The used car market is enormous compared to sales of new automobiles, but while the watch industry follows a similar model it is not as popular a concept. Rachael Taylor meets the team at pre-owned watch retailer Watchfinder to find out more about their plight to champion the wonders of selling second-hand timepieces.
When a customer drives a brand new car off the tarmac of a dealership, somewhere hiding behind the smell of fresh leather and air freshener there is that little suppressed niggle that tells them as soon as those bouncy new rubber tires hit the road they will have lost up to 20% of the money they have just paid.
The car, despite being in exactly the same condition as when the keys were handed over two minutes earlier, has been rendered to wholesale price instantly. Within 10 seconds of signing for that new vehicle, its status has downgraded to used.
Because of this, it is understandable that the used car business in the UK is vastly larger than the trade of new cars. While there has been more fluctuation in used car sales than new, which has remained pretty constant, hovering between 2 million and 2.6 million a year in the first decade of the new millennium, sales of new have never shown any sign of catching up with sales of used.
The latest figures, from the Centre for Automotive Management at the University of Buckingham Business School, show that in 2010 6.6 million used cars were sold versus just 2.2 million new cars.
If you are wondering why you have just spent four paragraphs reading about used car sales in a watch businessmagazine, the answer is this – the luxury watch market is not wholly different to the car market. When a watch is bought new the price is high but as soon as the customer leaves the shop the resale value of the watch drops, as much as 40% according to Watchfinder director Matt Bowling. Meanwhile the value of pre-owned watches, bought second or third or fourth hand, can often increase, or at least hold up to 95% of their value.
And just like the car market, the split between sales of new watches and pre-owned is in favour of pre-owned. Bowling has spent the 10 years since the launch of Watchfinder compiling sales data, which he has matched with data on the new watch market from analyst GfK, to try and build up a picture of the UK pre-owned watch market. He estimates that the pre-owned watch market in the UK is now worth £700 million a year with 2.7 times more pre-owned watches sold than new, with the average price point of a pre-owned watch sitting at about £3,000.
The differentiating factor between the car retail industry and the watch retail industry is that margins on used cars are far higher than new – major manufacturers such as Ford will only give car dealerships a guaranteed 6% markup that fluctuates based on deals struck and volumes sold – whereas margins on second-hand cars are not set and so can be as high as the dealer thinks they can get away with. Therefore, it is in a car dealer’s interest to sell more pre-owned than new.
For watch retailers, the margins gained on new watches are much more attractive than pre-owned offers so the prerogative is flipped.
But pre-owned watch sales don’t have to be gained at the expense of new watch sales, according to Bowling; they can in fact lead to new sales that would not have been made otherwise by advising shoppers on how to trade up using buying and selling pre-owned models to get to the new watch of their dreams (for a step-by-step example of this see p20).
It is a strategy that Northampton retailer Steffans has already been working on. The store sells pre-owned watches from the likes of Rolex, TAG Heuer, Cartier, Panerai, Breitling and Dior and is offering its pre-owned watch customers a guarantee that it will buy back watches at the same price as it sold them for when they are ready to trade up to a new model. For example, a £2,000 pre-owned Rolex bought by a customer today can be traded in for the same £2,000 against any other watch of equal or greater value in the future, a guarantee that owner Steff Suter says has been made possible by the soaring price of luxury watches, which has been driven by a strengthening Swiss franc and rocketing precious metal prices.
By adopting this strategy retailers can offer shoppers a way to wear a nice watch as they save for the dream watch. While wearing that £2,000 pre-owned Rolex they can put cash aside until they are ready to trade up to, say, a Panerai for £4,000, which will only cost them £2,000 when trading in their Rolex, and so the strategy can flow onwards with the customer jumping up in increments of £2,000, or whatever denomination they wish to increase by, until they have reached the new watch of their dreams. It softens the long wait of saving as they will always have a watch to wear while doing so, and by this regular repeat business it allows retailers to cash in on that little bit of margin each time, therefore making regular chunks of money along the way before being rewarded with that magic margin on the final new watch purchase.
This ladder strategy is being promoted by Watchfinder through its pre-owned retail website – although the end prize is not a new sale as the retailer does not deal in new watches – and business is booming. The site sells 6,000 watches a year and expects to haul in £16 million by the end of the next financial year; figures that it says equate to a 2.6% volume share of the UK watch market.
“Some people still have a stigma about pre-owned but give me five minutes in a room with them and I can get rid of it,” says Bowling.
Although historically the company has only sold online, it is soon going to branch out into bricks and mortar with the opening of a store on London’s Bond Street, nestled amongst the raft of luxury watch brands that the street is home to.
It is also launching its own customer magazine and a Watchfinder customer club that will host events and allow some of its shoppers to rent watches for special occasions. All these little tweaks to the business are being made to better serve its customer base, but that market is already completely engaged with the retailer – it has a newsletter that 175,000 people have signed up to, with 40,000 of those active customers. What it really needs to focus on is its B2B model that it hopes will lead to it becoming the number one source for pre-owned watch wholesale.
Watchfinder has had numerous discussions with watch retailers about the role it can play in buying in watches sold to those shops by customers and also in supplying pre-owned watches from its HQ to retailers.
But dealing in pre-owned watches can be stressful, particularly for jewellers that do not specialise in the area, as the buying and selling of pre-owned watches involves a lot of valuation, but Watchfinder believes it has found a way around this.
For the past six years it has been building a computer-based app called the Glass Guide that will allow even the most untrained of Saturday assistants to instantly value a watch. The app works by tapping into Watchfinder’s database and allows retailers to tap in a few details of the watch brought to them by a customer and then use its library of 10,000 watch images to pick the one closest to the watch presented to them. Once they have done this Watchfinder will give them a preliminary quote within two minutes that they can offer to the customer. The watch will then have to be sent to Watchfinder for authentification but this can be done next day.
“There is a lack of ability to authenticate and value watches [but we can offer that],” says Bowling. “Rolexes are almost the easiest to do because they are well known, but we deal with 72 different brands.”
This vast array of brands would be an impressive offer for any watch retailer. Due to the politics of the watch supplier-retailer relationship, it can be difficult, nigh on impossible, for a retailer to stock all the brands they want, but in the pre-owned market there are no restrictions and retailers can stock any brand that takes their fancy; another key reason for retailers to tap into the pre-owned market, according to Bowling.
“The wriggle room that retailers have with [new watches from] brands is nothing,” says Bowling. “But there is a freedom that we have because they all belong to us. I can put a Breitling next to a Gucci if I want to.”
While he is momentarily flippant about the brand control situation, Bowling desperately craves cohesion between Watchfinder and the big watch brands. “We want to work with the manufacturers and have them engaged in the pre-owned market,” he says. “A preowned watch is as much an brand ambassador as new.”
To date Bowling has found the luxury watch brands rather prickly on the subject of working together. While he has been granted meetings with some of the tops suits, they are yet to buy into his vision of a united new and pre-owned watch industry.
While Watchfinder doesn’t need the big brands to build up a stock offer, what Bowling does want from them is approval. His dream is for Watchfinder to become an approved pre-owned dealer. “In the luxury watch market we are the biggest shop window in the UK,” he says. “More people look at our site than the fine watch brands. We sell £1 million of Cartier watches a year. It is an opportunity for them.”
Back in the car industry, approved second-hand dealers are standard but in the watch market there are none, and if Watchfinder’s figures are to be believed the industry could be missing a serious trick.
New watch prices are continuing to escalate and disposable spending continues to be strained, so with a little bit of education more shoppers could be convinced to try the pre-owned watch market, and in turn – with a little help from companies such as Watchfinder – retailers could find themselves opening up a whole new revenue stream with more volume, more freedom and less risks made holding stock.
This article was taken from the March 2012 issue of WatchPro magazine. To read a digital version of this issue online click here.