What are Gray Market Watches? The Ultimate Guide
Chances are, you have heard the term ”gray market” in the context of the watch industry before.
There are a lot of misconceptions about the grey market watches and the grey market watch industry so in this article, we’ll get to the bottom of what it is and what it means.
What is the grey market in the watch industry?
The term ”grey market” is a term that is used not only for the watch industry but actually for most other product-based industries as well. Investopedia’s definition of the term ”Grey market” is the following:
“The gray market is an unofficial one but is not illegal. The term “gray market” also refers to the import and sale of goods by unauthorized dealers; in this instance as well, such activity is unofficial but not illegal.”
This definition can also be applied to the watch industry. And to understand how it applied to the watch industry, we need to understand how watches are distributed within the industry.
First, we have the factories and the brands. This is where the watches are manufactured. Most watch brands use official retailers which sell the products under a retail agreement. The official retailers are not owned by the brands, hence why the majority of watch brands are predominantly business-to-business (B2B) companies, not business-to-consumer (B2C).
There are some exceptions, however, and these are watch brands that exclusively sell direct-to-consumer, as well as watch brands that also own some retail stores themselves. However, the majority of watches are sold through official retailers which are independent and not owned by the brands.
The watch brands will only ship watches to their official retailers and not a third party. As such, all watches first need to go through official retailers.
This is where the grey market comes in.
The grey market can be summarized using the definition of Investopedia, as all grey market dealers are not official retailers. Different people also have different definitions of the grey market so we’ll try to sort out them all as well.
Essentially, the grey market involves all watch dealers and boutiques that are not official retailers of the watch brands that they sell. And because they are not official retailers, they do not get brand new watches directly from the manufacturers as the official retailers do. Instead, they need to get their watches from somewhere else.
There are two main definitions of the grey market watch industry. The first is when an unofficial retailer sells brand new (and only brand new watches.
The second, which is a little broader (and technically more correct from a definition standpoint), is an unofficial dealer or retailer that sells any watch, regardless if it’s new or not.
So, in short, grey market watches can essentially be summarized as any watches that are not sold by official retailers. Some people have the perception that watches on the grey market come from somewhere else than the retailers. But this is not correct. As mentioned, all watches that come from the manufacturer are first delivered to an official retailer. So the distribution channel actually starts at the official retailer.
Another misconception that is also not true is that grey market watches are in some way different types of watches than non-grey market watches. This is not true. They are the exact same watches that first come from the manufacturer, then from the official retailer. The only difference is that they have already left the official retailer and are now being sold by an unofficial party.
This also sparks another misconception and common belief, which is that grey market watches are in some way illegal. They are not. Grey market watches are authentic products, only that they are sold through an unofficial, unauthorized channel.
With all of this said, the grey market and secondhand market are the same and could be used interchangeably. A secondhand watch is just a watch that someone has owned before. In other words, this also applies to whether the owner has used the watch. So in that sense, a grey market watch can be either used or ”new”. The term new is however something that splits opinions since many argue that a watch is only new when it is being sold by an official retailer. After it has been sold by the official retailer, it cannot be sold as ”new”, even though it has never been worn.
This is why a lot of sellers on the grey market, or ”secondhand market”, use the term ”unworn” instead, to refer to the condition and state of the watch.
Some people use the definition of grey market to only include new watches. But from a definition standpoint, it would be more correct to include both used and new watches if the seller is an unofficial retailer, regardless of whether it has been used or not.
How do watches enter the grey market?
There are many different ways that watches enter the grey market.
The two primary ways are:
- An end customer buys the watch from an official retailer. They then sell it to a grey market dealer.
- A grey market dealer buys watches directly from an official retailer.
Essentially, as soon as a customer who has purchased a watch from an official retailer sells the watch to a non-official watch dealer, i.e, a grey market dealer, the watch enters the ”grey market”. There are many different reasons why a customer may decide to sell their watch. First, they may regret their purchase and want to sell it.
The second reason is that they have used the watch for some time and want to change to something different or trade up. The third reason is if they have managed to buy a sought-after watch from an official retailer that sells for higher than the retail price on the grey market. Selling the watch will allow them to make some money by flipping it to a grey market dealer. As such, the customer may or may not wear the watch before they sell it, which explains why there are both used and unworn watches on the secondhand market.
Grey market dealers may buy directly from the official retailer
A relatively common practice within the watch industry is that grey market watch dealers buy brand new watches from official dealers. Oftentimes, they buy them in bulk and at discounted prices.
Normally, official retailers are only allowed to sell watches to end consumers and not to wholesalers or other resellers. This is why this topic is sometimes a bit controversial. Especially if you ask the manufacturers. Now, this practice is not allowed by the official retailers according to the contract, but it is certainly not illegal. If the manufacturer finds out that an official retailer is systematically selling a large number of watches directly to the grey market, the retailer may lose its retail license with that brand at worst.
There are several reasons why watch brands dislike when official retailers sell watches directly to the grey market. First, when an official retailer sells watches to a grey market dealer, it gives the brand less control over the watches that are distributed on the market.
Secondly, most watches sell for less than their official retail price on the secondhand market. Whilst there are some exceptions, such as certain Rolex, Patek Philippe, and Audemars Piguet watches (amongst a few others), the majority of them sell for less on the secondhand market. Ultimately, if a brand new watch is offered at a considerably lower price on the secondhand market than at the official retailer, it will make customers more inclined to buy them from the secondhand market. It will also devalue the brand as they are sold at heavy discounts.
The way this is made possible is that grey market dealers have relationships with official retailers who sell watches, often in bulk, at discounted prices. The grey market dealers can in turn sell the watches on the grey market at a lower price than the recommended retail price.
This brings us to the next point.
Grey market dealers are not required to follow the recommended retail prices
Official retailers are expected or required to sell their watches at the recommended retail prices which are set by the manufacturer. This is done so that the prices are relatively even across the world, regardless of which official retailer a customer goes to. It also gives the manufacturer greater control over the pricing of its products.
Grey market dealers, on the other hand, operate on the free market and do not have any contracts with the manufacturers of the watches they sell. As such, they sell watches for the market price. In most cases, the market prices for watches are lower than the official retail prices, similar to the price of cars, even if they are brand new, just because they are sold by a retailer that is not an official retailer.
However, some watches are extremely sought-after and have long waiting lists at the official retailers. As a result, the price on the secondhand market is higher than the official retail price. The result is that grey market dealers can sell these watches for more than the retail price. The benefit of the customer, in this case, is not a saving from the retail price, but it does allow them to buy the watch immediately without having to wait x number of years if they are ever offered one.
Do grey market watches have warranty?
This is a question where the answers tend to differ online. Some people believe that grey market watches never come with warranties from the manufacturer. This is simply not true.
The fact of the matter is that most grey market watches come with warranties from the manufacturer.
Some grey market dealers will not come with warranties because the warranty card is not supplied by the official retailer. This usually happens when a grey market dealer buys a lot of watches directly from an official retailer.
To protect the retailer’s integrity, and to avoid being exposed for selling watches directly to the grey market, the retailer will keep the warranty cards. This is because the warranty card often contains information about which retailer sold the watch, or other information that makes it possible to trace the watch back to the retailer. As such, some retailers will keep the warranty cards when they sell watches directly to grey market dealers, meaning that the watches do not come with warranties as the cards are missing.
However, whilst this is relatively common, the fact is that most grey market watches do come with warranties, even if they are sold directly to grey market dealers.
Moreover, the warranty for the vast majority of brands is transferable. This means that even if the owner of a watch is not the original buyer from the retailer, they will still have the manufacturer’s warranty as long as they have the warranty card.
Firstly, if an end consumer buys a watch from a retailer, they will get the warranty card. If they then sell the watch to a grey market dealer, the warranty card will come with the watch, thus meaning that the watch has the warranty remaining.
Secondly, even if some official retailers keep the warranty cards when they sell watches directly to grey market dealers, the majority of them won’t. Therefore, you are absolutely able to find plenty of brand new watches with the majority of the warranty remaining on the grey market.
Just make sure that the warranty card is duly activated and filled in, otherwise, the warranty may not be valid. In some cases, the retailer will supply the warranty card but not fill it out, causing it to not be valid. However, this is not a very common practice because retailers are required to fill in the cards, and if the manufacturer finds out, the retailer may run into other problems. It’s a lot harder for a manufacturer to find out that a retailer is selling watches to the grey market than that they aren’t filling out their warranty cards. The latter, they’ll be able to see by just looking at a warranty card from that retailer.
Just note that official retailers are the only ones that can activate the guarantees. As such, the warranty will be activated by the point the watch is initially sold by the retailer.
Some people also believe that if you buy a watch from the grey market, even with the warranty card, the watch will not be covered under the warranty. This is not true. The vast majority of watch guarantees are, as mentioned, transferable. Moreover, as long as the warranty card has been properly activated, the warranty will be valid. There’s no way to know that they will know that you have purchased the watch on the grey market. And even if the service center will be able to tell that you are not the original owner (for example via the name on the warranty card), it won’t make a difference since the warranty is transferable.
Why do official retailers sell watches directly to the grey market?
So why do some official retailers sell watches directly to the grey market when they are not allowed to? Well, there are many reasons. But mainly, official retailers sell watches to the grey market that they have a hard time selling in the store to end consumers. Oftentimes, the brands require retailers to buy a certain number of watches, and they may even send them watches whether they like it or not, giving them no possibility of saying which models they want and which models they don’t want.
As a result, an official retailer may sit with large stocks of watches that they have a hard time selling. Eventually, this can build up and become a lot of money locked in watches that are hard to sell. To unload some of their stock, the retailers may therefore turn to grey market dealers to sell some of their watches, albeit at discounted prices. When a retailer has excess inventory, selling watches to the grey market can therefore be a helpful solution.
Whilst grey market dealers will usually get good discounts because they buy watches in larger quantities, the official dealers are often happy to get rid of some excessive stock all at once. From that aspect, it’s a win-win. But from the manufacturer’s perspective, it’s not a win because it means that these brand new watches will eventually reach the secondhand market and be sold at a discount which devalues the brand and makes it harder to sell them for their full retail price.
In general, official retailers tend to have a profit margin of between 40 to 100% depending on the brand. In general, more expensive watches tend to have a lower profit margin than expensive luxury watches. So if the official retailer can sell plenty of watches in one go, they may satisfy with just a 10, 20, or 30 percent margin, leaving enough room for the grey market dealer to provide discounts to their customers and also have profit left.
Is the grey market legit? Are grey Market watches illegal?
Yes, the grey watch market is legit. And no, grey market watches are not illegal. Grey market watches are perfectly authentic watches, just not sold by official retailers. The most important thing is that you buy from a trusted seller so that you know the watch is perfectly authentic and correct. On the contrary, the black market is an illegal market that may involve the sale of counterfeit, fake watches. But this is something completely different from the grey market. As such, these two should not be confused. Grey market watches are legal and authentic.
There are of course benefits to buying both from official retailers and from the grey market. The primary reason for buying from an official retailer is that you are 100% certain that the watch is authentic and that you are the first owner of the timepiece. When you buy the timepiece, that’s when the warranty will be activated.
On the contrary, buying from the secondhand market is perfectly safe if you buy from reputable, trusted dealers, which there are plenty of. Just make sure to do your research and look at ratings and reviews.
The primary reason for buying a watch on the grey market is that it gives you the opportunity to buy watches at a heavily discounted price, often unbeatable if you go to an official retailer and ask for a discount. Plus, buying a watch from a grey market dealer means that you can get a good discount without even asking for it.
If a watch only sells slightly cheaper on the secondhand market than from an official retailer, you may consider if you prefer to buy it directly from a retailer and become the first owner of the watch with the full guarantee. However, if there are considerable savings to be made, it can be attractive to turn to the grey market to make big savings.
When people compare prices on the secondhand market with the retail price, they may believe that something is wrong with the watch when they are sold at such a hefty discount. But if you understand how the watch market works, as discussed above, you’ll understand how grey market watch dealers can sell brand new, perfectly authentic watches (and even with warranty) at considerable discounts.
If you’re after a sought-after watch that has a long waiting list at an official retailer, the grey market will require you to pay more than the recommended retail price, but it will allow you to get the watch immediately. So if you really want a sought-after watch without having to wait several years to buy it, the grey market will solve this issue.
Big discounts are bad for the brands but good for the consumers
Official retailers are usually very limited when it comes to giving discounts to their customers, even during slow times. The brands’ unwillingness for discounts is ultimately what causes some retailers to sell watches to the grey market instead. But whilst big discounts may damage the exclusivity of the brands and their ability to sell watches for the full retail price, it’s fantastic for the consumers.
Ultimately, this enables consumers to buy the watches they like at lower, sometimes considerably lower prices than the official retailer. If you take a look at certain watches on the secondhand market, consumers can make as much as 35-50% savings. Of course, more popular and sought-after watches will not be available at those kinds of discounts, but when we are talking about watches for thousands, maybe even tens of thousands, there’s still a lot to be saved.
How watch brands work to prevent grey market sales
The truth is that watch brands are working hard to prevent their retailers to sell watches directly to grey market dealers. This is to uphold the brand exclusivity and prestige since discounting always damages the brand’s reputation. In the short term, the grey market is good for watch brands in the sense that it helps them sell more watches. But in the long term, it is bad because it is bad for the brand’s reputation. However, in the case where the watches sell for more than the retail price on the secondhand market, you could actually argue that it is the opposite. When watches cost more on the grey market, it becomes more attractive for customers to buy them from the official retailers.
Jean-Claude Biver, previously the head of LVMH’s watch division as well as a driving force Hublot, once said: “In luxury goods, when you break the illusion of prestige, the dream, the prices, it takes away the confidence. It means slow death for luxury goods”, referring to the discounting of watches on the grey market. So naturally, this is something that watch brands want to uphold by preventing grey market discounting as much as possible.
However, this is a complex issue because the truth is that most of the watches that end up on the grey market are not watches that have been sold by an official retailer directly to the grey market. Instead, the majority of watches that end up on the secondhand market are sold by end customers.
So what watch brands do is try to prevent brand new watches from ending up on the secondhand market – regardless if it’s a customer who has ”flipped” the watch immediately after buying it or an official retailer who has sold watches directly to the grey market.
Limiting the number of watches
One of the best ways to avoid heavy discounting on the secondhand market is to supply retailers only with the number of watches that they can sell. If they supply more watches than they are able to sell, there’s a greater risk that the retailer will be forced to ”dump” them to the secondhand market. We have seen this strategy work extremely well for many watch brands and ultimately, it has resulted in increased desirability of these timepieces.
This is particularly true for Rolex, Audemars Piguet, and Patek Philippe watches. These manufacturers try to balance the production so that they always make slightly fewer watches than the retailers can sell.
The result is waiting lists, increased values on the secondhand market, and less need for the retailers to turn to the grey market as they have end clients for all the watches that they sell. The catch is that when the demand becomes too big, it results in big premiums on the secondhand market. And this makes it more attractive for end customers to flip their watches immediately after they have purchased them for a quick profit.
The best way to tackle heavy discounting on watches on the grey market is undoubtedly to reduce the stocks that official retailers have. The catch is that the brands themselves want to sell as many watches as possible, so there’s definitely a fine balance here.
Track watches sold online
More and more watch brands have established in-house teams to track watches that are being sold on the grey market online. By looking at brand new watches for sale online and seeing if the serial number is visible, they can trace which retailer originally sold the watch and then take the appropriate action to prevent them from doing it again. This is one of the reasons why many grey market dealers online blur the serial numbers of the watches in the photos, to protect the integrity of the retailer (amongst other reasons).
Buying back unsold stock
Another method that some watch brands use is to buy back unsold stock. The issue arises when official retailers are unable to unload stock, so if their retailers are met with this issue, the brand buys back the watches. The benefit of this is that they prevent the watches from ending up on the grey market and being sold at discounts.
Stock keeping levels
Some brands have also introduced digital stock-keeping levels at all their official retailers. This is usually connected to the activation of the warranty. So when a retailer sells a watch, they activate the warranty and the brand can then see that the watch has been sold. This is also a way to identify any suspicious activity by the retailer. For example, if the brand notices that a retailer activates 20 guarantees within a short period of time, they may suspect that the retailer is selling a large number of watches to a grey market dealer. They can then contact the retailer to ensure that this is not the case. This greater level of control also makes retailers more careful and afraid of selling watches to the grey market.
