Coronavirus will speed up the process of online players replacing traditional retail, predicts Tim Stracke, CEO of Chrono24. At a time when the majority of luxury watch shops are closed around the world, consumers are searching and shopping online, and this could be a behavioral change that lasts beyond the current emergency. Chrono24 has mined its massive volume of data covering browsing behavior, transactions, listings and prices and uncovered a strong correlation between countries. In almost every case, activity falls when populations face rising numbers of new cases and government restrictions on movement, but bounces back once authorities appear to be bringing the situation under control.
WatchPro: Can we start with a quick update on how Chrono24’s business is looking, both over the past year and the past year and recent weeks since the Coronavirus pandemic emerged?
Tim Stracke: Until a few weeks ago we saw very little change, and we were experiencing a +30% yearly growth in transaction value of watches being sold through Chrono24 that was continuing into this year. As the crisis really hit, people have had much more important things to think about than buying a luxury watch. They were caring for their loved ones, making sure everybody is safe. And that’s a good thing.
The amount of products being listed on Chrono24 is pretty stable. When we look at transactions taking place, we are hearing from the luxury industry that sales have dropped by 80-100% for retailers, which is a catastrophic drop in demand. That is quite different to what we are experiencing, which is more like a drop of 15-20%, shifting us back to where we were in November 2019, and we are seeing quite a quick recovery in certain markets like Italy and Spain.
We witnessed a rapid downshift, pretty much globally, which is continuing up until right now. There is already a recovery in places like Hong Kong, where we see that the virus is more under control than in other parts of the world. Hong Kong has already returned to the level they had four weeks’ ago. It might also be the case that people from Hong Kong are more resilient at times of crisis due their experience during the Hong Kong protests.
WatchPro: Are you seeing different behavioral patterns as countries move from the early days with small numbers of infections, through rapid increases to the numbers that prompts government action like shut-downs and social-isolating, and then another shift when numbers start to fall and confidence starts to return?
Tim Stracke: We see sharp declines in the first 5-7 days. The way we read the data is that people are super-concerned during week one and probably thinking about friends and family. I am sure that their stock portfolio might also be checked first before they look into their watch portfolio.
The downturn for us was immediately around minus 20%. After 10-12 days, we see the first signs of recovery in most countries. Germany is almost back to a pre-Corona level, in the US we see first signs of recovery as well. But the patterns are different in every country. UK, for example, has not recovered that quickly.
Looking a little deeper at the data, we see that the requests for watches priced at the wide range from 0 up to €10,000 are hit harder than for watches in higher price segments.
The market for the hard to get watches from €10,000 to €20,000 above are already recovering; maybe people are hoping they will finally have an opportunity to get their hands on one of the unicorn timepieces.
WatchPro: On the business side, there is a lot of concern that the grey market will flourish again as retailers look to keep stock turning when there are no customers coming into their stores. Are you seeing any upturn in retailers dumping right now?
Tim Stracke: So far, we do not see the markets being flushed with grey offers. Looking at offers, we even see a reduction of 5% in new watches being listed. But it might be too early to tell. Many production facilities are even closed right now.
When we look at geographies, we look at it from the sell side and the buy side. For example, in Italy, the purchases have gone down by 20% before starting to recover. When we look at Italian sellers, which is a different situation because 70% of our sales are cross-border, they are in a sharper decline but we also see first signs of a recovery here.
In some countries we have heard from a small number of dealers that are suffering from problems with transport and logistics. Some couriers stopped accepting signatures for home deliveries for safety reasons, which has affected insurance cover on those packages and made it too risky to dispatch high value items like watches. In a limited number of cases this is an issue, but our customer service team is supporting them strongly to satisfy dealers and buyers. On a global view, deliveries seem to be quite unaffected. When we look at our overdue shipment rates, we do not see any adverse effects.
WatchPro: Can we put this discussion in context for people outside the secondary market, and so people can understand what lessons might apply to consumers and primary market businesses. I’d like to focus on what you believe you can see in your data that is either a result of what is happening in the primary market or that might be affecting the primary market now and in the future.
Tim Stracke: We probably have far more current data on the watch industry than anybody else. We see purchase desires of millions of users world-wide, purchasing behaviour, we see selling behaviour, we see the number of offers, we see many tens of thousands of transactions every month, including the final price that is negotiated on each sale. Through our watch collection feature, we even know what watches people have in the drawers at home.
So, yes, we have a lot of data and we have a super-smart data science team that extracts meaning out of the data.
In a situation like we are in today, we are open to share that data to everybody that can use it to enhance their own strategies. We all want this industry to recover as quickly as possible. If our data can help to make wiser decisions, we are happy to share it.
WatchPro: Putting that to the test, if I were to ask you about the world-wide business for Rolex watches, what could you tell me about the primary market? We believe Rolex makes around one million watches per year. Would you be able to say, looking at your data, where demand is strong, where it is weak, which SKUs are generating waiting lists and which are selling slowly, what is the typical stock turn for individual models? Would you have sufficient data and analytics to answer any or all of these types of questions?
Tim Stracke: We have 20 million visits per month on our platforms, around 10m unique users. We generate a six-digit number of purchase requests in any given month. More than 20,000 watches are being purchased using Chrono24 each month. Watches and transactions are tracked by their reference ID. So, we cannot only tell you what the share of Rolex Daytona is per country, we can also tell you the share by different references of the Daytona or measure it against any other watch like a Nautilus or a Royal Oak. This is very interesting data, and something that is very important for the watch industry. Some brands already use our data to enhance their decision making. Knowing that in a certain territory, customers like a particular material more than in another territory is important information for getting distribution right.
WatchPro: What do you know about the buyers?
Tim Stracke: Buying a watch is not a click-and-buy exercise. It is often a journey of many months or even years. Buyers search forums and blogs, ask friends and their social network, go to stores and ultimately buy. We are seeing an average of 30 to 40 different unique visits on our sites or apps before a purchase takes place. We learn a lot during this journey and can help users to make the right decision.
WatchPro: Are you seeing prices changing in any important ways through this crisis? Chrono24 is an almost perfect bellwether for the watch market because if supply exceeds demand for any particular model then prices fall; and if demand exceeds supply, then prices rise as we see for the unicorn watches.
Tim Stracke: Over the past three weeks we have seen moderate increases in both price reductions and price increases on the platform. However, these changes are limited to a few sellers. In general, we have not seen prices going down, yet. Unfortunately, asking prices for unicorn watches are still at a pretty high level as well (smiles).
WatchPro: So, despite sales at retailers dropping by an estimated 80%, and the fact that you see activity falling for a week when an outbreak gathers pace and then improving after 10-12 days, you are not seeing prices dramatically affected through that two-month period?
Tim Stracke: I think we need a few more days to look closely at the data on this. What I can say is that in Europe the crisis is a few weeks old and we have not seen prices going down.
WatchPro: One of the real dark arts of data science is that by studying the past, you can predict the future. Does the current crisis make that impossible because things are changing so fast so normal models do not apply?
Tim Stracke: Right now, the biggest decisions are being made by governments, which are affecting almost everybody in the world. Nobody knows what is next from governments, Spain has curfews being enforced by the military. They now even asked the NATO for support. Stock market reactions have a huge effect. We assume that when stock markets are in such sharp decline, the last thing collectors are thinking about are their watch portfolios, but once things calm down — and there is evidence from Asia that this could happen in the next few weeks — then for a lot of people, watches are an important asset class, so we expect them to come back to the watch market.
At such a volatile time, it is difficult to predict the future, even using our data.
WatchPro: I assume that also many of your dealers are in a difficult situation right now. How do you help them in such a crisis? And how is Chrono24 getting through the crisis?
Tim Stracke: We are having many discussions with our dealers, many of whom depend on us for their livelihoods. Part of those discussions is about how we might provide financial support to our dealers.
That support is very significant: We have reduced the price tag for monthly dealer packages by 35% for April and May. Among other measures the recently announced increase of the commission fee has been postponed. All our measures to help our dealers costs us a seven-digit EUR value in revenue.
Dealers in more dire financial situations are welcomed to contact us directly, we will look for individual solutions in order to strengthen our close partnership. In times like this the online sales channel is the most important source for revenue for our 3500 dealers world-wide. We want all of our dealers to not only survive this crisis but coming out of it and benefiting from the expected increasing demand in online sales after the crisis.
We raised capital last year and the main reason for that was not that we needed money at the time, because we are profitable, but because we wanted to be able to weather any storm. At the time, I could not have expected a crisis like this to hit so hard and so suddenly, but we are financially very stable. We have a lot of liquidity reserves because we have not spent the money that we raised last year. Now we intend to use that money to ensure that the Chrono24 platform and our dealers are secure and grow within the crisis. Most successful companies have withstood more than one crisis. Amazon e.g. has survived the Dotcom crisis in 2001 and is now among the 5 most valuable companies.
WatchPro: Do you think that the secondary market could end up a net beneficiary of the current crisis?
Tim Stracke: I definitely think that online sales will not only grow strongly during the crisis, but also after the crisis. Right now, everybody is in shock, and I would certainly not encourage anybody to be looking for luxury watches right now. Look after your loved ones; that is far more important.
But once this passes, I am sure a lot of people will go back to their passion of watches. If the stores are not open, they will look online, and from there they will learn that browsing for watches from a sofa or on the go can be a much more pleasurable experience than they realised.
I am very confident that online sales will benefit from this situation. Amazon is hiring 100,000 people in the middle of this crisis.
Do I think that pre-owned will benefit? Probably in the sense that many more will start browsing sites like ours and they will realise that buying pre-owned can be more comfortable than going into a store. They will also realise it is much safer than they thought with so many companies like ours offering authentication or escrow services and other protections to customers.
In general, I am very optimistic about the luxury watch business as a whole. At times of crisis, buying luxury is not the first thought. But soon after the dust has settled, people ask themselves how they can weather such a storm. And in economically unstable times, people prefer to hold real assets. We have all seen what has happened to stock markets, which have fallen by 30%, but that is not the case with watches. If I had all my money in Rolex, AP and Patek Philippe watches rather than stocks or bonds, I would be a lot wealthier right now (smiles).
WatchPro: Let’s finish by talking about what your data is saying about the relative strength of brands. I am sure we would agree that the likes of Rolex, Patek Philippe, Audemars Piguet, Richard Mille and others are going to weather this storm better than others. The groups also have the deep reserves to survive through dramatic drops in sales. What about independents, some of which you work with directly as an authorised dealer for new watches, do you think they will make it through?
Tim Stracke: In a situation like this it is tough for everybody. It is tough for the big groups and small independents. At this point, I do not even want to name certain brands or categories. The luxury watch industry as a whole is in a tough situation, but it is a segment that reacts very fast at times of crisis. It drops very fast and it recovers just as fast and catches up once people have calmed down and realised that the world is not ending. This is particularly true for passion products like watches.
For this reason, I am confident that most brands will recover. It will be a very difficult time for anybody without significant cash reserves, but I do see a path through to the other side. After many weeks of globally closed retail stores I am 100% sure that even more brands will consider selling online. If the stores are closed long enough, we will even see Rolex opening an online store – but this might need another crisis.
WatchPro: You mentioned that the luxury market as a whole has seen sales drop by 80% or more. Do you think the same is true for luxury watches priced at, say, €3,000 and upwards?
Tim Stracke: I would say so, yes. If you look at China, luxury sales were down 80-90% two or three weeks ago, but the most recent figures are showing that sales are already back to the same levels as one year ago, so flat year-on-year now compared to down 90% a few weeks ago.
But we also have to factor in that people in China cannot travel right now, and a lot of purchases around the world are by Chinese nationals visiting major hot spots like London, Paris and Switzerland. Brands might see China recovering but there is still a significant hit to sales in Europe because the Chinese are not shopping here.
I am very confident that we will see activity return within weeks or months, but I do think we will then face a significant recession that will not pass as quickly. There are question marks over whether European banks will hold, whether the euro will hold, how much money will be pumped into the market by central banks, will there be inflation or deflation? These are big questions.
In a difficult economic situation — and I should stress that I am not an economist — I think the right watches will be a very interesting asset class.
WatchPro: Do you not think it is possible that the sales lost during this crisis may be lost forever?
Tim Stracke: We are not the same as the airline or hospitality industry. If people do not take a flight or eat out at a restaurant, that business is lost. Watches are different because, even if a shop is closed for several months, you can buy online or wait until the store opens again to buy the watch you have always wanted. We see that the buying journey often takes 6 to 12 months. On the other hand, we cannot foresee the effect on the industry of the upcoming economic uncertainty and unemployment.
In the mid-term this industry will rebound, and we are already seeing first signs of increasing activity. We are certainly seeing evidence that people are seeing this crisis as an opportunity to buy unicorn watches if there is better availability. If people start thinking about unicorn watches, that demand could spread to other models and brands.
WatchPro: So what do you think will last from all this once the dust has settled and the crisis is over?
Tim Stracke: First of all, I deeply hope that all of this will be gone quickly without too much suffering and pain for everybody. Then we will realize that the digitalization of an entire population has never been as fast as in the last 3 weeks. 50% of all students globally are studying at home, many of them using online communication. And a significant part of the global workforce is working from home using video calls and cloud solutions. Not only at Chrono24, but also at many other businesses the experience is very promising. While the stores are closed people continue purchasing online. Buying and selling online globally has become the common understanding of how watches but also other goods are traded. This may sound hard, but the Corona crisis will even speed up the process of online retail replacing traditional retail. All of this will have a lasting effect on the society. And most of it for the better.