Flipping Watches: How To Eliminate Both Flipping And The Gray Market
by Ian Skellern
The subject of flipping usually generates considerable debate on Quill & Pad, especially in relation to the Patek Philippe Nautilus and specific Rolex models; however, not being a serious (or flippant) collector of popular watches, I’d never really given flipping much thought.
However, the subject of flipping came closer to home for me when I visited a friend after collecting my M.A.D.1 Friends Edition and he casually mentioned that he thought that many of those buying one were only doing so intending to flip them.
Now I’ve no idea as yet if he was correct in that assumption or not, though I’m sure we will learn that soon enough if/as we start to see M.A.D.1 Friends Editions turn up on secondary markets, but it did get me thinking: is flipping really so bad, and why does it generate so much angst among collectors?
And in answering those questions (for myself anyway, I’ll leave it to you decide for yourself if you agree with me), I came up with a solution that would not only eliminate, or at least significantly minimize, flipping but would also decimate the gray market.
Philippe Nautilus Ref 5711/1A-014 with green dial
Why are so many collectors upset by flipping?
First of all, I’ll admit that as I’ve never been adversely affected by flipping, I haven’t got particularly strong views on the subject. I don’t see much of a difference between an in-demand watch being sold for higher than retail when new and an older in-demand watch being sold for higher than retail at auction. I’m a believer in free markets, and if demand is higher than supply then prices will rise. It ’twas ever thus.
But the same watch aficionados who might cheer when auction prices reward a favorite independent watch like an F.P. Journe Souscription or Philippe Dufour Simplicity gnash their collective teeth when they cannot get that rare Rolex Submariner or Patek Philippe Nautilus they had set their sights on at retail.
Philippe Dufour Simplicity 20th Anniversary No. 00/20 sold by Phillips (photo courtesy Phillips auctions)
I think that’s because the auction world looks a lot more transparent (rare watches go to the deepest pockets) than an authorized dealer giving (read: selling) a rare new watch at retail to somebody chosen from their secret list of clients, who then flips the watch at a seemingly exorbitant price.
At auction, anyone with enough cash and motivation has a chance of buying whatever they wish. But no matter how deep your pockets are, if you are not on the retailer’s list then you don’t even make it to the starting line. Ouch!
Two problems (flipping and gray market), one cause: unbalanced supply and demand
Flipping and the gray market aren’t two separate problems, they are both caused by the same thing: mismatched supply and demand.
Flipping is usually caused by brands forcing authorized retailers to sell in-demand watches significantly lower than their real market prices. Retailers are fully aware of the watches’ likely value but cannot profit from that directly, so they reward their bigger spending clientele with a bonus (a bit like a seat upgrade with air miles).
The gray market is caused by brands forcing authorized retailers to buy more of a less popular model than they are likely to sell, and again the brands force the retailers to sell these watches at higher prices than collectors are willing to pay. Retailers are not allowed to discount (just as they are not allowed to bump up the price for in-demand models), so they offload the watches to platforms that can discount: the gray market.
Rolex GMT-Master II “Batman”
Two problems (flipping and gray market), one solution: set the retailers free
Three years ago I wrote an article titled Online Sales Aren’t The Future Of Watch Retail, They Are The Past (Watch Brands Are Just Slow): The Future Of Online Sales Is Dynamic, The Future Of Watch Retail Is Flexible Pricing and I think that the premise still stands: why should brands still be able to fix the prices charged by retailers? The retailers have bought the watches, why shouldn’t they be able to sell their own watches at prices that work for them?
If retailers have too much stock of a watch or just want or need to generate more cash flow, why shouldn’t they be able to do that? If retailers could discount then there would be no need to offload to the gray market.
And, conversely, if a retailer has in-demand watches that they think they can sell for more than the recommended retail price, why shouldn’t the retailer be able to command the same price as a flipper?
Airlines went through this paradigm shift years ago, moving from fixed prices for seats to flexible pricing based on demand. Travelers often pay very different prices for the same seat depending on supply and demand at the time of buying their tickets, and it works because it is transparent.
It’s high time that brands allow their retailers that same transparency. The COVID-19 pandemic has turbocharged the move to online sales of watches; here’s hoping the same thing happens to flexible watch pricing.
If you agree, disagree, or are simply indifferent, let us know in the comments below.
*This article was first published on July 22, 2021 at Flipping Watches: How To Eliminate Both Flipping And The Gray Market.
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False Scarcity And Steel Sports Watches: A Collector’s View
Mixing Money And Watches: A Collector’s Lament On The Current State Of Our Hobby
Stainless Steel Patek Philippe Nautilus Market Madness: Thoughts On The Current Market Situation
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The Swiss watch industry and a lot of its “luxury” brands are old fashioned in their business models, and along with their arrogance and avarice, remain stuck in their ways. Unfortunately, it’s paying off for them as these brands are stuffing their coffers. I’ve taken to boycotting them, but I can see I’m in the minority here.
Agree. I’ve also said this many times: an obvious solution would be for everybody to stop buying from the grey market. But calling this idealistic would be an understatement.
Flexible retailer pricing is a good start. Manufacturers ceasing to FORCE retailers to purchase shipments of unpopular models would be better
You are clearly right on the surface: flipping and grey markets result from rigid prices forced upon authorized dealers by manufacturers that don’t allow supply and demand to match. But the next question is if manufacturers are rigid because they are “antiquated” (don’t know what they are doing) or because they are preserving long term brand value (and are pretty confident of what they are doing). Nothing upsets a loyal buyer of a luxury/status item than paying a price to its long-term supplier and seeing the price drop right away. Manufacturers, who have the best info and most at stake, probably think we are in a bubble and these prices will not be sustained. Act accordingly (flip or wait)
Totally agree. That would be a good first step towards the solution to this frustrating issue. The problem is, unfortunately, that brands like Patek and Rolex profit from this situation and don’t really care about the final customer. Funnily enough, one of the excuses they often use is that their customers are the retailers, and once they’ve sold them the watches, they cannot control what they do with them. But then, who forces the retailers to sell watches at the suggested retail price? Simply ridiculous, but somehow they seem to be fine with the nonsense excuses their PR people come up with. Shameful.
Interesting article.
The solution would be that retailers do the same as Bucherer did…
Open a ”certified pre owned” section in every store to sell ”new old stock” watches amongst a few worn watches.
The brands can’t say anything to that!
Clients might…
Just so we’re clear: you’re advocating for allowing all ADs to charge not what a watch is worth, but however much they think that they can get away with?
How’s that business model working out for the car-buying public right now?
Spoiler alert: folks are having to pay way over the odds for cars, and the knowledge that they are being gouged is fomenting an almost visceral hatred of dealerships amongst the general public.
You wanna help stop flippers? All new watch purchases are registered with the manufacturer by the dealers, and the manufacturer warranty is non-transferable.
How many folks are going to pay a hefty markup over retail, knowing that their expensive purchase is not protected by the manufacturer’s usual warranty?
No, I’m not advocating ADs to charge what they think a watch is worth, I’m recommending that retailers are allowed to set their own prices both up and down to reflect demand on watches that they, not the brands) own. As sellers do in virtually every other sphere.
Plane tickets used to have set pricing, now the pricing reflects demand.
The market will anyway set pricing. Grey market for an over-supply of stock and flipping for an undersupply of stock.
And yes, now that you bring it up, I think car retailers should be allowed to set their own prices too.
Regards, Ian
Here in the US, car dealers *are* allowed to set there own prices – the results (in the current climate of inventory shortages) have not been pretty.
$6000 above MSRP for a Kia Rio, anyone? And, much like the watch world, if you’re looking for a desirable model, things get even more ridiculous.
Your comment here, and the plane ticket analogy that you also lean on, reaffirms that – whether you care to admit it or not – your position is to just let retailers of any commodity charge whatever they think that they can get away with.
As someone that spent plenty of time working in retail – both frontline and management – I can assure you that ‘in every other sphere’ most retailers can’t charge whatever they like, as MSRP agreements are baked into almost every contract between a manufacturer and a retailer. One of the markets I worked in was high-end racing bicycles, and manufacturers were incredibly strict about keeping the ‘market rate’ for current-year models stable. Of course, once a new model was released, we were free to drop our prices somewhat on the older stock to clear inventory, but we certainly weren’t in a position to add on a large markup for anything in high demand.
Again, coming back to the car dealer analogy – in the short-term, dealerships are making money by overcharging car-buyers, but those same customers will want to buy another car in a few years, and they’ll remember that, given the opportunity, the dealership screwed them over, rather than treating them fairly.
Is that really the kind of toxic relationship that you’d like to see develop between ADs and the watch-buying public?
Ian, in the US most car dealers are allowed to set their own prices. The point of the original post was that it has been a disaster for customers in the past two years. Total price gauging for in demand models like g wagon etc.
This is a “solution” that changes absolutely nothing in the end result.
You don’t think that allowing a retailer to discount instead of quietly sending excess stock to the grey market will negate the raison d’être of the grey market?
You don’t think that allowing a retailer to price an in-demand watch at a similar lever to what a flipper would get would get will negate the whole point of flipping? People only flip because there is such a mismatch between the set retailer’s price and what the market will pay.
Regards, Ian
Well, no one really cares about the “excess stock” that is sent to the gray market, that’s why it ends up being “excess stock”. And for in-demand watches, allowing the retailer to sell them for whatever they want to whomever they choose changes what exactly? All you’ve done is remove the middle man and put more money in the retailer’s pocket, while they remain as selective as always about whom they will sell them to.
In my 15+ years of watch collecting and buying from AD’s in Asia and the United States, I almost always got a discount from AD’s up until about 3-4 years ago when demand went up. I think grey market leakage had more to do with purchasing quotas of less popular models that were forced on retailers which led to excess inventory that they want to clear out quickly.
The horizon is outlined grey. When technological improvements in duration and long life of batteries for smartwatches become a reality, the castle will inevitably collapse, on top of the ruins some 100 times more expensive watches will be sold sporadically to millionaires who want to throw their money away. Middle and upper-middle class mechanical watches will disappear without a possible market.
It will be death by suffocation of the gray market
That already happened in the 1960s and ’70s when quartz watches came out. That nearly destroyed the mechanical watch industry. Then brands pivoted from marketing higher-end watches as timekeepers to marketing them as luxury.
Smartwatches have made little if any impact at all on the higher-end watch market and I don’t see that changing with longer battery life.
Regards, Ian
I mean the other option is. Rolex could stop pumping out the stuff that people don’t want like their super gaudy datejusts/daydates and Cellini and all those ugly ones and focus on more production of steel sports models to cope with demand. I think the world has had enough of those ugly models floating around; how about halting production on those for like a few years and focusing their attention on the sports models people want? Oh no, can’t do that, gotta keep up the artificial scarcity and hype.
“I’m a believer in free markets…”
It’s hard to take someone seriously who holds this view.
1) There are precious few, if any markets that are actually free.
2) The “Free Market”, brought us $300 sneakers made for $25 by women who see their children once every three months and could never afford to buy the shoes she makes for 12 hours a day..
3) It is perfectly clear by now that people en masse are idiots.
4) Many people who talk about The Free Market simply use it to excuse their disregard for the fact that people of limited means are routinely held hostage or abused by multi-billion dollar companies.
Free Markets indeed.
As for the specific suggestion of this article, it is absolute nonsense. There are only two ways to stop these problems.
1) Individuals buy directly from the manufacturer on condition that they annot sell the watch to any individual or legal entity except the original manufacturer.
2) Triple production and decrease the price.
Of course neither of these actions will be taken because, as we all know, the manufacturers simply don’t give a damn.
Well said.
Thank you.
Agreed with 2., but you literally can’t enforce not being able to sell a watch after you’ve bought it. Once you’ve sold something to someone, they should be able to do with it as they please.
Certainly not with something as superfluous as a watch.
I was under the impression that Audemars Piguet were already accepting bidding on there most sought after timepieces selling well above there recommended retail price?
I Never thought of this. I really think will actually work. This concept will kill the flippers and eventually prices will fall a bit and watches will be available at the retail stores counters again. We will pay for now much higher prices but we be pretty much garantee to buy the watch we really want to buy. The gray market still can get their sale on pre-owned at a lesser cost. This will eliminate us spending lots of money at the retailer buying unnecessary jewelry and watches that we really don’t want just to become a favorite client and hope we get that specific watch.
I also agree with the free market. However the idea that retailers should be allowed to charge market price would be detrimental to someone like me who buys retail only. I would have to pay double on Royal Oaks I get for retail. If I don’t flip my watches, why should I have to pay the literal price of flipping?
A free market that only suits you when you feel like it, is not a free market.
Can you buy Royal oaks that you want at retail though? Gotta ask yourself that question
ADs are already doing this with forcing customers to buy unloved models or brands before selling them a hot piece…. So discounting the slow sellers and raising the hot ones would have the same effect. The gray market will always exist, these guys used to trade watches when prices were across the board under retail, so it won’t kill them….at all
Luxury brands rather burn excess stock than discounting i in retail stores. It kills their luxury reputation.
Don’t just set retailers free, set manufacturers free too. Retailers place their orders once a year, and with the order they also state the maximum price they will pay for each model.
The manufacturer adds up the bids for each model and arrives at an average. If you bid the average, you will get all of your order, bid higher and you will get more, bid lower and you get less of the production.
The retailers is then free to charge whatever they want, if they have lots of free spending clients, then they charge more.
This allows the factory to share in the feeding frenzy. It also means that not only is the grey market disadvantaged but also that less popular models can be priced at a more realistic level.
It ain’t perfect, but it would be interesting to see one of the smaller brands try it out
I have just had an amazing idea.
Unprecedented in human history!
Why don’t they match “supply” to “demand”?
I know!! 😁
Literally nobody has ever thought that before!
Let’s be honest, eh?
In the last few years, CEOs have decided that the “end users” , i.e. The People Who Pay Their Salaries, are the least important consideration in their business model. Far behind Marketing, “brand saturation” and “market placement”.
Many companies no longer sell products. That is to say the reality of the physical object which is purchased is incidental to their calculations. And since the IQ of a human group reduces in direct proportion to their number, these Machiavellian shysters are getting away with it.
They are not remotely interested in what is mportant, because they occupy a reality in which their very survival depends on the suppression of healthy human thought.
So, be clever. Be better than them.
Buy something else.
**I have just had an amazing idea.
Unprecedented in human history!
Why don’t they match “supply” to “demand”?
I know!! 😁
Literally nobody has ever thought that before!**
Do you really think that Rolex (for example) are just idling along at 70/75% of their production capacity and so can just turn a knob to increase their output?
They have been running at 100% of capacity for the last half decade; why do you think that their production numbers have remained flat at 800k units per year?
Yes, they could utilise their machinery better by instituting a second shift. But you can’t just have a second shift in one department, it’s an integrated business – so you need to double the staffing levels everywhere.
And there the immovable object meets the irresistible force constraining watchmaking in Switzerland. Lack of staff – subscribe to Europa Star, or preferably Le Temps and read the Econ section. Every watchmaking company in Switzerland is complaining not just about the lack of watchmakers but also that Swiss youth have very little interest in joining the profession.
There are no quick fixes
I simply don’t believe that Rolex is physically incapable of making more watches and making more watches which people want to buy.
The Last two boutiques I visited had a very large number of diamond-encrusted models which nobody wanted.
Tam, I am not saying it is right, but Rolex’s reason for not increasing supply is that it will risk the quality in making their watches. It could also be that there are only so many watch makers in Switzerland to build the watches and it is increasingly hard to get new watch makers to join the industry.
I believe that they are consciously trying to promote Gold and diamond watches because they make more profit from them and they can market themselves as “jewellers”.
A couple of years ago, I dropped into a large boutique that had a very large number of Rolex watches. At least 100, all ready to buy there and then. There was one steel watch. One!
So I tried it on, while A QUEUE FORMED BEHIND Me.
The moment I took it off, another man picked it up. I have never seen anything like it in my life. Nobody even looked at the other models!
A few months after that, Mrs Banter and I looked at a brand new Rolex boutique. Nobody was in it, despite the newly refurbished Department store in which it was situated being very busy.
We soon understood why. Not a single steel piece. We laughed and walked out.
Rolex dealers in my city now have a beautiful little plaque underneath their steel watches; “Available to order”.
It is deliberate and absolutely disgusting.
The idea makes no real real world sense whatsoever. Watches, being an unnecessary luxury item are vastly different than cars, and this idea would be massively destructive to the watch industry. Watch brands thrive based on their reputations, and the good reputations are based in part on stable retail prices. Without that, these baubles would quickly lose their sparkle/snob appeal, as real world prices plummet. In reality Rolex and Patek choose to surrender short term profit by keeping their prices ‘artificially’ low, as they are well aware that variable pricing would damage their brands.
Ian asks a great question: Why are so many collectors upset by flipping? There is not a supply problem of watches, like Rolex sports steel as an example, but a supply problem at the Authorized Dealer. The grey market is awash with great selection above retail prices. I understand an AD rewarding their large spending customers with being first inline to buy a popular model, but the fact is most of the large spenders are buying and flipping as many popular models as they can get. If the brands look the other way, which is their prerogative, then my only recourse is to buy from brands that are available — including the microbrands.
Why does anyone have a problem with profiteering?
Are you mental?
It’s an interesting idea, but the change is bad for me as a customer. Yes, this could eliminate flippers and grey market, but the price I need to pay if I “want the watch now” would not change much. The ADs would, however, still decide who gets the watch. On the other hand, withing the last 2years I purchased 2 Rolex watches at MRSP, I just had to be patient. My yellow OP came after 6 months wait time and Submariner after 1.5 years. With no previous history at Bucherer. With your proposal, I would not get those watches at that price no matter how much patience I’d have. I realize that, models like Daytona are probably not attainable for me, but then at the flip price they are not either.