Today's luxury watch collectors have struck luck; luxury watches are now more affordable and easily purchased online. With online discounts of up to 40% on original Swiss-made watches, it's no surprise that the gray market watch business is booming.
Consequently, luxury watchmakers are shifting in their seats. The products sold are legitimate, but the seller is often not. And in many cases, legitimate partners are breaking their distribution agreements. Brands are spending big money and time into looking for who's responsible and what can be done, because it’s not illegal.
It’s not a watch dealer on a street corner flashing watches from the inside of his trenchcoat. It's sleek websites with original luxury watches for sale, at an asking price that’s up to 40% less than what luxury watch brands are offering.
- Gray market watches are legal
- Gray market watch websites provide consumers with big discounts and benefits
- How brands are affected by gray market watch websites
- Tech-based solutions to counteract the gray market
Gray market definition
Gray market products are sold outside the distribution channel that was agreed upon by the brand and official resellers. These get sold to consumers at a fraction of the original asking price. It is not authorized by brands, and difficult to control.
It’s important to note that the gray market is legal. If it were illegal, we’d be talking about the black market. They’re made in the same factory as the watch you see on the brand’s online store.
Official resellers can get tied down with unwanted stock, unable to purchase new collections until they liquidate old stock. In some cases, these dealers only find out which models the brands want them to sell upon receiving stock, which may lead to a build-up of inventory. The gray market is the easiest solution to liquidate old stock, even if they may not be making any profit from selling to unauthorized dealers.
These unauthorized dealers may resell within the country they’ve bought them from or choose to sell them to a country where the asking price is higher. If the latter option is chosen, they become parallel import products.
There are few differences to differentiate a gray market watch from the white market. One is that a luxury watch sold by an authorized dealer will come with a warranty from the brand itself. Usually in the form of a 5-year international guarantee, which is only issued by an authorized dealer. Some gray market websites offer a third-party guarantee, but it can’t cover the extent of damages that an official warranty can.
Another gray market watch qualifier is the price it is sold at. Since authorized dealers turn to the gray market to liquidate their stock, they sell these at a much lower price to unauthorized dealers. Brands can fix a MAP policy, which gives authorized sellers a minimum sale price to uphold. However, when they sell these to unauthorized sellers, this policy is lost.
This is when we find gray market watches associated with a high price tag, down to a fraction of the expected price. The seller’s quick-fix results in a loss of sales for white market products, which deeply undercuts a brand’s reputation.
The online gray market watch landscape
Buying the same luxury watch for 40% less than the brand’s official asking price is attractive to any pocket, even to the most luxurious one. The crafting of these high-quality watches is of such minute precision that the final piece is extremely reliable. The manufacturer’s warranty may no longer be a top priority to buyers.
However, if having a warranty is still important, luxury watch buyers turn to websites such as joomashop.com and others that offer their own warranty. The aforementioned: joomashop.com openly state that they don’t provide a manufacturer’s guarantee for their gray market watches. Instead, they provide their own, with a full explanation of what it covers.
Gray market watch websites offer to rebuy your older models, offer student discounts and a decent delivery service. There are even some websites offering price-matches and financing options. So it’s not only about the deep discounts they offer to their customers. They have touched on many points that give these websites a luxury feel, to ensure their customers feel safe in buying from them.
Many luxury watch brands prefer to not advertise their prices online, which may leave their potential customers with too much mystery when searching online. Today’s luxury watch shopper values the time-saving aspect of online shopping like any other. Gray market watch websites offer many advantages to luxury watch buyers, and brands are suffering as a result.
Luxury Brands’ response to the gray market watch industry
Many brands have built their brand identity on luxurious exclusivity. When ordering some particular Swiss timepieces, there is still a lengthy waiting list before finally receiving the watch of their dreams. The anticipation of obtaining this meticulously crafted item, the care that is provided by the highly trained salespeople and the sheer luxury of all the stages leading up to placing it onto your wrist -the luxury build up- was what drove the luxury watch industry into such success.
Today, as much as 20% of luxury watches sold are issued from the gray market. And although losing revenue to the gray market is a major issue to brands, the biggest is the risk of losing the reputation that these brands have built around prestige and social stature.
A luxury item bought at a discount price no longer creates the same emotion to a consumer. The reward transforms into getting more value for your money. The gray market puts all the hard work that brands have invested in their brand identity at stake.
At Baselworld watch fair, Jean-Claude Biver, head of LVMH’s watch division was quoted saying: “In luxury goods, when you break the illusion of prestige, the dream, the prices, it takes away the confidence. It means slow death for luxury goods,” when describing the gray market watch industry. The illusory effects of luxury purchases are changing. Consumers have changed and the gray market seems to be paying close attention.
Although losing revenue is a major issue, the biggest risk is of losing the reputation that these brands have successfully built around prestige and social stature.
To counteract the effects of the gray market, some luxury watchmakers have drastically reduced their stock inventory. Tracking their products more easily and avoid authorized resellers selling these to the gray market.
Omega’s strategy was to buy out one of the most popular online gray market reseller platforms (Watchfinder) to avoid seeing their products on the gray watch market. Other brands are now offering their own in-house resale services to make sure their customer base stays faithful to them.
Brands are even going as far as rebuying their brand’s gray market stocks to try and save their brand identity. The capital invested in trying to counteract this booming industry has been colossal, but still deemed worthwhile by the brands themselves.
How a tech-based solution can enable brands to counteract the gray market
Although luxury watch brands are investing their time and capital into solving their gray market issues, the strategies mentioned are short-term solutions. Implementing a tech-based strategy ensures brands can find unknown online sellers and locate where in the supply chain the stock left the official network.
Red Points Seller Tracking platform enables brands to monitor all their official sellers. It gives a full view of the stock that each seller has, along with what price they're selling at and where. More importantly, it helps find the unauthorized sellers selling their products illegitimately. This, in turn, gives brands the necessary information to resolve the issue.
Brands can easily visualize how their partners are performing over time, as all historical data is gathered and kept in the reporting section. This helps in making more informed decisions when negotiating new deals.
Download the Seller Tracking product guide below to see how it could work for your distribution network.