Govberg Jewelers first opened in Philadelphia in 1916 and a century on the business has two luxury watch boutiques in the city and a third in Cleveland. Most recently, the company has broken out of its local market with a global play in pre-owned luxury watches; a business that now accounts for three times more turnover than new watch sales. In the first of our Big Interviews for WatchPro USA, chief executive Danny Govberg, shares his views on Aurum entering the United States, the perilous state of the Swiss watch industry and why pre-owned watches are such a huge opportunity.
WatchPro: Can I get a bit of background about Govberg as a retailer and your personal history?
Danny Govberg: I started in pre-owned watches in 1983. I saw all my friends trading-in vintage watches for new watches so I went out and started a store that would trade-in pre-owned watches for new or other pre-owned watches then got an agency for every watch brand that would give it to me. It was easy back then, 35 years ago. I got Patek and Audemars and Vacheron; 50 brands, all the best brands except Rolex, which took me another 20 years.
Fast forward to 2010 and I realised that I needed to figure out the technology side of things. I needed to move beyond dealing watches to other trade customers, I needed to sell to consumers. That is when I went full steam into app development, technology development, video, you name it. I didn’t have to worry about somebody coming into one of my stores to trade-in a watch, I could sell to the world.
Because I came from the primary side with new watches, I could service and repair watches to be in perfect condition, whereas most of the second hand market never did that. The consumer didn’t get a first rate product.
WatchPro: You already had the agencies from the brands, authorised service centres, the ability to authenticate the provenance of watches?
DG: I didn’t have it at the time, I developed all of that. When we developed the systems, the business exploded. Everybody wanted to sell us their watches because we were digitally advertising. People buying new watches wanted to trade-in their old watches. Retailers at the time would not offer them trade-ins or wouldn’t give them a good price so they would have to go somewhere else to sell their old watches. We were already fairly big, but our business started to grow at 30-40% per year.
My friend Liam Wee; he was from Sincere Watch in Singapore and was a friend for years. Recently he was in New York and I called him up and suggested he come over and take a look at what we are doing. He loved what we have been doing with the technology and with pre-owned, because there isn’t a market for pre-owned in Asia at our level. Six months later he came to me saying he wanted to take the pre-owned concept and our technology into Asia.
He wanted to make trading watches fun in Asia. We kept talking until just recently when he said to me: “OK, I have $100 million, let’s go”. We agreed that we couldn’t take the Govberg brand into Asia, because that is just a local name. Instead, we decided to make WatchBox global.
We opened up in Hong Kong, and now we are looking to acquire other companies. The business has grown nicely to a run rate of around $200 million, which is huge. The buying and selling of luxury watches is so much fun for customers – it is like a game to people who have accumulated so many pre-owned watches over many years and now they enjoy trading them.
People do not understand pre-owned properly. They think of it like second hand cars, which it is not. A second hand car after 15 years is truly only good for scrap. But a watch should last 100 years, so if you tell me a watch is four years old and its owner has taken care of it, then it is just starting out in life.
Think about a watch like an [IWC] Big Pilot, blue dial, boutique-only, three years old. A customer might love that watch with its blue dial; but it isn’t even made any more. A watch like that might lose half its value on the day it is first bought, so a guy can buy it three years old for $12-13,000 even though it cost $19,000 new. And it is the same watch. Cleaned up there is no difference, it is new again. It has its whole life in front of it so why wouldn’t you buy that watch for $12,000 instead of $19,000?
If you look at pre-owned instead of new, you also get so much more choice. You can look at 500 models from Breitling; you can look at 500 models from IWC. If you go into their boutiques you can look at 50 models.
WatchPro: The reasons for pre-owned becoming so strong in recent years with companies like yours and Watchfinder in the UK are obvious when you stop to consider them.
DG: Yes, but people are being taken advantage of because they don’t understand it properly. My philosophy and belief is that 90% of pre-owned on the market today is not white glove. The only company I know that is doing it right in London is Watchfinder. It is white glove, it is good at advertising.
They don’t do too great at the high end, it is all pretty much Rolex and down, but they are one of the few in the world that does it right. Watchfinder is probably closest to what we do except for one huge difference, which is that we are primary retailers [of new watches]. For us, if somebody wants a new Panerai, they can get it from us. Imagine if Watchfinder was an authorised dealer for 50 brands like we are.
WatchPro: How do your two businesses, Govberg and WatchBox, work together?
DG: If somebody wants to buy a new watch from WatchBox, they are recommended over to Govberg, and Govberg will finish the deal, while WatchBox does the trade-in. Thousands of customers want new watches, but they also want to trade their old watches. We monetise watches that people don’t want just sitting in their draws.
Watchpro: How much of what Watchbox sells is genuinely pre-owned by end customers, and how much is from other retailers selling off stock they cannot sell?
DG: For us, 85% of what we sell is genuinely pre-owned. If you go to our website, you will see watches from brands that have never had any problems with over-stock. Patek Philippe never over-stocked, F.P. Journe never overstocked. Nobody is putting new Rolexes up as pre-owned.
WatchPro: Rolex retailers may not be putting up steel Submariners, but there is a lot of Rolex stock that is much harder to sell.
DG: The grey market operators will always sell a new Rolex as new. There is no need to put it up as pre-owned because they are grey market guys anyway. If you look at WatchBox, we are selling watches labelled as pre-owned. If I wanted to take new product and dump it, I can do that on Chrono24, advertised as new.
There are probably pre-owned Rolexes worth $200 billion in the world right now. There is no need to be in the new Rolex business if you are selling pre-owned and there are advantages to being in the pre-owned market.
For example, if you talk to authorised Rolex retailers anywhere in the world, they will tell you how much of a shortage there is of Rolex today. In London, you probably can’t buy a new steel Rolex today; I don’t just mean Black and Blues, I mean you can’t find anything steel. But if you go online to Chrono24, there are probably 1000 steel Rolexes on sale.
So the pre-owned market is developing with technology. The real issue for the secondary market is simple: the primary guys have no clue how to get into the business. They do not know the value to pay for trade-ins. Some of them only carry five brands so if a customer comes in wanting to trade-in a Jaeger-LeCoultre and they don’t sell Jaeger-LeCoultre, they have no clue what it is worth.
The primary guys have never been taught or pushed to understand this stuff. In addition, the brands tell their authorised dealers to stay away from trade-ins. They have also told their dealers to stay away from technology, not to innovate. All the brands want is shop in shops, more wood, more displays, more space. They never encourage their retailers to innovate.
WatchPro: Rolex even has digital shop in shops so that they look the same all over the world.
DG: Right, and the brands are going online themselves. Panerai has ecommerce now, Jaeger-LeCoultre is about to. Mark my words, every single brand by the end of 2018 will have ecommerce direct to consumer.
WatchPro: You spoke about how most retailers cannot trade in watches because they don’t know the right prices for buying and selling for the majority of watches. Do you have this knowledge because you have a trading floor of experts?
DG: Yes, but we also have proprietary software with data from everywhere: millions and millions of data points from eBay, Chrono24, etc. We have data from half a billion dollars of sales from our own site, so if a watch comes in, we type the model in and sometimes we have bought and sold that model 30 times.
WatchPro: So there is not so much human intelligence going into the pricing, it is more based on historic data and algorithms?
DG: Where we differ from Watchfinder is that we talk to the customer. I believe we must talk to clients and know them. I want to know what else they own so that I can reach out to them and do more business. We use technology to enhance personal relationships, but mostly we use technology to enhance trust. Once we have trust and personal relationships, the word spreads like wildfire.
WatchPro: Watchfinder now has seven physical stores in the UK.
DG: That is true, but those shops are really there to facilitate a sale. They are not as customer-centric as we are, which might because our background is in primary. We have taken hundreds of people to Switzerland for factory visits, we have parties, dinners, events. We are Watches of Switzerland meets Watchfinder.
WatchPro: Can you tell me a bit more about the primary watch market in the United States. I am particularly interested given that the UK’s biggest retail group, Aurum Holdings, is expanding in America.
DG: Personally, I think it is good for the industry that Aurum is coming. I think that Brian Duffy is a great guy who knows his stuff. He will bring energy to the US watch market. The group will have a different owner one day, it might be a private equity owner, a Chinese owner, we do not know. The fact of the matter is that one year from today most likely there is going to be another owner. The company that buys them will need a good story, and Watches of Switzerland coming to the United States is a very good story, with a very smart CEO.
One thing that I do like about Watches of Switzerland coming to the United States is that they are going to need to be in pre-owned. The other thing they will learn from coming here is that Americans think differently to people in London. In London, the majority of the people, whether we are talking about cab drivers, waiters, people who work in hotels, they love watches.
When I go to London the people that clean my room are wearing a nice watch. In the States it is so far from that. The people working here do not have a nice watch because it is not so important to them.
WatchPro: Why is that demand not there, and why is it not being created?
DG: For some reason, the American Dream has always been to get yourself a house with a two car garage and a nice back yard where your kids can play. In a lot of these other places like London you are not getting your own house with a two car garage and a back yard, you are getting an apartment because it is so expensive. That means going out and having a nice watch and other nice things is more important. The culture in London is that everybody wants a nice watch. The culture in the United States is that maybe 5% of the people want a nice watch. So, when Watches of Switzerland comes here, they are going to depend a lot on tourists.
Buying Mayors was a good move, but I tell you where Aurum is weak: it is weak in technology. They are an old school retailer that is going to come here, open some pretty Mayors stores, put some nice watches in and believe it is going to work. I think it is going to be a little harder than they think, but I do think it is very good for the watch industry. I am very glad they are coming, because they will bring energy where Mayors and Tourneau and some other companies have negative energy. By negative energy I mean they are for sale, they are not doing so good. With Aurum you will get positivity and energy, and that can only be good for the industry that I care so much about.
WatchPro: Aurum is only focusing on New York, California, Las Vegas and Florida. Do you think it will have to grow into other cities and states as well?
DG: At the end of the day you can only go into markets where Rolex and Patek say OK. The question comes down to how far Rolex will allow him to roll.
WatchPro: I would assume that any future cities they go into will be through acquisition of existing Rolex dealers rather than opening up next door to them and trying to compete.
DG: The problem is that most of the stores are jewellery stores, so if he wants to be the guy who owns Mayors in Florida, Bob’s in Seattle, Govberg in Michigan, I would say that is not where private equity sees value. Retail is not being valued by Wall Street. He is moving into the States for a story; it is a great story if you are going to get sold but we do not know how the story will end. We do not know now whether he is going to look like a genius or a colossal failure.
Don’t forget, there are no more Rolexes around. It is not like he is in a position to go and get a lot more watches because Rolex will treat him differently. He is going to wake up one day in the middle of December with shops in all these malls, and he is not going to have any steel Rolexes.
The last thing I worry about is how I am going to compete with them. They are the best kind of competition because they are corporate. When you are dealing with rich people, not everybody wants corporate. People want relationships, and it is very difficult to have relationships with some person behind the counter who is earning $17 per hour.
But I think that the London market is great. I think that Mr Duffy is the real deal, he is probably one of the best entrepreneurs in the watch industry. I wish him luck because positive energy is a good thing.
WatchPro: Aurum Holdings is going to turn over around $1 billion this year if you add in the Mayors business to the UK.
DG: He is doing good. Don’t forget there have been some tremendous benefits from the weak pound since Brexit. I don’t know what happens to the business if the pound goes back to $1.40. There is also a reason that the business is up for sale now. Apollo is very smart, they buy when the market is low and they sell when it’s high.
WatchPro: Which is why it is surprising that the deal didn’t go through this year.
DG: A lot of it comes down to the contracts with the brands. When you buy Watches of Switzerland, it still only comes with a one year contract with Rolex. It is not like buying a car dealership where they cannot take the agency away from you.
Anybody that makes a half a billion dollar bet on buying watch shops like ours, you are betting that Patek and Rolex don’t change their minds and take away the agency. If they change their mind, you are out of business overnight.
WatchPro: That was illustrated with the purchase of Watch Gallery by Bucherer in 2017. Watch Gallery’s owner told me that the negotiation was always conducted as if Rolex was a third party at the table.
DG: It would not shock me — and I have no information to back this up — but it would not shock me if Bucherer bought Tourneau. Tourneau is much bigger than Mayors, it is a much better brand than Mayors, it is a nationwide business. Somebody is going to buy Tourneau, it has been for sale for the past two years, and Bucherer would be a good fit.
WatchPro: Or Aurum Holdings buying Tourneau?
DG: I think if Aurum was going to buy Tourneau, it would have happened already. They would not be opening stores in Manhattan if they were going to buy Tourneau.
WatchPro: How depressed is a typical family jeweller with a Rolex account outside of the major tourist cities in the United States?
DG: They are not depressed. If you have Patek and Rolex, you can think you are smart, but you don’t have to be that smart. A lot of those institutions have ten people, Patek and Rolex make sure they service the clients beautifully, they play golf in the neighbourhoods, support the local charities. If you don’t have Patek and Rolex it is a lot harder.
We appreciate having Rolex, Patek and 50 other brands, but our pre-owned business outsells our primary business by three-to-one.
Watchfinder has a terrific business without having any primary brands. It is probably one of the best-known businesses in London. Everybody must know them. Anybody that wants to trade pre-owned watches will know Watchfinder. But if they were primary, they would be huge because then people could go to them to trade a watch and buy a new one. The reason that hasn’t happened is because the brands don’t want it.
WatchPro: I have never asked Watchfinder whether they have tried and failed to get agencies with Swiss watch brands, but I know they’ve had to battle to be recognised and respected by the brands for the work they do to service, repair and make old watches look like new again.
DG: They are a pariah that is not a pariah. Maybe Watchfinder is like Uber, which is a pariah to black cab drivers but is worth $70 billion today.
WatchPro: What do you think will happen to the pre-owned market over the next five years?
DG: I think that the brands are going to have to get their arms around it. The brands are going to have to accept it, support it, and I think you will see within five years that every boutique in the world that the brands own will have to take trade-ins. If they don’t do it, they are facing a tsunami that is going to wash them away. The consumer is going to know that there is no difference if a watch is four years old or brand new. The brands had better make the acquiring of a timepiece, the owning of a timepiece, the selling of a timepiece and the buying of another timepiece fun.
In five to ten years, the pre-owned market will be bigger than the entire wristwatch market.
WatchPro: Watchfinder over here is now selling around £10 million worth of pre-owned watches per month. You can compare that to the whole of Swatch Group in the UK, which had turnover of £81 million in its latest financial year.
DG: That is my point, and that is just one company. You are not even counting all of the little guys.