Last week, WatchPro reported the comments made by James Dowling at the Dubai Watch Week about how watch brands are turning their service arms into profit centers, and the harm that is causing to collectors. Anthony Cousins, managing director of independent watch parts parts wholesaler Cousins UK, now broadens the issue to show the inter-dependencies between each level of the market, and how the thinly disguised policy of the watch brands to kill off competition at all levels in the market should make even the major retailers worry about their future security, and have watch owners seriously concerned about the true value of their collections.
Watch buyers range across a spectrum from the super-rich brand obsessed that care only for image, to the dedicated collector fascinated by every nuanced technical detail of the latest iteration of 300 year old technology. The majority of us sit somewhere in the middle, and a key component of our buying decisions is the likely resale value of a watch we fancy. Despite a political climate of austerity, the market for quality watches has bucked the trend and been on the up for a number of years, a proper “bubble” that any economist would spot a mile away.
Speculators love a bubble. Their only interest is profit, and when the bubble bursts, they are long gone. The problem for serious collectors is how to protect the value of their assets, and that means turning a bubble into a stable multi-level market where new entrants can start small, and become the next generation of enthusiasts.
Without that base level of access, an unstable vulnerable market exists, with a pending crash being the inevitable consequence. It is therefore really important that collectors keep a weather eye on what is going on in the watch world as a whole, and take positive action against any market restrictions that affect competition at any level.
Consider for a moment the structure of the Classic Car market, where there are obvious parallels with the Classic Watch world. Anyone even with limited means can become an enthusiast. A $100 rusty 1970s Ford Pinto gets you a seat at the table, you don’t have to start with a Lamborghini.
The reason a $100 Pinto is a viable entry into the market is because there is a huge network of wholesalers that can supply every part and panel that the market needs. There are also a plethora of books, videos, and training courses where anyone can learn the basic skills needed to turn a $100 wreck into a concourse winner. If an owner doesn’t want to do the work themselves, there are thousands of independent repairers happy to take on all different levels of work in order to meet the customers’ needs and available funds.
And then there are the spin-off benefits. What starts with a Pinto progresses on up the brand hierarchy, and provides the demand in the secondary market that in turn maintains the value of the cars owned by the more wealthy collectors. In addition, the most ambitious and talented young enthusiasts become the next generation of trainee repairers and restorers, and the best of the best work their way up from fixing basic models to working on supercars and high end classics, once again helping to maintain the asset value of the high end collections. Whilst some independent repair companies specialize in a very limited range of high end brands, the fact that wholesalers supply any repairer means that those working on the lesser value brands can still make a good living supporting that end of the market.
The prices for Classic Cars fluctuate as you would expect in any such market, but as a general trend they have risen steadily, and the overall market structure is stable and robust, which in turn makes collecting and enjoying classic cars a reasonable financial risk. But now look at what is going on in the Watch world.
For the last 35 years, the brands have been increasingly restricting the supply of spare parts and killing off the independent repair trade that mostly services the lower end of the market. There is no access for a young novice collector to get into the bottom end of the market, because whilst there are plenty of cheap old watches out there, there are no parts available to fix them, no accessible schools for the novice to learn at, and no viable network of cross brand repairers for the young enthusiast to turn to. The handful of wholesalers left have also been cut off from parts supply, and are propping up the last of the independents with whatever historic stocks they have on the shelves. No one new is coming into the trade, and even the high end brands are having to ditch the idea of skilled repairs in favor of movement swap outs, and semi-skilled individuals working a production line repair methodology.
How come the Classic Car market is stable, when the Watch market isn’t?
Couple all of that with a fashion and brand image driven market at the upper end, where speculators and flippers are driving prices ever higher, and you have all the warning signs of a bubble that is about to burst. When you get brand advocates of the caliber of James Dowling (a man who literally wrote the book on Rolex) openly questioning the cost of ownership, it’s time for all collectors at all levels in the market to sit up and take notice. I have every sympathy for owners of $10,000 watches who are being relieved of almost 10% of that figure for a service, but spare a thought for the owners of watches that cost $750 who are being asked for upwards of 50% of that amount for the same thing.
So how come the Classic Car market is stable, when the Watch market isn’t? In the car market you have open access to all parts, and free and fair competition. In the watch market, the reverse is true. It all comes down to consumer pressure and the proper application of Competition Law. In the car market, when manufacturers tried to restrict parts sales to main dealers only there was uproar from consumers. The independent trade organized itself into a powerful association that lobbied for the law to be applied. It was rewarded with a European wide regulatory ruling that obliges manufacturers to supply parts to wholesalers freely and on fair terms, so that the independents can compete at all levels in the market.
Conversely, the watch collectors have kept too quiet for too long, and have not understood the consequences of allowing the brands to strip out competition at the lower end of the market. The trade associations have not garnered the resources and support that they should have done in order to stop the anti-competitive behavior, and the brands have been able to use all sorts of bully boy tactics to control every aspect of the market, and in particular to corner the service and repair market at far greater cost to the consumers. The crazy part is that exactly the same European wide Competition Law governs both the car and the watch markets, it just isn’t being applied to both in the same way.
So now consider in the same way the retail market for watches, even to the very highest levels. Small independent outlets have been progressively culled for many years now, and the major chain retailers have convinced themselves that their position with the brands is perfectly safe. But is it really? Just look at the ever increasing number of brand specific outlets that are popping up all over. Why would manufacturers want to give margin to the retailers if they can get away with keeping it all for themselves? They have managed to dismantle the independent repair network, so why wouldn’t the same tactics work in the retail sector.
When Cousins UK sponsored the 2015 British Watch and Clock Makers Guild industry conference (where anti-competitive practices were top of the agenda), we invited all the major retailers to attend, but only two did and the delegates were from the after sales side of the business.
Cousins UK has been in a legal fight with the Swatch Group for the last three and a half years in an effort to maintain competition at all levels in the market. It has not been easy to get the column inches to explain to the market as a whole why this fight is so crucial for the future, so I am obliged to James Dowling for starting this conversation, and to WatchPro for giving it the platform to be aired on.
It remains to be seen whether this article resonates enough with collectors and major retailers, and whether or not they are motivated to protect the value that they have generated. If not, I fear it will prove to be the lack of availability of a winding stem at the low end of the market, that ends up bursting the bubble at the top.
About the author: Anthony Cousins is managing director of Cousins UK, an independent wholesaler of wholesaler of batteries, watch parts, tools, books, watch straps, watch bracelets, jewelry findings, restoration consumables, equipment and clock parts.