Thanks Ryan, that was a good article. It was interesting to get some figures behind how far the Asian market has dropped and how one of the watch makers has decided to counter this by producing a cheaper line as opposed to discounting established ones.
Basel should be interesting this year, and may back up the article or not, depending on the offerings by the big manufacturers! Interesting times ahead....?
Is it only the watch industry that has this huge greymarket? Where can you buy LV or Prada handbags at 20-30% off, for instance...?
Grey market just proves that you can still make a considerable profit offering 60% off... the main problem is that the companies are charging whatever they can get away with and rightly so if there are mugs who are willing to pay...but in my opinion its just not a sustainable business model in the long run..
5 years ago except for Bugatti a £1m supercar was unheard of.. now almost every manufacturer got one at that price point and people arent taking 200k cars seriously anymore. Have a look at the London property prices.... its just money is losing its value as its only backed up by a promise of debt so the super rich has to dump it somewhere on something.
Not even sure what point i was trying to make here haha..
Prada easy (they even have outlets in Florida), but agree re: LV who famously destroy their unsold inventory rather than ever discount.Originally Posted by 744ER
Didnt know that, thanks. Breguet should start melting down their unsold watches :)
Can we hope this will mean that in the future the availability of parts for watches of this era will be good?
I guess there is some differentiation with the luxury watch and luxury (fashion) good grey markets.
For watches, they tend to keep selling established named lines, such as Submariner, etc with small 'tweaks' every so often. So unlike the Prada example, end of season lines won't figure much, if anything, some watch collectors will actively seek these buying opportunities in the hope they become more valuable pieces over time.
Watch makers are also not in control of the supply to grey market and will actively take away ADs authority to supply their watches if caught. I'm presuming the glut of fashion items occurs when the articles are reaching the end of season, and may be released by the manufacturer or would have a very small consequence on them as going to be discontinued anyway soon...?
However, a luxury watch manufacturer must be able to maintain the brands pricing over the long term, they don't cease production of say, the Submariner lines and start afresh. From the article it seems some who are feeling the 'pinch' are going for new, cheaper lines rather than discounting the older, more established ones.
The fuel to the grey market for watch manufacturers seems to flourish on price/currency differences, which was most probably behind Rolex's move to increase prices in Europe. This seems to be working as Iconic and Chronext prices have increased markedly recently on the price increase.
Prada and other clothes fashion brands seem to put a lifespan on clothing lines (seasons) and have no qualms in discounting using end of line/season as a reason. Or as mentioned above, they have tighter control of outlets and so little gets out to the grey market as surplus is destroyed.
No one buying such clothing seems to worry, as this is how it has always been, it would be different if Rolex discounted the Submariner line now and then.
People may start to second guess as to when the next 'sale' would be. If you'd just bought one and it then got discounted, you'd feel at odds with the manufacturer for a while as well! Not the image they'd want.
Perhaps someone with a better idea of fashion grey markets can chip in, my knowledge admittedly isn't the best.
There's a sense of inevitability about all this; that 2015 report by Deloittes estimated huge stocks of unsold watches as demand tumbled. Supply and demand...that's the only factor that counts. If manufacturers don't destroy older stock, or cut current production, then the unwanted products will have to go somewhere. And that 'somewhere' is the grey market.
This process devalues high-end watches both in actual value and status. It will lead to long-term decline..and devalue the watches we all own. Clever marketers realised years ago that you must limit supply into a luxury market . For instance, Ferrari could sell three or four times what they currently make..but they restrict production because it holds up the brand image and price.
Have watch manufacturers got the resources, and courage, to do that? Maybe Rolex, but probably only Rolex.
Agree 100%, perhaps we might see new, *slightly* cheaper lines also coming out from them all, and could this then be seen as a sign of financial distress? I.e only done as a last resort?
Would Rolex do this or will they rely on Tudor sales as being the more affordable line....?
Basel will be interesting, what new lines will we see? Or just business as usual!?
Interesting stuff... Though when they say, "For instance, Piaget whose watches usually start at around 10,000 euros ($11,147), presented a new women’s line at around 7,000 euros ($7,800)." that strikes me as pretty weak evidence. Women's watches are often cheaper. Desirable models may still hold up, though it's hard to know how many they produced - is there really a huge warehouse full of unsold Royal Oaks somewhere? Possibly, but it's the over-priced 'me too' watches with generic movements that might be harder to shift. There have been a lot of new watches launched over the past five years or so, but not that many future classics.
Interesting stuff... Though when they say, "For instance, Piaget whose watches usually start at around 10,000 euros ($11,147), presented a new women’s line at around 7,000 euros ($7,800)." that strikes me as pretty weak evidence. Women's watches are often cheaper.
Desirable models may still hold up, though it's hard to know how many they produced - is there really a huge warehouse full of unsold Royal Oaks somewhere? Possibly, but it's the over-priced 'me too' watches with generic movements that might be harder to shift. There have been a lot of new watches launched over the past five years or so, but not that many future classics.
wow interesting article has the bubble really burst though??
Assuming the bubble has burst, I guess how companies will respond depends on whether they're publicly listed (swatch group, lvmh, richemont?) or privately held (rolex?)
A good point, I don't know the Piaget line up, is the introduction of the new women's line mentioned in the article the cheapest they now do for women? Is it truly a cheaper line or just a medium priced alternative women's watch for their line up.
If it is the cheapest watch they do for women, that must show they feel the need to offer a less expensive watch, which might be driven by lacklustre sales?
If not, then it does devalue the article somewhat if you need to use such questionable stats to win over the audience.
Good question, and I don't know the answer, but it does suggest that cheaper lines haven't really been offered yet if that's all they can find, and they weren't at the recent SIHH - so I'm not expecting them at Basel either.
We've all known about grey market dealers here for some time, exploiting differences in territories and currencies, and side stepping pressure on ADs not to discount. But this doesn't actually prove the theory that there's a huge overproduction bubble. It sounds entirely plausible given the situation in Asia, but I'd like to see the actual numbers and hard evidence.
Yeah, I agree on that, seems the article raises more questions than it answers on the incredibly secretive world of premium / luxury brands! :-)
I certainly agree with the glut reference, in respects to PRC and Hong Kong anyway. The amount of high end ADs lining the streets is just unbelievable.
Smart watches will grab a portion of the market for years to come. I wonder how long before the Swiss or other higher end brands get in on the act?
Very interesting thanks for sharing this Ryan
The only ay to by LV cheaper is duty free (Heathrow terminal 5 ) LV and other makes like Hermes only sell through their own shops/boutiques ,even in department stores like Selfridges its their own concession and they pay the department store a big commission.
That way. if you handle manufacturing and distribute yourself and selling . There is no grey market!
Prada do have some outlets like Bicester and limited ranges sometimes get sold in other designer shops.
Its very simple! They handle manufacturing and distribute yourself and selling . There is no grey market! LV is only sold in their own shops or concessions. Swiss watches are sold to distributors and many different jewelers around the world etc!
Cartier has been doing this for 2 years. they have been launching models in the 2-2.5k price bracket.
Rolex has relaunched Tudor and Rolex themselves have updated and expanded their cheapest watch the oyster perpetual (dropping the AirKing name)
Very interesting.
Lots of stock market jitters at the moment, too - interesting times ahead for the global economy.
Outside of LV there are other luxury fashion brands (Gucci, Prada, Dior) that do have concessions in other retail outlets aren't there? I thought they were concessions anyway, but probably wrong.
I've normally seen fashion clothing and shoes discounted regularly on out of season lines.
I guess the point was, fashion has always discounted (except in a few rare cases) and that's what the purchasers understand, so pay to have 'in season' clothes at full retail or make the choice to wait and hopefully if still in stock, get it at a reduced price in the regular sales they have. So no real need for a grey market that operates like the luxury watch one?
Sales are not something that the luxury watch industry does. Watches aren't seasonal, but are sold on their long heritage at full or near full RRP. I suppose again, this will depend on the brand in question.
Granted, there are far more AD outlets for the watch market which are impossible to control. Especially if they have to shift a certain number of watches a year to remain an AD.
This need to have a certain turnover in the AD fuels the watch grey market and is helped further by currency differentials, making attractive discounts buying in one slow turnover and low exchange rate country to another at the opposite scale for example Europe/UK - (that was until the Euro zone price increase) as the watches themselves will otherwise not be discounted by much in the UK unless you have a good history/relationship with an AD.
As I mentioned before, it looks like Rolex is clamping down on the grey market. The Euro price increase has had an effect on Iconic and Chronext prices already bringing them to within 5% or less of full RRP.
Last edited by btd1975; 12th February 2016 at 14:51.
That's interesting, thanks for the info. I've only just got back into watches after a break of 5 or so years so hadn't noticed this.
Sorry, double post.
Tag Heuer isnt high end but they have a "smart" watch out.
I dont think smart watches will be much of a threat tbh, except to Casio, T-Touch, those kind of low-mid range quartz offerings.
True, I guess that's the evidence I've been looking for! But that's been happening for some time, in fact for a very long time in the case of Tudor, even if they were recently relaunched. Meanwhile Rolex have always had an Oyster Perpetual entry level line, they simply introduced a larger model - and at a price that while entry level in Rolex terms, is still very much premium. Swatch group have been perusing a strategy of making money in all price brackets since the Swatch, so if there's reaction to the current issues in Asia, it hasn't really filtered through yet. Unless it's in grey market dealers as the article suggests.
interesting article and there is clearly a parallel market:-
AD's charging as close to RRP as they can get, maybe giving a few % on Rolex (Datejusts, precious metal etc), up to 20% on Omega etc etc. You get the "experience" and peace of mind and the full Warranty. Man on the street who is only likely to buy one "good" watch will tend to go for this. AD's carry massive overhead of prime retail rents, staff, investment in stock, displays, shop refits when the manufactures demand. I struggle to see how they can shift enough volume even on high margins to survive .....
Grey's - usually an add on to a second hand business or internet only. They work on volume and will tend to appeal to us lot. People who flip, acquire multiple watches and can live without the AD experience. However their business model is totally different - they will tend to make between £150-£300 per steel sports Rolex model sourced around Europe. These are much lower overhead businesses usually with little or no stock so are happy to make such a small margin. There would be no AD's if we expected them to charge grey margins
I know the business model of a well known grey and sourced a blue faced GV for a friend recently - they literally did the deal for £150 margin and £25 courier charge
I thought this remark was interesting;
"“There were pieces you had to be on a waiting list for at retail, that’s not the case anymore.” Victor now says he’s only collecting vintage pieces."
How immune are vintage pieces though. Some of them, for example red writing Rolex are just in what seems to be a tulip-style bubble; perhaps not. The Great White 1665 is worth half the value of the Red 1665 even though it's supposedly rarer so there is no logic, but is it just hype?
As I get more and more tired of being absolutely mauled come resale time for modern watches (bought second hand originally by me) as I refine the collection for exit, vintage is beginning to look more appealing. Something extremely pleasant to look at, something they are not making any more of, something you don't have to panic about what it would sell for if you lose you job and have to move it on.
Very interesting read. Ta.
People talk about a glut of new cars as well, but prices haven't dropped. If there is a glut of Swiss watches are they going to lay off staff? Rolex are a bit like Ferrari, in that they limit the supply of new product to keep prices artificially high, but I can't see swatch being able to do this. For those of us who already buy on the grey market will there be any benefit to us if this glut hits the market? It's been bandied about since mid-2015, but I haven't seen a huge price drop anywhere yet.
Interesting.
Thanks for sharin
A good read and some very interesting posts. I think some of the recent threads, like the poor chap trying to get his refund on a vintage GMT will have done the ADs a power of good on here. As others have said, no risk, everything as it should be, albeit for an inflated price that brings with it piece of mind. Even buying from Greys has caused some members problems, original box and packaging missing, a strap that showed evidence of having been used as a display item etc.
The 'right' vintage pieces are always likely to hold their value if not increase more so than a modern AD bought watch, but finding those is becoming a dark science and this can cause the kinds of problems that we are hearing about on a fairly regular basis. The message more than ever is only consider buying vintage from a highly respected source.
Chatting to the Patek salesman this week he mentioned PP holding back on some lines because of the grey market situation, this and a few other reasons.
Last weekend went to Harrods and tried on a few Glashuette Original watches - the salesgirl offered me after 3 minutes discount of first 10%, then 20% , without me even asking for it or the price...
One thing Ive generally spotted on the commute into work is the prevalence of seamasters, they now seem to be far more prevalent then Subs. Spoke to an Omega salesman and he said straight away it is the price point. Hence Rolex pushing Tudor as a tgeneral new watch price point I'd guess seems to be around £2800 max.
One further point and not trying to do a Rolex bash. But if we remember Burberry's troubles during the chavtastic Burberry check period. Are Rolexes having a bit of a Towie backlash?. Might find that in general big cash purchases on watches is a bit out of fashion and the Gray market is appealing to the bargain hunter. From a pure capitalist angle doubling your watch price every decade is great business. But are punters starting to think hang on why are they 3 or 4 times their real cost from decades previous? Supply and demand may finally put a temporary break on escalating pricing
The Burberry 'crisis' was caused by a certain sector wearing fake gear with their distinctive checked pattern everywhere. Don;t think it;s the same with Rolex.
They're like Porsches; bought but those who are clueless and want the brand and prestige, but also bought by people who did the reading and research and really know their stuff.
I remember reading a piece by, iirc, SJX which opined that the big watch companies are in a sufficiently good position going into this lull that they haven't got real worries, but that their staff might have, as production will need to be scaled back.
This would be a good moment for the companies to work on their servicing capabilities - all these new in house movements are going need looking after - which got me wondering: how much more skillful/experienced does the average employee working in servicing need to be than the average employee working in manufacture?
The manufacturers of luxury goods ramped up production to serve the demand created by the nouveau riche entrepreneurs and the newly-created middle class in the Far East, particularly China. This, inevitably, has an effect further down the food chain, as Tier 2 manufacturers decide that they would also like a piece of the action.
In recent months there has been either a catastrophic financial crash or a realignment in China, depending on who you believe, and said premium brands find themselves with more stock than buyers. As it's more difficult to scale back a business to cope with a downturn, there are a lot of expensive goods without buyers. The same applies to watches as cars, and the manufacturers need to realign their expectations and offload stock for whatever the market will bear. At least you don't need to convert watches from right to left hand drive, or vice-versa.
Vintage watches and collectable cars are somewhat different. Yields from interest-bearing accounts and equities are poor, and vintage watches and rare cars have, by implication, a finite supply. In times of financial uncertainty, the markets turn to alternative investments, so vintage watches and collectable cars are, like works of art, forming part of diversified investment portfolios.
And it's not just the exotica. Have a look at the prices of rear wheel drive Ford Escorts, particularly those with sporting pretentions. And even well-kept examples of the likes of a Mark III Escort RS Turbo, one of which recently sold at auction for something North of £50k.
New exotic cars keep appearing by the month, and as has already been pointed out, several of the manufacturers have a £1m car in their lineup, although how many of these will actually have tarmac beneath their wheels remains to be seen. But the likes of Ferrari can modulate production relatively easily, whereas watch factories, even at the higher end, may need longer to scale back their production.
Good news for enthusiasts? Quite possibly. A watch which might have been unattainable looks more attractive with a discount of 25% and the application of some man-maths. Could become a collector's item in a few years. Or a lot of years. Who knows?
If we could all predict the Global market trends, we'd all be rich. Or rather we wouldn't, because everybody else would be doing the same. A bit like high-end watch manufacturers deciding that the Chinese market looked attractive.
It is certainly true that none of us know the future (!). Indeed there's some evidence that many successful investors are just a bit lucky..as will always be the case. I wouldn't assume that the mechanical watch industry will ever fully recover. People need cars and suchlike, they no longer need watches of any sort. As younger generations become more addicted to smart watches (and they will) the whole structure of watchmaking may slowly shrink.
It will take decades, but my guess (and it has to be a guess) is that we have seen the best days for mechanical watch sales. They will always be around, but in reduced numbers.
This is all about nerve and forward planning at the end of the day.
If you follow what's happening in the world you will have adjusted your production already to take account of the downturn caused by a number of economic factors. Similarly you'll have curtailed investment (and possibly even advertising and sponsorship) to build up a war chest to see you through the bumpy patch. It's the same as a canny investor diversifying their portfolio and protecting themselves from the bumpy ride.
On the other hand if you've been a marketing driven company you'll probably have way too much inventory already and way too little cash. For this type of company a fire sale may well be the only option and it's already started according to some observers.
Which watch company is in which camp? Time will reveal the answer but you can pretty sure that when the next upswing comes then Rolex will still be around to capitalise on it. Most of the Haute Horology companies will still be there too (I don't count Rolex in this category by the way). For the high end brands it's going to be an interesting time.
The very best advice it probably to go vintage. This market may well soften quite a bit as most collectable do but it will probably come back just as strong or stronger.
Well, I think that was probably back in the 70s. Mechanical watches are now no longer a mainstream, but a luxury product, and as such, fairly recession-proof. Haven't you noticed that in a financial crisis, the rich stay rich, and it's the poor who get poorer? The people affected by an economic downturn generally aren't the people buying Rolexes, for example.
So I can't agree that Rolex prices are now set to decline, until they eventually have to give them away with petrol points. Perhaps the relentless rate of increase will taper off, and perhaps it won't. Either way, no-one need be worried about resale values.
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