Overview of Secondary Watch Marketplace/Part I & II

As dealers in new and pre-owned high-grade wristwatches, we are often asked: "What is the value of this watch?" Believe it or not, there is no simple answer to this question. The most popular response, of course, is: "It is worth whatever someone is willing to pay for it." Another common retort might be to ask whether the watch is being bought or sold, consigned, wholesaled, or retailed. Yet another response, especially when it comes to pre-owned watches, is: "Well, it depends on the condition of the watch in question." Some things that may or may not be obvious, but are worthy of exploration, are these basics.

1. A new or pre-owned watch's value is not a constant -- there are always variables involved, even when it comes to brand-new watches.
2. A watch's value depends on its condition or grade. Even with brand new watches, for example, there is a difference between LNIB (Like New In Box) and NIB (New In Box). It may be that the watch was only worn one time by a prospective customer, but if there's a scratch or a ding, that impacts the value significantly.
3. A watch's value is determined in an unregulated marketplace dominated largely by collectors and dealers. Although retail prices are helpful in terms of indicating value, they are usually calculated to reflect the high costs of operating a retail jewelry store. To that end, it is not unusual for some watches to be marked up as much as 100% over dealer's cost. The same is usually true of large vintage watch dealerships located in major metropolitan areas.

Let us first examine the following concept: a watch's value is not constant or consistent. The first thing that comes to mind here is that the value of a watch can change over time. Terms such as supply and demand, economic strength both overseas and in the United States, interest in a particular brand or model, grading, and many other variables might explain why a watch's value might change over time.

However, context still has not been provided. That a watch's value is not a constant with respect to the variables just mentioned, presupposes that the value of this watch is being studied over time using the same pricing source. That just doesn't happen. Remember that collecting watches is still a young hobby, and unlike numismatics or fine art, pricing remains a largely subjective matter. There is no such thing as a price index for fine watches.

While it is true that certain watches (for example, a Rolex Datejust) can be valued without much difficulty, a problem arises when we try to assign a value to a watch which may be rare or unusual. That is when a dealer's experience in the marketplace comes into play. Unfortunately, most dealers simply do not have the financial resources or the experience to buy and sell high-end watches throughout the world. Some might specialize in one particular brand, but the fact of the matter is that in order to learn the marketplace, a dealer must constantly be involved in all levels of the marketplace.

Alas, being that most are typically undercapitalized one-man operations, it is difficult for such dealers to gain extensive experience buying and selling high-end timepieces.

Wholesale is a somewhat confusing term as well since watches (both vintage and modern) are traded in an unregulated market. However, a solid definition would include the fact that wholesale transactions take place on a dealer-to-dealer basis. Since dealers are not licensed as such, who is a dealer is often a matter of interpretation.

In our opinion, a dealer is considered someone who earns his or her living primarily through the buying and selling of wristwatches and pocket watches. Dealers will typically buy watches strictly for resale at a profit, have a valid resale number (thus allowing them to avoid paying sales tax), and be known to other dealers in the industry through their attendance at watch shows and membership in certain organizations such as the IWJG.

In addition, it is generally understood that dealer-to-dealer transactions require immediate payment by cash or check, or terms of less than 30 days. Furthermore, most transactions take place very quickly and often involve multiple purchases. When engaged in a wholesale transaction, dealers generally do not expect to be asked many questions as they would when selling to a retail customer. In other words, wholesale deals are quick and the privileges are few.

Wholesale prices refer, by and large, to the known buy price that at least one dealer is willing to pay for select items. That is to say, when a dealer quotes the wholesale value of a watch, he is referring to a dollar amount that he perceives as the buy price of another dealer. Of course, most dealers typically quote a price that is well below the wholesale value, because there is always the possibility there will not be a buyer at the supposed "wholesale price." If this is, in fact, the case, a dealer may find his capital tied up indefinitely in a watch which may be tough to re-sell. Consequently, most dealers look to limit their exposure as much as possible.

Retail prices, of course, are essentially the wholesale price with a profit margin factored in. Profit margins vary from dealer to dealer, usually depending on their overhead, which might be on the high end if they have a retail store or somewhat lower if they work from home (as many dealers do). A typical dealer's profit ranges from 25% to 35%, but again, the mark-up from wholesale to retail is unregulated.

The retail market is the domain of the collector. Someone who does not make a living buying and selling watches is a retail buyer. Sometimes, a retail buyer might purchase something at just a few percent over what a wholesale buyer might be willing to pay. This is often the result of a dealer's lack of knowledge regarding the rarity or desirability of a given wristwatch. It doesn't happen often, but there are instances where a collector will walk away with an incredible bargain. This writer has seen this happen with his own eyes.

Conversely, the retail buyer might pay multiples of what the watch was purchased at by the dealer. Or, the retail buyer might actually purchase a watch for less than what the dealer paid for it, if the dealer needs to move merchandise and is willing to take a small loss.

We could work our way through many different scenarios, but the key concept here is that in order to stay in business, dealers must buy at wholesale levels (low), and sell at a profit to retail or wholesale customers (high). Collectors, on the other hand, look to buy watches for their collections at a price which makes sense, but are more motivated by their desire to own a given watch, rather than simply making a profit.

Part II

Now that we have explored the concept of wholesale and retail values, it is worth discussing how the secondary watch market has evolved over the past several years. Timepieces have clearly emerged as the 21st Century's hottest collectible and we expect this trend to continue over time. The Internet has clearly been a mostly positive factor in this direction.

Before the Internet became hugely popular, it was virtually impossible to participate in the hobby without attending watch shows, sometimes in faraway cities. Most collectible watches (and especially the more expensive, desirable pieces) were bought, sold, and traded primarily at regional watch shows sponsored by the NAWCC and IWJG. Many collectors would become disillusioned, however, because while it was exciting to meet other collectors, disappointment set in when they realized that the best watches were bought and sold the night before -- the notorious "dealers' pre-show".

Another interesting trend this writer observed was the rapid shift at shows from vintage to modern pre-owned watches, again due in large part to the Internet. When I first started buying and selling fine watches, vintage timepieces were considered far more collectible than modern pre-owned watches -- and much easier to locate as well. Obviously, brand-new and "like new" modern watches were offered for sale at the shows, but one did not see complicated Pateks on the floor very often, and certainly not at the sort of discounts at which they are routinely offered today.

However, once watch collectors discovered the ease with which they could trade timepieces via the Internet, the supply of truly rare and collectible vintage watches quickly dried up as prices skyrocketed in the mid-to-late 1990s. Even though many collections were liquidated as collectors decided to take advantage of a strong marketplace, the increased supply of vintage watches was quickly snapped up by a new generation of affluent collectors in their 30s and 40s, no doubt helped by a booming stock market. These new collectors were far more aggressive in their pursuit of vintage watches than their predecessors were.

Suddenly, desirable vintage watches were not so plentiful anymore, and nice watches were no longer being sold at shows, but rather on-line.

Nowadays, younger watch collectors are finding it much easier (and more fun) to collect modern pre-owned watches. Although modern pre-owned watches from the great houses reflect the high quality, craftsmanship, superb design, and rarity associated with the vintage timepieces of yesteryear, they are far more practical to wear on an everyday basis. (After all, wristwatches are perhaps the only modern collectible which one can actually wear and enjoy -- something you cannot do with a $20 double-eagle.)

Another factor in this shift from vintage to modern pre-owned is the emergence of a two-way market for modern pre-owned watches through venues such as eBay. Through the Internet, one can find brand-new or "like new" modern watches offered at dramatic discounts from retail. Consequently, today's collector might own several watches at once, rather than just one. In addition, many collectors prefer temporary ownership of a fine watch, as opposed to long-term ownership. Thanks to the Internet, selling a fine watch is much easier than it was in the past, and with such dramatic discounts, much less expensive as well.

It is therefore not uncommon for a collector of modern watches to buy a new or "like new" watch on the Internet, wear it for a short time, and then re-sell it -- often at a minimal loss. The small loss incurred is, in a sense, the cost of ownership. In turn, this two-way marketplace creates a larger supply for dealers. With the supply of vintage watches shrinking, a new generation of collectors has transformed the modern wristwatch into a legitimate collectible in its own right, so much so that certain watches are worth more than their retail prices. And why not? Many people (myself included) consider modern watches to be just as finely made, collectible, and well designed as watches were in the past.

Finally, it is worth mentioning that collectors are becoming more knowledgeable about watches from a technical and historical standpoint than ever before. Because today's collectors can go on-line and learn about market values, watch companies, or whatever else they want to know, in a fraction of the time it took their predecessors, we increasingly find discriminating collectors whose knowledge rivals even that of the most established dealers. This obviously levels the playing field to some degree.

In some cases, the lines between collector and dealer become even more blurred. Thanks to the Internet, all it takes is a scanner, a computer, and a modem -- and almost anyone can go into the watch business. Although several excellent dealers have entered the business in recent years, it is more important than ever to find one with experience and knowledge which matches your own. As the saying goes: "Buy the dealer before you buy the watch."

In conclusion, today's watch shows are much different than they were ten years ago. Vintage watches are tougher to find and modern pre-owned watches are clearly where the action is. This situation is unlikely to change. On a positive note though, modern watches are also more sophisticated and legitimately collectible than ever before. As always, there are plenty of old friends and clients whom I look forward to reconnecting with at shows, and many new faces as well. This is a good thing, of course, as any hobby needs new blood.

Yes, the Internet has changed the watch collecting hobby forever, but in a good way. I am seeing more collectors entering the hobby than in the past, and a greater appreciation of fine watches in general. While I will miss the "good old days" when I would go to a show and see 25 rare vintage Patek Philippe wristwatches for sale, there is something to be said for the Internet, which has allowed me to meet and communicate with many more collectors than in the past.

And although watch shows may be less relevant than they once were -- especially now that air travel is no longer as safe or convenient as it once was -- they are still a great way to meet other collectors or dealers and I highly recommend attending a few, if you can. You may not find a great wholesale deal, or the rarest vintage Patek Philippe, but you may find something even more important: knowledge, a new friend, and a greater appreciation for this enjoyable and exceptional hobby.