Dealers’ Online Sales Continue to Challenge Watch Brands

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Dealers’ Online Sales Continue to Challenge Watch Brands

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Peter Grant, general manager at AuthenticWatches.com, a California-based shopping website, hopes you won’t call his business “gray.”

Watch brands use the term “gray market” to describe genuine products sold through an unauthorized source, usually an online retail site. Mr. Grant says he resents the term because it implies — incorrectly, he says — that the independent websites are somehow not professional.

“It makes it sound as though there must be something wrong,” he said in a telephone interview from his office in Moorpark, Calif., near Los Angeles. “There isn’t.”

Swiss watch brands have long earned handsome profit margins. “That’s the birth of the gray market right there: When you have fat profit margins, it encourages middle men to get involved and offer your audience a better deal,” said Darryl Randall, founder of the Miami-based website SwissLuxury.com, a similar operation. “And everybody wants a better deal.”

Some gray merchants buy watches at a discount from authorized dealers, often through middlemen, and resell them to consumers for less than the brands’ official retail prices. Others buy watches in one country, sometimes at full retail value, and sell them in another, profiting off asymmetries in currency conversions or brands’ global pricing strategies.

But pricing is not the only reason that brands are being undercut by online dealers, according to an April report on the watch trade by L2, a business consultancy based in New York.

Few watch brands invest in search-engine marketing, allowing gray sites to dominate online sales, the L2 report said. Others do not list prices online, it added, allowing gray sites to “intercept frustrated shoppers.”

Mr. Randall said: “Companies that show their brands and don’t put prices on them: What are you, not in business?”

The L2 report said gray sites sell genuine products for average discounts of 28 percent to 49 percent off retail prices, and that savings typically are largest for watches worth $1,000 to $5,000 and $5,000 to $10,000, including models by popular brands like Rolex and Omega. It identified the four major gray sites as Chrono24, based in Germany; Jomashop and Ashford, both based in New York, and AuthenticWatches.

Mr. Randall, who said his company was not among the gray market’s primary sites, said that it still would earn about $8.5 million to $9 million in revenue this year, with a 7 percent profit margin.

LVMH Moët Hennessy Louis Vuitton, which owns watch brands such as Tag Heuer, Zenith and Hublot, declined to comment on the market, as did Cartier and Rolex. Breitling did not respond to emails seeking comment.

In an emailed statement, Raynald Aeschlimann, Omega’s president and chief executive, said the company has been developing its website to ensure that it becomes the first destination for what he described as “discerning buyers.” (The site has a store locator tool but does not sell watches directly.)

In January Omega, part of the Swatch Group, sold a limited-edition Speedmaster “Speedy Tuesday” watch online after marketing it exclusively on Instagram. Mr. Aeschlimann said the customer response — 2,012 models reserved in around four and a half hours — illustrated the strength of the company’s internet presence.

“One of Omega’s great strengths is the customer experience that is guaranteed through the brand’s own official channels,” he said. “Only here will you gain the full value of a complete range of products, a professional and knowledgeable boutique service and, above all, the absolute assurance of authenticity.”

Mr. Grant said some prospective clients still fear buying a fake watch online but that such concerns have faded over the last decade as AuthenticWatches.com has built its reputation, in part by gaining authorization to sell through Amazon Prime and other online sales channels.

“That’s a key to establishing consumer comfort,” he said.

A common customer complaint about gray market sites is that their watches do not come with the brand warranties, the repair and support pledges that are a hallmark of many top-end Swiss makers. But Mr. Grant said his site offers a warranty that he described as sometimes better and sometimes worse than brands provide.

“It all pretty much balances out,” he said.

Watch brands appear to perceive gray-market businesses as adversaries — even if some dealers maintain that brands quietly appreciate how their sites help to offload inventory.

For example, a lawyer for Breitling recently ordered Mr. Randall to remove photos of the company’s watches from SwissLuxury.com and “refrain from using our client’s protected material in the future,” according to a copy of the letter that he provided to The New York Times.

Also, Tag Heuer’s chief executive, Jean-Claude Biver, said in an April letter to the company’s authorized dealers that the watchmaker was “taking aggressive action”: A planned 2 million Swiss franc buyback of watches this year from what he called “unauthorized” stores, websites and dealers.

“TAG Heuer understands the importance of protecting the exclusivity of its distribution network, and is taking positive steps to ensure that its dealers honor their contractual commitments,” Mr. Biver said in the letter, which was seen by The Times.

At least one luxury watch brand — Rolex — has been at the center of a yearslong legal battle with a gray market merchant.

In 2011, a wholesaler that supplies watches to gray market sites, Boneta Inc. of New York, agreed to pay a $325,000 fine and forfeit $1.9 million in what the United States Immigration and Customs Enforcement called gray market watches and parts, the agency said at the time.

The company’s chief executive, Erik Boneta, had tried to import some Rolexes that the brand had authorized for sale only outside the United States, the agency said. After those were seized at John F. Kennedy International Airport, officers investigated the company’s activities and seized more than 200 Rolexes from Mr. Boneta’s offices.

Mr. Boneta said in a recent telephone interview that no charges were filed and that he expected the gray market to endure, even if brands reduce production or improve their online retail presences.

“It doesn’t matter what country or culture or ethnicity,” he said, referring to consumers who buy watches. “People want a discount: There is no one looking to pay full retail.”

By | 2017-11-17T09:45:04+00:00 November 17th, 2017|Comments Off on Dealers’ Online Sales Continue to Challenge Watch Brands