By Fabrice RAMANANJATO, Consultant at Tallis Consulting
Threat, “Cancer” says Jean-Claude Biver, head of the watch division of the LVMH group, the explosion of the grey market for luxury watches has been shaking the sector for several years. At the time of the recovery, the transformation of the players belies these fears and even shows that watchmaking is now stronger thanks to it.
The 2019 edition of the Geneva International Fine Watchmaking Exhibition marks the return of optimism and positive momentum after a three-year shortage for the sector. The difficulties of watchmakers contrasted with the explosion of the grey market. So much so that heavy watchmakers have so far expressed their hostility towards this parallel market. Faced with the recent upturn, however, it promises the sector new growth prospects and, above all, an opportunity for structural improvement.
A new model that promotes inclusion
The grey market already existed before the watchmaking crisis. For authorised resellers, it mainly consists in distributing unsold items via channels not covered by the contracts with the brands. This makes it possible to avoid the commercial obligations imposed by the Houses, particularly on promotions and prices. These can be greatly reduced, up to 50% for a new part. There is also the possibility of acquiring second-hand goods in this market. It is now unavoidable. A new luxury clientele has emerged, seeking greater proximity to the brand, its vision and values. These clients are looking for emotion, experience and brands that communicate on a mutual and inclusive love relationship with their clients. Like Gucci or Balmain, who are better able to do their job.
The strong acceleration in sales on the grey market also comes from the rise in prices during the years of strong growth in Fine Watchmaking. Just as you don’t unilaterally impose your lifestyle on your partner, brands could no longer drive up prices so much without taking a snub. During the crisis, the grey market emerged as a relevant solution to sell unsold watches, while inflation on timepieces reached double-digit levels in some cases. In a luxury market where the notion of value-for-money has become crucial (buying at the right price without giving up prestige and quality), the grey market is hitting the mark. By using a platform like Chrono24, a fan of exceptional mechanics can satisfy his desires for luxury by controlling his expenses. In addition, he joins a community of aficionados who exchange views on timepieces and mechanics, helping to reinforce this sense of inclusion of the much sought-after individual.
Revealing the digital delay of the sector
In order to safeguard its brand identity and to invite potential customers into its history, Frédérique Constant has been selling parts on Chrono24 since 2017. In addition to benefiting from an additional distribution channel, the brand uses this site as a vehicle to educate customers about the technicality of its products and to introduce new buyers to the House’s specificities. This very concrete example therefore includes an element of discourse: luxury is more accessible and more open. Rather than being a victim, the House joins the Grey Market and shows its understanding of consumer expectations without damaging its image and takes a significant e-commerce turn, which is the second essential transformation axis to face the Grey Market.
This revolution has indeed taken place online, where watch owners can resell their parts and distributors have found a more relevant alternative distribution channel to reach an increasingly digital-oriented clientele. with an average annual growth in online sales estimated at 16% between 2017 and 2025 (source: Xerfi), any luxury brand refusing e-commerce takes a considerable risk. Like Rolex or Chanel, few are strong enough not to make this choice.
Long neglected by the Watch Houses, e-commerce is nevertheless a significant growth driver. By 2025, online sales should represent 10 to 15% of the watch market (compared to 5% in 2017). The emergence of the Grey Market has forced the most responsive companies to get up and running in order to penetrate online commerce. Thus, the giant Richemont, whose watchmaking represents 25% of sales, acquired the pure-playerecommerceYoox-Net-A-Porter for €2.8 billion while investing to strengthen the online presence of its brands. Finally, at the end of 2018, the group announced the creation of a joint venture with Ali Baba to create an online platform for the sale of luxury items to the Chinese market.
Luxury has always been distinguished by its discretionary and exclusive aspect: buying a watch is not done out of extreme necessity but out of desire and seemed reserved for a social and financial elite. The fears linked to the Grey Market reveal the inertia from which the Houses, sometimes too traditionalist, suffer. Most have now understood that this “parallel” market is ultimately a way for lovers of high-flying mechanics to access a dream, which luxury brands must continue to embody. By integrating this new situation, houses now have the means to reduce the risk associated with the grey market, thanks to the reinforcement of their online presence and, above all, a communication that combines prestige with pedagogy. Qualified as a “cancer for the sector” by the head of LVMH’s watch division in 2017, the grey market is finally proving to be a godsend for brands that embrace its strength: digital and inclusiveness.
By Fabrice RAMANANJATO, Consultant at Tallis Consulting
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