It might be best to sit down before you read any further. The disruptive, potentially revolutionary B2C retail ideas of Cambridge-educated Chronext.co.uk co-founder and CEO Philipp Man are certain to surprise if not shock, as are his views on existing bricks and mortar retailers.
Chronext was founded just two years by Phillip Man and Ludwig Wurlitzer in a flat in Maida Vale as an online marketplace for luxury watches. It recently closed a $5.3million US round of funding from venture capitalists, employs a team of 60 in Germany, Switzerland and the UK and has just opened its first bricks and mortar store in London.
Grey market chatter is usually anecdotal or quietly whispered; Man and Wurlitzer have shaped the concept of ‘unofficial channels’ into a potentially rampant B2C business model.
“We are a middle-ground between Chrono24 and Watchfinder.” Man explains frankly, sitting in back office of the new store on London’s Piccadilly. “Most of the stock you see here is not ours, so we sell it under consignment for different authorised and used watch dealers anonymously and discount it quite significantly. We take care of the pre-sale service, after-sales service, logistics, payment and authentication. So essential our premise is that you have the same experience as you have with a normal ecommerce business like Mr Porter or Watchfinder but with the benefits of a Chrono24 in the background.”
The important word there is ‘anonymous’. Grey market might be legal but brands will, at the very least, make a lot of noise about shutting down these back channel dealings and rattling the sabre of revoking accounts. Man states that Chronext currently has a network of 500 dealers worldwide and access to some 10,000 watches at any one time.
“The UK as a supply market is less interesting for us for the simple reason the prices are quite high,” states Man. “But that’s also one of the reasons why we are so successful here because A, you have the currency arbitrage here and B we have a very wide network of European and worldwide dealers. So as a result we come here with much lower prices and I think it’s difficult for UK dealers to market their stock internationally. But what is quite interesting, the fact that they can sell anonymously through us means many do sell through us at cost just to keep cash flow going. So we help UK dealers as well but it’s not our core business.”
Around 90% of Chronext’s business is handling the sale of these ‘Unworn’ watches on behalf of dealers, the other 10% are a combination of watches bought from private individuals or commission sales on behalf of private customers.
Chronext host the sale and take payment. The company then picks up the watch before checking it and issuing a certificate of authenticity. The watch is then repacked and sent out to the customer and, as long as they don’t return it within 14 days, Chronext then issues payment to the seller, minus a commission.
Host it, take the payment, pick up, authenticate and issue certificate, repacked, gift-wrapped with handwritten thank you note and goes to the customer and if they don’t return it within 14 days Chronext issues payment to the dealer minus a commission.
“It meant we had to become experts in logistics, we didn’t want to but we had to.”
The new store on London’s Piccadilly is the business’ first bricks and mortar store in the world but it is also likely to be the businesses only retail location in the UK.
“For us the key business is still online,” says Man. “We [want to] use different key locations strategically to enhance our online experience. We will expand into the US next year, so there’s a high chance that we would open something in New York and LA or San Francisco perhaps, but we wouldn’t start opening stores in Washington DC etc. It creates a lot of trust and it helps online conversion, but our premise is still that we can offer most value to the customer as an online business and store is just an extension of the online experience.”
Man has a rather unusual approach to selecting retail locations, perhaps a symptom of his unusual business model, but he assures WatchPro that he selected the Piccadilly store because it wouldn’t be able to break even on footfall alone.
“We wanted to force ourselves to use all of our online capacity to drive people offline. When you have a location like Burlington Arcade, which just drives people, you get lazy and I think it’s very dangerous not to use the benefits which we, as an online retailer, have like the network, the email addresses, the 10,000-15,000 customers that we have in the UK to get them to come here. If you’re just on Burlington Arcade it’s going to work anyway, but here you really have to work for your customer and that’s why we chose it.”
Man has a digital shop front planned for the new store with screens featuring a live feed of the watches on the website “to really reiterate that we are an online business and to advertise that we are Chronext.co.uk, people need to know clearly that it’s a domain and online business. That also creates more curiosity.” Man describes the store as ‘a giant billboard for us’.
Despite being based in his native Germany, Man spends one or two days a week at the store to remain in touch with the customer experience. Within the next two years he hopes to be able to grow the business to employ 200-300.
The company’s most pressing recruitment issue is the need for 15 additional watchmakers at its Cologne service centre. Chronext services 10-15% of the watches it handles when they arrive in a condition different to that described by the seller, “We bill the dealer so it is a clean, seamless experience for the customer”. It also currently receives 25 requests a day to service to carry out servicing independently and Man admits to being hugely under capacity in that regard.
Man and Wurlitzer’s business model drags the grey market kicking and screaming out into the light of day, offering legitimacy to the secretive practice of back channel selling that it sure to publically enrage watch brands. But the fact that certain brands have authorised Chronext’s service centre to work on their watches and others have started working directly with them suggests they might not be too upset.