The “Authorized” Dealer

The hierarchy of distribution of Elite Swiss watches is:

The Brand Manufacturer > The Agent for the U.S. Market (sometimes a separate entity or often a wholly owned subsidiary of the Manufacturer) > Appointed Authorized dealers for the Brand

The authorized dealer buys from the Agent and receives some advertising support and is provided a significant profit margin as incentive to promote and sell the watches from that brand.

If you can buy from an authorized dealer and get what you want at the price you seek, there is no reason to look further. You get the factory warranty and a direct line to the manufacturer’s service center.

If you can’t get the watch you want or the price you seek the warranty is of little importance. A manufacturer’s warranty covers little more than manufacturing defects and those are extremely rare, and in the event of a manufacturer’s defect of a watch purchased from a non authorized source, the watch is serviced by the service center on your behalf with no charge to you. Seamless.

A Brief History of Discounting

In the early 1980’s, the number of watch brands that were factually viable in the United States were six. Rolex, Omega, Concord, Baume & Mercier, Piaget and Patek Philippe. Any other brands in the elite category were fringe at best. Cartier was just launched and in it’s infancy.

The exclusivity that Rolex, Patek and Omega provided was sufficient to minimize the motive to discount. But the rapid expansion of the other brands created a category of retailer who was willing to discount in order to gain a larger share of the rapidly growing market.

A retailer who ran an ad to promote a reduced price or sale on prominent brands was sure to receive a call from the Agent seeking to either stop or prevent such actions from continuing to occur. This led to significant litigation and the intervention of the Federal Trade Commission seeking to apply the Sherman Anti-Trust Act to watch companies’ efforts to curtail discounting. Lawyers earned astronomical fees and the watch companies found less overt means of exerting their control.

It wasn’t until the mid 1990‘s that Rolex and Cartier regained control by cutting out nearly one half of their authorized dealers in one day and winning the subsequent litigation. This reestablished the legal right of the Watch Companies to sell their product to whomever they deemed acceptable and to remove the right for violation of agreed upon terms. Of course, discounting and transshipping (the selling of watches by an authorized dealer to non authorized dealers), were the violations, but this was never stated.

It is the issue of discounting that is motivating the hostility of the Swiss Watch Manufacturers towards the Internet. When the Internet was a mere shadow of today’s powerhouse, watch brands were formulating strategies to stop it as an avenue for the sale of their watches.

The Internet as Adversary

Any visit to a major Swiss Watch brand’s website will illustrate the posture of the brand towards the Internet. They all state quite plainly that any of their watches sold on the Internet are unauthorized and possibly counterfeit. This has had the effect not unlike whistling in a hurricane. The growth of Internet sales in luxury watches (just like all other products) is dramatic and accelerating.

The growth of Internet retailers and their influence on the market is significant. It is still a fraction of all luxury watch sales but the growth is remarkable and the future is bright.

The Reason Why

Today the Internet has dissolved many barriers for the consumer. This is a worldwide marketplace and the consumer wants service of a high order and delivery now, or as close to now as possible.

For example, the dollar is weak and the watch buyer in Germany or the U.K. knows that the U.S. market is a discount culture. He knows the exchange rate for his currency and he can sit at his desk and shop dozens of retailers to find the product and the best price in a few minutes. Once trust is established he can shop from the comfort of his own home and build a collection without having to drive to a shop with poor selection and too high prices. The U.S. market has long been the biggest market for most elite brands, and the rare and most desirable watches end up in dealer’s inventory more often than not.

In my experience many of the most sophisticated and informed collectors are buying on the Internet. The collector is leaving no stone unturned whether it is traditional brick and mortar stores, auction houses or Internet dealers

The best part of the Internet is that it is as close to instant gratification as is possible. No waiting for the next auction and hope that the particular watch you seek is in that auction at an acceptable price. No waiting for the authorized dealer to order and get the backordered model that just came out. And an Internet dealer wants your trade in and will provide a fair value and help you liquidate undesirable acquisitions.

Internet Drawbacks

Not all Internet retailers are trustworthy. For example, there is no such thing as “Certified Pre-owned”. Some Internet dealers that use the term have never done more than photograph the watch they tell you is “Certified”. Chances are they have the watch delivered to you sight unseen and by another dealer who owns the watch. They describe the condition but have not personally inspected the watch. Many times the watch is completely satisfactory but the fact that a pretense is put forward is cause for closer examination.

Most consumers are unaware that watchmakers record inside the back of every watch they service, their name and date of repair. It is an unmistakable recording of the work done by an artisan and is a point of pride that a watchmaker has done his job well and has signed his work. A cursory examination of the inside of the case will confirm any work done and when and the entire history of service is there.

The majority of Internet retailers have an iron clad return policy that protects the consumer against misrepresentation or counterfeit merchandise. Insist on this policy and suspect any firm that doesn’t provide such protection. The questionable retailer hesitates to provide assurances because they are acting as a broker for the watch you buy and they do not buy the watch until you have paid for it and a return means they will own the watch instead of you.

Rolex

Authorized dealers for brands such as Rolex and Patek Philippe are like royalty amongst a privileged class. In the largest watch retailers, that carry most of the elite brands, it is Rolex and a few other brands that represent 95% of their total sales. The market is in constant change but the constant amongst fine Swiss watches is Rolex. With a production reportedly 600,000 or more, Rolex unit sales and revenues are the lion’s share of the category of better Swiss watch sales. The sale of previously owned Rolexes exceeds the production of most of the elite watch manufacturers combined. It also should be stated that Rolex is the most counterfeited brand and there are more instances of fraud associated with Rolex than any other brand. We recommend the book The Rolex Report as vital information on all things Rolex including how to identify counterfeits.

Let the Buyer Beware

Authorized Dealers:

Try to sell you what they carry. No A/D carries every brand. Asking an A/D to compare what he sells with brands he does not carry is asking for misinformation.
Try to sell with as little discount as you will accept. The most in demand brands and models have the least amount of discount.
Many salespersons have latitude on discounting and the end of the month is the best time to buy. (The sales person may need last minute sales to achieve his goal for every sale positively affects his/her next check.)
Try to sell you products with a higher rate of commission (the best selling brands have the lowest commission rate and the amount of discount reduces the commission on the sale.)
The salesperson will try to sell products that have bonuses or spiffs attached.
Will often sell watches that are in poor condition or shopworn. (In my experience watches are often handled without proper care and many watches in the showcase have scratches and signs of wear.) Look closely with magnification.
Try to sell extended warranties to enhance their profit margin.
Frequently charge very high prices for routine service.
Employ skilled salespeople, some skilled in watches, most skilled in selling. If a salesperson isn’t skilled in selling, they will be selling something else soon.
If the store has its own brand, that is the most profitable product in the store. That is why there are “Private Label” watches. There is no competition for them in other stores. That is why Tiffany and Company no longer carries the most popular brands. They refused to compete on price and people got the idea their jewelry was overpriced as well. It’s not that they aren’t good watches or attractive, it’s that they rarely have any secondary value or are, with a few exceptions, worth about 25 cents on the dollar.

The Wizard of Oz

Internet retailers provide a more or less one stop shop for most brands. Numerous “Internet retailers” have significant inventories, and are often “The” place to look for the hard to find, much sought after watch. Many of the more recognized websites are the outgrowth of a love of watches and entrepreneurial expertise. Most of the dealers in the “secondary” market are self made men who have worked hard and smart to build a business. Like any other business there are many different approaches and a variety of ways to succeed.

Sometimes what appears as a huge company with thousands of watches pictured on their website is little more than the Wizard of Oz’s magnificent façade with a little man behind the curtain pulling the strings. Some, well known websites, have virtually no inventory or much less than you imagine.

If you ask for pictures of a watch from multiple angles, you can determine if they actually have the watch or not. If they don’t have the watch, they probably will not return your inquiry or they will provide a lame excuse, such as “our New York showroom (that doesn’t exist) is closed and the watch is there.

Some Internet retailers are brokers for watches from other dealers. There is a network of closely aligned brokers with tremendous resources. There can be little doubt that buying from a legitimate Internet retailer will provide nearly any watch at the best possible price and give you the best opportunity to find the really hard to find watch at a legitimate market value.

You must do your homework to find the Internet dealer you can trust. The majority are honest, conscientious and well established, but there are exceptions.