Grey-market dilemma for luxe watchmakers

ZURICH • A diamond-studded Rolex at 40 per cent off the US$34,000 (S$47,500) retail price or an Omega Speedmaster Moonphase for less than US$10,000?

While still out of reach for most people, the increasing prevalence of such deals highlights the perplexing predicament in which luxury watchmakers now find themselves.

With sales falling, more unsold timepieces are finding their way from the Swiss-dominated industry's carefully controlled official retail networks to online platforms where they are often offered at steep discounts.

Swiss watchmakers say they loathe this "grey market" because high discounts damage the aura of prestige and make it harder to sell their goods at the full price.

"In luxury goods, when you break the illusion of prestige, the dream, the prices... it means a slow death for luxury goods," Mr Jean-Claude Biver, head of LVMH's watch division, told Reuters last month.

However, a sudden end to a boom in Chinese demand is forcing the brands to begin working quietly with dealers in the grey market, occasionally to help with sales but mostly to secure some influence over the unofficial resellers, according to dealers and industry executives interviewed by Reuters.

"There are many sources for grey-market watches: authorised retailers who want to get rid of slow-selling models, country distributors or even the brands themselves," said one watch-industry executive who asked not to be named.

He said that in some cases, operators in the grey market are cooperating with the brands, removing new models from their sale sites when asked or reducing discounts manufacturers consider excessive.

Though representatives of the biggest luxury watchmakers, including Swatch Group and Richemont, refused to discuss their strategy with regard to the grey market, some manufacturers may find that it offers benefits.

"For every timepiece we sell, the manufacturer is getting the lion's share of the profit, and then all the search engine queries, image searches, social media brand posts, and tweets are free (advertising)," said Mr Darryl Randall, founder and owner of United States-based online platform SwissLuxury.com.

Another grey-market dealer said he will sometimes withdraw watches if asked by manufacturers and that brands regularly offer US dealers packages of 15 or 20 pieces at a discount. "As much as the brands dislike us, we have more or less the same goals they have - we also want to sell the goods and be able to make a profit," he said.

Swiss watch exports fell 8 per cent in the first two months this year, on top of a 10 per cent drop last year.

In the grey market, sales are often clinched in shabby stores or via online platforms.The US is the second-biggest market for Swiss watches, and a hub for grey-market pieces, with platforms such as Jomashop.com and Authentic- Watches.com.

Germany's Chrono24.com has sales offices in Hong Kong and New York, while many grey-market watches are also sold on Amazon and eBay, the unnamed watch-industry executive said.

REUTERS

A version of this article appeared in the print edition of The Straits Times on April 14, 2017, with the headline 'Grey-market dilemma for luxe watchmakers'. Print Edition | Subscribe