A booming gray market for luxury watches

The slowdown first began with China’s anti-corruption drive and its crackdown on luxury gift giving, coupled with the country’s economic slide. Indeed, exports to Hong Kong alone, a major hub for Swiss watches, dropped 22.9%, according to the Federation of Swiss Watches. The soaring Swiss franc, drop in oil prices, along with global political and economic volatility have all played a hand, hitting sales in the top watch-buying markets of Asia, Russia, and the Middle East.

At the same time, smart watches, once regarded by Switzerland as little more than a sideshow, have become a serious factor – particularly for those looking to spend under $1,500. According to the Deloitte study, a year ago, just 11% of watch executives viewed smart watches as a competitive threat, this year, 25% do.

Among the many issues rattling the industry, however there’s another, less openly talked about reason for the downturn: the tremendous glut of inventory. The robust sales of recent years created a hyped-up market, spurring manufacturers to increase production.

Now the flood of timepieces largely intended for Asia and Europe aren’t moving; rather they’re turning up on the “gray market,” where new models, unlike those sold at authorized retailers, can be had at steep (15% to 60%)discounts.

That is why elite brands and models, usually found in boutiques lining Rodeo Drive or the Bahnhofstrasse in Zurich, are now sold on eBay, Amazon, and a plethora of dedicated watch sites – and even at Costco.

The flourishing of the gray market is taking away the patina of exclusivity and rarity. “The reality is you can now get anything you want anytime,” says Adam Victor, a vice president at fashion house Narciso Rodriguez and a longtime watch collector. “There were pieces you had to be on a waiting list for at retail, that’s not the case anymore.” Victor now says he’s only collecting vintage pieces.

Such thinking is helping to take the air out of the Swiss watch balloon – and draw more people, especially young people, to the gray market. To a large extent this problem stems from the brands’ own success – particularly among the major luxury conglomerates like Swatch, Richemont and LVMH, which have been aggressively pursuing growth strategies and relying on the Asian market to keep up demand. With that demand dropping, watches are ending up in gray market sites, at lower prices.

adapted from FORTUNE

PIAGET Limelight Stella SIHH 2016