Richemont’s acquisition of Watchfinder for a rumored £250 million earlier this year has sparked a gold rush of companies looking to break into the pre-owned watch business. The market, which Bain & Company says is worth $17 billion, could double in size in the next few years if more consumers can be convinced that they won’t be ripped-off or disappointed when buying used timepieces. What’s needed is a stamp of authenticity and quality that’s as reliable as the Geneva Seal that adorns the finest Swiss watches, and Danny Govberg, CEO of pre-owned specialist Watchbox, believes he can create just such a trusted standard for the benefit of consumers and the fine watch trade.
The secondary market for luxury watches is confusing enough for luxury watchmakers with centuries of history, so pity the poor consumers that are asked to part with thousands of dollars for watches that they have never held in their hands and are sold by companies or individuals they have never heard of.
Spend five minutes on platforms like Chrono24 or Ebay and you will be offered mint condition watches — new and pre-owned — from thousands of sources across the globe.
These massive online marketplaces, which never touch the watches they advertise, are specialists at providing consumers with a way to browse and research hundreds of thousands of models. But, beyond checking customer ratings of dealers, there is little an individual can do to be sure the quality of each timepiece, whether it is exactly as described, or even if it has been stolen.
This hasn’t stopped Chrono24 claiming to be generating sales of over €1.3 billion in the past year through its marketplace. Ebay’s luxury watch business is even bigger, according to James Hendy, who oversees a new authentication service designed to build trust in pre-owned watches for consumers.
Danny Govberg, CEO of Govberg Jewelers in Philadelphia and co-founder of global pre-owned watch business Watchbox, is a fan of platforms like Chrono24 and Ebay because they give him access to an audience of millions of potential customers for his stock of pre-owned watches.
But at the same time he knows that the whole secondary market has to improve its image or forever be considered a poor relation to the primary market for brand new watches sold through authorized dealers.
“I love Chrono24 as a platform, but I also like the Watchuseek platform, I like the Rolex forum as a platform, I like my own Watchbox platform, I like Ebay’s platform, I like Amazon’s platform, I like Alibaba’s platform, I like Farfetch’s platform. I like every single platform because he who owns the inventory and creates the standard is going to win,” Mr Govberg says.
Right now Mr Govberg says Watchbox owns stock of pre-owned watches worth around $60 million, and he hopes to double that in the coming years. “My goal is for Watchbox to get to an inventory level of $100 million to $125 million. That will be one of the largest pre-owned watch inventories in the world,” he suggests.
The starting point for building inventory of pre-owned watches was trade-ins from customers coming to Govberg Jewelers, a luxury jewelry and watches business that has been in business for over 100 years and now has three stores: two in the heart of Philadelphia’s city center, and the third in the neighboring town of Ardmore. Among these stores, Govberg is an authorised dealer for over 30 brands including Rolex, Patek Philippe, Cartier, Panerai, Omega and Breitling. It also has accreditation to service and repair the watches it sells.
It is important to note that Mr Govberg, and three generations of his family before him, are steeped in the history of selling brand new luxury Swiss watches. He loves these brands, and has built up a loyal customer base for them on the East Coast of the United States.
This makes it all the more noteworthy that he believes the pre-owned business has the potential to swamp sales of new watches as consumers realise they can trade-in old watches for new watches or different pre-owned pieces. “Within five years every watch boutique 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. In five to ten years, the pre-owned market will be bigger than the entire wristwatch market,” Mr Govberg predicts.
Estimates vary for the current size of the pre-owned watch market, but the lowest figure you hear is $5 billion per year, and the latest report on the global luxury goods industry from management consultant Bain & Company puts the market at around $17 billion. What everybody agrees on is that the market is set to explode: doubling in size, then maybe doubling again over the coming decade.
Some businesses operating in the space are focusing on connecting buyers and sellers on global platforms that never take ownership of watches and merely broker deals. Chrono24 says it expects to see transactions worth around $1.3 billion on its marketplace this year. The world’s biggest marketplace, Ebay, says it is bigger.
Watchfinder in the United Kingdom along with Watchbox and Bob’s Watches in the United States have a different strategy. These businesses buy pre-owned watches from individuals or other retailers, service and repair them to bring them back to as near mint condition as possible, and then sell them again, often on the platforms like Chrono24 and Ebay.
Mr Govberg is convinced that, although the volume of watches he buys and sells is lower today than the platform players, his business is on far more solid foundations because he owns the inventory that the marketplaces rely on. The spread between his buy price and his selling price is healthy, even after the thorough checking, servicing and cleaning that restores watches to mint condition.
Watchbox and Govberg have not shared financial data on sales or profit margins from its watches, but Watchfinder in the UK, with an almost identical business model has published accounts for the year ended March 2017 that show a gross profit margin of 17.3% on sales of £86.65 million ($113m) and EBITDA of £5.8 ($7.5m) million. At the time, the business had stock worth £24 million ($31m). If Watchbox has twice as much stock as Watchfinder in 2017, you can do the math on what its sales and profits might be.
Mr Govberg feels he is only just beginning the journey into a market where the world’s biggest player could be trading in the billions of dollars. His next step is to convince retail jewelers that have been competitors for a century to join him on his quest. The pitch is that luxury watch stores will need to start accepting trade-ins from their customers, just as authorized car dealerships must today. It is inconceivable that a customer wanting to trade-up from a five year-old Mercedes would be told by an authorized dealer to flog the old car round the corner to a dodgy second hand trader then return with a bit of cash to put a down payment on a gleaming new model. The same will be true for luxury watches, Mr Govberg predicts.
“Primary dealers are going to take trades. You will find that primary retailers will start to take trades before they are necessarily even in the pre-owned business. They are all going to take trades because the customer is going to demand it. I take you back to the car example. Every primary car dealer takes trade-ins. Even primary dealers that do not want to sell pre-owned cars will certainly take trade-ins. They just liquidate the trade-ins,” he argues with characteristic certainty.
“What you are going to find with jewelers — primary dealers that have the big brands like Rolex and Patek — they are not going to tell customers who come in wanting to trade-in a watch that they should go to a competitor. The big change, which I expect to be within three years, will be that when customers go into primary dealers looking to trade-in a watch, those dealers are going to have to accept them whether or not they want to sell preowned watches,” Mr Govberg adds.
Primary dealers will not find this transition simple, not least because it takes an incredible breadth and depth of knowledge to give a customer the correct price for a watch they are looking to trade. This is where Watchbox steps in with a brand new app that it acquired in November called Chronofy. The Chronofy app, which runs on mobiles and desktops, gives basic values on what pre-owned watches are worth. The app pulls data from Watchbox’s system so that comes up with a price based on thousands of other watches it has bought and sold. The app is not perfect yet, but will improve over time as more and more data feeds into it. In the meantime, Watchbox has a call center of experts that a retail jeweler can call for advice and quotations.
“What we are going to do is try to become a solution for the retailer to take a trade-in quickly; get them the price so they can do the deal for their client. They send us the watch and we wire them the money the next day. The retailer then can give the full value to the customer. Most retailers are not looking to make money on the trade, they are just looking to give the customer good service,” Mr Govberg explains.
Watchbox will also offer a solution that can turn any jeweler into a pre-owned watch store by opening shop-in-shops similar to those of any Swiss watchmaker. “We are going to start opening Watchboxes in stores. Retailers that we feel comfortable with are going to be allowed to have a Watchbox boutique in their stores, just as they currently have a Breitling or Omega boutique in their stores,” Mr Govberg offers. That could be an in-store unit with cabinets of pre-owned watches, a consultation space where customers can browse Watchbox’s inventory on a screen, or both. “We will open up the Watchbox platform to retailers that want to work with us,” he adds.
In order to make this an attractive proposition for retail partners, Watchbox will need to guarantee the watches it offers. Even more importantly, it will have to convince retail partners and ultimately end users that they can trust watches from Watchbox as much as they would a brand new Rolex or IWC. Mr Govberg admits this is a challenge, but knows that the rewards for setting a standard for pre-owned watches will be transformative as it will distinguish his watches from the hundreds of thousands of others on the global market.
“I want to create a standard that people can depend on, that they are proud of an amazed at the condition. Doing that will separate our platform from others. If you look at Chrono24, their challenge is that there is no standard. If I buy a watch from there, it could come in ten different conditions. The jeweler I buy it from via Chrono24 may tell me it is mint, but somebody else might say that the strap is worn. If you see our watches, they are mint. A Patek from Watchbox, or an F.P. Journe, they are perfect. They have new Patek straps or F.P. Journe straps. You would not know that they are not brand new,” Mr Govberg claims.
The idea and the strategy are crystal clear in Mr Govberg’s mind, but he knows it will not be simple to convince retailers to work with him. That will take time and a sustained process of trying to educate the market on the pre-owned opportunity. What I need to figure out is how I go to retailers and provide them with a service that makes them comfortable working with Watchbox and working with customers trading-in and buying preowned watches,” he admits.
“I believe that, as more articles are written and understanding increases, consumers will know that there is a pre-owned alternative out there. The customer is going to want that service,” he predicts.
There is another hurdle to overcome, WatchPro suggests: the brands that work with primary retailers will not want to see pre-owned watch sales cannibalize new watch sales unless, or until, they have developed their own certified pre-owned plans. Mr Govberg has an answer for this as well, and it all comes down to price. “One of the problems the brands are going to get into with certified pre-owned is that they are going to try to sell their watches at a lot higher price than the real market. Not a little higher, a lot. It is going to be hard for Audemars Piguet to offer pre-owned watches that are 45% below retail prices. And, don’t forget, even with AP there are hundreds of thousands of their watches out there. They are not going to take all of them into their system.
“Think about this: you can take a regular Audemars Piguet perpetual calendar from 15 years ago in great condition; a really beautiful watch in gold. You can buy that for $12-13,000. A new one is $50-60,000. I do not believe AP is ever going to want to sell a certified pre-owned perpetual calendar for $17,500. They have to understand that consumers will set the price.”