline and many managers don’t have the time or inclination to do what’s right for the company in the long run. They are short term focused.

  • Emperius

    Called the globalist agenda. Isn’t this what TPP and TPA is all about? Free trade? Trilateral Commission? Why are you against diversity, free trade and the free markets? Isn’t what bureaucrats want in Washington? Our country has been plagued with left and right establishment puppets, passing laws blindingly under the table, destroying what’s left of a sovereign nation. As if nobody wants to make this country great anymore.

    • You don’t appear to understand this particular issue and are confusing it with international trade agreements – which are a completely different thing.

  • bjs314

    As long as I have the option to buy anything for less via the internet, I intend to do so. It’s wholly irresponsible, no matter how little or much money you have to pay full price for anything, especially something so non-essential as a watch. Unless its a widely accepted collector’s item, absolutely nothing is worth retail to me. I often go between my local grocery store and farmer’s market to get the best prices on food – which is infinitely more important.

    I recently upgraded my wife’s cell phone. The saleswoman tried to sell me a case an ballistic glass cover. I told her I could get both for $.30 on the $1 and mailed to my house in 2 days via Amazon. Her only response was “but you could have it today”. No thank you.

    Some of the points made here are important. A good watch will outlast its warranty. A good number of AD’s don’t understand their product and besides making you feel special, can’t really explain why something is worth retail. Every told an AD how much the movement inside a watch actually sells for and watch them go stupid momentarily? I don’t need to be coddled or made to feel special by a stranger. I want as much watch as I can afford. And I want access to brands and models that aren’t typically sold retail in the U.S.

    The watch industry is going through its Blockbuster, Circuit City and Radio Shack phase. If it doesn’t realize this – I have no empathy, no concern and no worries. Whoever is smart enough to get me what I want at the best price will get my money. Let the rest crumble in bankruptcy court.

    • Joseph Kreidler

      Truth! Thank you!

    • BNABOD

      I would agree with this. I work hard for my money like most people do and as you know it is rare when a watch falls apart within 2 years and the cost saving from not paying AD prices will 9 times out of 10 cover the cost of the service. So I don’t feel an ounce of shame for not going AD. I don’t need my ego polished nor do I want a glass of champagne nor a hat nor a tot bag.
      Seems to me if the famous watch brands sold on Internet themselves at a competitive price I would jump on it but when all u get is msrp then I say no way.

    • henry

      Damn straight.

    • otaking241

      Fair enough, but I think Ariel’s point is that it’s the industry itself that needs to change to combat the grey market.

      I hope this indicates that people in the industry are over the idea of “shaming” consumers into buying their watches at ADs for retail price–that’s a stupid idea and is contrary to the fundamental principles of capitalism (and regardless of how you feel about capitalism, the reality is that’s where we live).

      Besides combating the grey market by controlling supply, I think the industry really needs to offer consumers a strong incentive to buy through an AD. A 2-year warranty and “the AD experience” just doesn’t cut it, especially when everyone knows your watch will be fine while in-warranty and then they’ll charge you an arm and a leg to fix it when it breaks in the third year.

      The movie industry has done well for itself even in the face of rampant piracy by focusing on the theater experience and increasing revenues there. I don’t have any firm recommendations for what the watch industry could do but I’m hopeful they can find something that will make people feel like they’re getting their money’s worth when they buy a high-end watch at a price that is fair to the company producing it.

  • Chaz

    Even worse…locally there are two major multi brand watch ADs (one featured here last week) and very near them is a massive Duty Free Shoppers store that carries many of the same brands/models at significant savings. Additionally, it’s been said that DFS can also DISCOUNT their watches further!!
    DFS gets their watches out of Hong Kong and answer to no one here, but the other brand carriers get their watches from the respective USA entities and those people have no say or sway with DFS. They always like to say “Yeah we’re trying to pull out of DFS” or “We’re trying to get the home office to yank the line from DFS” but the reality is DFS sells so much that no brand in its right mind would keep watches from DFS. Right?

    How is the AD going to compete with that, given DFS offers full international warranty and boxes & papers? I suppose one way to fight that is for ADs to offer extra warranty onto the brand’s but that is if they have professionally trained and staffed service centers.

    Extra bit of a joke: within a 2 mile radius here, are FIVE authorized Cartier watch sources (two boutiques, DFS and two ADs). Yet, Cartier INSISTS (only to the ADs) that their “precious” watches CANNOT be discounted AT ALL. All while next door is the Hong Kong based DFS selling gobs of the watches daily.

    • Chaz, you still working at T in W?

      • Chaz


  • Bruno Benevolo

    Excellent article Ariel. Fully on board with your statement that there is something wrong with an industry where Joe Punter who buys full retail indirectly subsidizes grey market consumers.

    Of course we have seen many brands now going for a direct sales model opening up their own boutiques as well as implementing their own e-commerce strategy.

    It is one thing is to have multi-brand ADs competing with the grey market discounts offered for your brand, it´s another thing having the grey market discounts competing directly with your own boutiques and e-commerce strategy.

    It could be that some brands are still expanding globally their own point of sales and e-commerce strategy to a point where they feel confident enough to kill off their relationship with ADs for good cutting off the indirect supply to the grey market.

    PS. Totally agree with your take on the Apple Watch influence on the luxury watch market.

  • Wm Ort

    Where do the following fit in:
    Manufacturers who set limits to AD discounts?
    Sales Tax?

    Also missing is any explanation of exactly how the current system is costing manufacturers money NOW. It is pretty obvious that smaller AD’s being abused, but just how are the manufacturers losing any revenue – their goal is to move product.

    All in all, Ariel’s articles n this subject have no data – they are “informed” opinions, unless he has actual numbers he cannot share.

    • The report was a series of interviews of people from various sectors of the watch industry. Including retailers. So their observations, while personal and perhaps anecdotal, are founded are real experience. There is a lot of repetition in the report but the overall message is rather consistent. Take from that what you will. Cheers.

    • Joseph Kreidler

      These statements are facts based on the article above, Mark you can continue to elude to a complete report that you have supposedly seen and reviewed but the article above is what is in question and your continued responses referring to the complete article just further the point of a poorly fleshed out article on this blog that only furthers the points Wm Ort makes.

  • Mike Burdine

    Great article. One of the points in the study that impressed me is the fact that someone making 50k per year can consider buying a luxury watch that costs 10 to 30 percent of their annual income. It’s like my college kids thinking they can afford a $5 cup of coffee. An industry can’t survive without customers who can afford their product.

    • beardedman

      Well, I see your point, but people who make $50K/yr are considered to be in good paying jobs for many areas of the country. And, just because they make $50K, doesn’t mean they are the sole income for the family. These earners likely have credit cards with high limits and might well view a solid gold Rolex as a good thing to have tucked away, perhaps worth paying for over time. While such a thing would add cost in interest, buying online and avoiding sales tax offsets that some. Considering the bank savings rates we’ve had for quite a long time, it might not be so terrible to finance physical items that hold their value many decades after you’ve paid them off. Meanwhile they have something really nice that they can afford when done this way.

  • Bert Kanne

    Is it possible to offer international warranty and eliminate the gray market altogether?

    • Chaz

      Many grey market watches can offer the international manufacturer warranty simply by dating the card if it’s already stamped with a legit seller

    • Beefalope

      How would that eliminate the gray market?

  • cluedog12

    Excellent points made in the article!

    AD discounting remains opaque, but grey market discounting is not. Changes in posted discount percentages and average age of the models for sale online – by brand – will tell us whether the inventory glut is being managed successfully. Doubt this will be the case.

    ADs should get more directly involved with grey market dealers – to the point where they have indirect ownership stakes in one another.

  • JPonce

    Let’s face it. Wrist watches are in trend now, and people want to buy more and buy smart. What people don’t want is to be treated like idiots. Watch price these days are so off. Most watches sold nowadays are more than 30% off MSRP, even at AD.
    Watch companies, build your own e-retail, drop your unrealistic price tags, price reasonably and equally for AD and online, and finally stop selling to grey market.

    • Sounds good until the ADs have to eat the 30% price drop. Guess how long they will be around then? I fully understand the desire to buy online and get the best price. But the impact be on watch retailers will be what it was on brick and mortar bookstores.

      So don’t expect to go try on watches at retailers in 5 years any more than you can hold a book from Amazon in your hands before you buy it.

      I know we are living in disruptive times. But agents of change will have no right to cry in their beer about the changes they have wrought. Caveat emptor.


      BTW – And don’t get me wrong,I sell my watches online 🙂

      • JPonce

        Well said! Brick and mortar ADs do have their reasons to be around. But for some smaller or lower price brands, it may be sensible to build better online retailer. Many online retailers not offer free return, so one can always order

        • Bruno Benevolo

          I think that eventually the big brands/groups focused on the +US$4K market (Omega, Rolex, Breitling, Cartier etc). with sufficient $$ for the long haul, will maintain an international boutique direct sales presence to engage consumers with the brand + sell online direct and kill off the AD supply…if they want to maintain the value of their watches post-sales…which is one of the things that Rolex excels at and drives many to purchase Rolex vs Omega, for example.

          The smaller brands will still be AD dependent and heavily influenced by the grey market.

          Ref. the pure online retail option it should be noted that the US market has a much more dynamic frictionless on-line/retail business culture, which cannot be reproduced internationally with ease..many countries have complicated consumer laws, tax issues etc.

          • JPonce

            I think some ADs might also start building their online business. Smaller brands that do not have the resources to establish their own online system might be able take advantage on the online ADs. Sort of like what Sinn and Watchbuys are doing now. Anyways these are all good things for us consumers, and I look forward to a more transparent and fair watch market in the future.

          • imageWIS

            The amount of pre-designed e-commerce solutions out there is mind-boggling. Any small brand can set up an online store for a minimum investment… especially considering the barrage of cloud solutions available.

      • Beefalope

        What’s the impact on ADs who sell at 30% to 40% more than what the gray market is asking? It may be hard for them to stay in business if they have to slash prices, but it’s also going to be hard for them to stay in business if they have to keep prices elevated.

      • Marius

        I understand your argument, but it’s not my fault that watch brands over-produce and have ridiculous prices. What I find ironic is that when watch brands charge exorbitant prices and very high servicing fees, the explanation is always the same: that’s business, we’re here to make money and we’re not a charity.

        On the other hand, when consumers find more price-efficient solutions such as the grey market, then they suddenly become responsible for all sorts of problems. Personally, I couldn’t care less for the ADs, since most of them have a rather dubious watch knowledge, and a poor watch selection.

        • imageWIS

          AND often don’t cater to the customer service required by high-end luxury items. Target doesn’t have to bend over backwards for their clients, but a Patek dealer does.

          • okulus

            Could you imagine a Jaguar or Bentley dealer telling a buyer: “black or dark blue, no other colors. Same color leathers, no choices, sorry”

        • okulus

          Nor do most watch dealers sell the way most luxury goods sellers sell. Most watch companies do not offer significant options in dial designs, strap and bracelet choices or other elements that make the product more personal and give value to the salesperson’s time. Most watches are off-the-shelf goods specified by the manufacturer. That idea might be fine for selling Hondas, whose buyers are comfortable with fewer choices of options and packages, but the same could not apply to a Porsche buyer, who expects a much more personally specified product and a much more detailed involvement by the salesperson. As long as luxury watch makers want to use the Honda model, they can expect buyers to seek products outside the AD channels.

  • Beefalope

    There is no solution because there is no problem.

    Watch companies have continued making huge amounts of money producing their watches. I don’t see watch companies going out of business left and right or shrinking their operations.

    If they do start struggling, they’ll have no one but themselves and their own greed to blame.

  • GojiB

    i am a little confused here, isn’t the watch manufacturer themselves responsible for this. The main reason a gray market exists is because of the Watch company’s inability to move inventory – and the reason they are unable to move inventory is because there’s too much being produced at too high a price. If they themselves are able to correct the price and the number of pieces produced, we will not be in a situation where we see such huge amounts of watches in the gray market… I understand that things are often sold whole sale to ADs and the role of ADs play a big role in this as well, but if the pricing was right and the quantities limited at the source, the ADs would automatically auto-correct as well.

    Finally, is there really a problem? i think the whole system just seems an auto-correction and i am fairly sure if one of the gray market players come out with a full service system (free shipping, free return after trying…) we might actually end up in a situation where they will be unbeatable, Because at the end of the day, i don’t need to have a salesperson tell me what’s inside and what’s great, i have the intraweb and my fellow watch-guys!

  • beardedman

    I’ve purchased three watches in the last few years… I started small with a new Oris, and after looking at lots of articles online, I decided to go AD in a location nearby. Today, I wish I had not paid the extra. The watch is bullet-proof. My next two watches, a JLC and Rolex, have been “previously enjoyed” by other watch lovers before I got them. In both cases I went to an online watch dealer in PA who has prices I like, ships next day for free, does not collect sales tax, has a 18 month warranty and excellent return policy if not completely delighted. I never worried I was going to get stuck with something I didn’t like or didn’t work. I hope in a year or two to be able to buy another watch, but a brand-new higher-end brand. I may also want to trade one of my existing watches to help pay for the new trinket, and want a fair price for it. Does a local AD help or hinder my plans? Right, so why would I consider them?

  • Jcp311

    Blaming the consumer for what it clearly an industry problem isn’t going to fix the already changed reality for watch producers. The grey market-or should I say the ‘real market’- is the sheer force of market demand coming to bear on the pretentious pricing models some luxury brands have adopted. I will continue to purchase through grey market channels because it’s in my best interest as a consumer to find the best deal. It’s in the best interest of the watch industry to remain competitive in more than one retail sphere.

  • Justin Oliver

    Good article and it must create deep awareness.. Seeing many replica watches online which are been told as original , relabelled and sold to innocent customers.. Luxury Watches must be bought only from authorised sellers..

    -Justin ( )

  • funNactive

    Great insight. Thanks for the article.

  • jj eight

    Fixed costs of the watch industry are to heavy and they are unfortunately paid by the end-customers, who might today walk away from the traditional channels and move to the gray channel, looking for better prices.
    Each year, you can notice 5 to 7% increase of the price lists, when the price of gold (and platinum) is decreasing. Why ?
    Most of the watch (and luxury) groups are listed and they need to provide numbers in order to please their shareholders and the financial community. Note that you don’t really find a lot of stock coming from the independent watch makers (such as AP because they don’t need to please bankers and the stock-exchange). Since your turnover needs to stay stable, first, you feed your subsidiaries by transferring the stock (glut inventories and development of the gray market) and if you have difficulties to increase the volumes, increase the value to save your face. Retail strategy, by opening so far to many owned-stores (and snobbing the wholesale industry who supported them during many years) has a fixed cost which could not be bear any more on a P/L (crazy rental costs and terms, salaries, stock…) and I don’t think that the e-shops will be a solution. Marketing and fastidious programs with “more or less” loyal ambassadors suck the margin.
    Now we are “back to the roots and values”. Customers and collectionners are looking for coherence and consistency, and for a real price for what you get (time, effort, innovation, tradition, value, legitimacy). The watch industry really moved too global, losing too many steps and the question today is whether they will be able to come back to a normal state (what are the good numbers of pieces produced…)

  • Eric Thompson

    Great article. Great discussion.

  • NeuroticNeurons

    I find it hard to believe that the watch manufacturers are monitoring the selling prices of the grey market and are upping prices to get the grey market price back to the former retail price. That’s I feel, a narrow view of why prices rise. Prices rise because the products are purchased by the consumer and corporations are about making as much profit as possible. They’ll do that through price increases, reducing their own internal costs and maintaining as much market exclusivity as possible.

    The top end of the luxury market is not driven by price but the middle and lower tiers are. Consumers are value driven. If they can get the same product at a lower price they will almost always pick the lower price. I do agree that manufacturers have to make it more attractive to buy from an AD. Some are now doubling the warranty time for AD purchased watches and others are selling direct to the public like Ball is starting to do for some limited models.

    A Louis Vuitton bag would not have the market cache if it sold for $100.00. But, one needs to be more than just aware of the brand as a status symbol, one has to be proud to own/wear the product. A combination of a good value, corporate ethics, exclusivity and brand recognition is what consumers want. Very few companies deliver the complete package.

  • Francorx

    Interesting article and insights. I have been lucky enough to find AD’s that will discount and can come close to if not beat gray market pricing. At least I know what I am getting. The world is filled with fakes of everything (watches, perfume, clothing to medications) and I wont risk spending my hard earned cash on anything that I am not sure is genuine. Not to say AD is the only way to go…but if their prices are as good if not better in some cases all the better.

    • Timestandsstill

      This has been my experience as well and one reason why it has been worth developing and maintaining good relationships with 2 or 3 reputable AD’s. Several times I have been able to negotiate prices just slightly higher than gray market and I’m happy to pay the slight premium for the extra service and peace of mind. I have also bought on the gray market and pre-owned from trusted online sellers from forums and AD’s overseas. Perhaps half or more of my collection was purchased sight unseen but I have spent a lot of time in AD’s looking at and trying on watches. I think AD’s will likely always have a place in the market.

  • Chefcook

    While the analysis of watch buying behavior is very precise I do not agree with price being the only relevant decision criterion. With their discounting behavior towards the gray market the watch industry destroys quite a bit of value to the customer. People buy “value” and value to them is not only the product, but also the buying experience. Buying experience includes the way you are treated by the salespeople, the shop and how it is styled, the feeling of occasion.
    When one knows that negotiations with an AD are getting tough around 5% and the customer knows that the watch can be had with 25% discount from someone who is still making a living from it, how does that make a customer feel?
    In addition, most ADs simply do not offer any value or convenience over a gray market dealer. The latter are usually easier to deal with, less arrogant, treating their customers as such and not as applicants for one of their products.
    The reason I do not spend my money at an AD is that I value service, friendliness, knowledge about the product and ease of business and none of the official dealers around here is able to offer that at the same level as my usual gray supplier does. My gray supplier know the technical features of a watch and improvements over its predecessor. The ADs salespeople usually don’t. When entering an official AD and ask something like “Can I see a 116610LV, please?” I expect an answer like “Yeah, of course, please take a seat while I grab the green Sub for you!”. Instead most responses are something like “Excuse me, what?!” ADs simply do not offer an increase in quality of the buying experience, quite the opposite is true. At the same time the AD demands a much higher price.
    The watch industry not only has a pricing problem, but also a quality problem and both are connected directly. If the official retail channel would just be better salespeople and caring more about the customer and the product, the gray market would dry out quickly since the gray market still is only accessible to those informed about this mechanism. People wouldn’t search for a gray or secondary market if there wouldn’t be a need to.
    If I’d be a manufacturer I’d try to run as many boutiques as possible myself, not only to control pricing, but also to control quality.

    • okulus

      There is more to the problem than just uninformed salespeople and a low level of service. The manufacturers have nearly commoditized their production.Two generations ago, a buyer of a high-end chronometer could choose among many styles of dials, choose the case metal, sometimes the glass, the type and color of strap or material and design of a bracelet so the time spent by the salesperson lent some value to the exchange as a more personalized product for the buyer was being specified, and the choices could be each presented and explained. Today, those choices are seldom available: a particular watch comes with a particular dial and a particular strap or bracelet, with few options.

  • Javier Porras

    Incredible insight into the watch industry. This article served as inspiration for me to create a watch company ( of my own that gives the best of both AD’s and grey market.
    First and foremost I agree that price plays a significant part of a customer’s decision, particularly for your everyday watch consumer. Today the best way to do compete with the grey market is to primarily sell direct to consumers online and stop making consumers pay for everyone’s cut of the sale.
    Second is to cut down on producing so many of the same watch. The overproduction is what is feeding the grey market. Where consumers learn that the same watch that came out today, will probably cost less in a year or two on the grey market. The root cause of overproduction, is the lack of new designs released by the brand. Without new designs to roll out the same watch design is made over and over until AD’s can’t sell them anymore.

  • okulus

    Having bought both in the gray market and from ADs, I struggle to find a reason to justify paying the premium at the dealer. In a world where significant amounts of product information and owner feedback are already available online, the relatively brief encounter with a salesperson and the limited amount of information conveyed and the minimal after-sales service generally required or provided really does not justify the luxurious markup that most authorized dealers demand. The product is the same in both channels. Unlike the fine jewelry market where selection of jewels and personalized fitting requires more extended service and a jeweler’s skills, a watch salesperson seldom does more than pull out the tray and fit the bracelet if a purchase follows.I certainly understand that a retail presence has its costs and that they are not trivial, but the business model fails to convey the perception of value for the difference in price from the standpoint of the buyer. This isn’t exclusive to wristwatch sales, the same applies to other high-end discretionary products, fine cameras being one of them.

  • TR

    Well if some of these brands hadn’t driven their prices up well above inflation rates over the years they wouldn’t have this problem. Prices coming back to earth is a good thing for the average consumer.

    • Paul Munro

      The ‘average consumer’ cares about nothing but price. Even if it would put the brand of watch they’re buying out of business in a few years.

  • Ranchracer

    I really appreciate the insight Ariel, but here’s the thing. NOBODY wants to hear that their baby is ugly, and that’s exactly what’s happening in the luxury watch industry. The gray market IS the watch industry’s baby. They gave birth to it with their over-production, and now they’ve turned a blind eye while their kid robs from their friends and family. This all could have been avoided if, instead of simply jacking up the retail prices to try and fool their end customers, they had simply brought production levels back down to more realistic levels that met actual customer demand. That would have killed the gray market then and there.

    The gray market cannot be blamed for the situation that the industry is in now. As you’ve stated in article after article, all the manufacturers care about is selling to the wholesalers and retailers. As long as they can get product out the door and make their margin, they simply don’t care what happens to the units once they’ve left the barn. Greed is what has brought the industry to this point. Greed, and a complete and utter lack of global business knowledge and forethought, and zero wish to change their staid and dated ways.

    This may be an oversimplification of the situation, and doesn’t take into account the fact that many of the manufacturers felt that they had to keep production at those higher levels to make up for the loss of a certain third-party movement manufacturer, and to fund their in-house movements. Nonetheless, the watch industry is solely at fault for the current situation.

    • arieladams

      Thanks for your comment and additional insight.