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!
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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 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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If there ever was a repost of a previous article now out of date, particularly with regards to Rolex, this would be it.
Or was just an attempt to reflect upon how the market is constantly changing?
I don’t disagree from a market efficiency perspective, but I think there are considerations missing as it pertains to luxury items, which of course is an arena where brand perception and prestige are HUGELY important. Keeping with the airline seat analogy, commercial airline seats are pretty much a commodity. While there are preferences, loyalty, and different perceptions between experiences and customer service on airlines, they aren’t worlds apart and most people decide based on price (even for first class….why pay $20k on Delta, when I can pay $10k on Qatar), not based on an emotional connection to the brand based on marketed prestige. Things are very different for luxury wrist watches, which are more accurately described as Veblen goods in many respects. Furthermore, it’s worth remembering that watch manufacturers do not sell to the niche collector community. They sell to authorized retailers and/or through boutiques, and the majority of new watch sales go to the much larger customer base interested in buying one nice watch. In other words ,the consumer that is driving the magnitude of these brands’ revenue are not likely that familiar, if at all, with the “gray” market (and the discounts and premiums that exist there). So if watch brands allowed dynamic pricing for the retailer, they lose control of the image they are trying to portray in a critical area: price and perceived value. AND, even less desirably: brands like Patek and Rolex wouldn’t be affected with nearly as large a fluctuation between retail and discount as other brands such as Breitling, JLC, etc, at least in the current market. To the average consumer, if they go in and see that Breitling is priced at 50% of a comparable Rolex (yeah I know, you can’t buy the Rolex anyways), that’s going to signal that Breitling must be a “value” brand….which can be good in some cases, but being “value” is a fine line for luxury items and brands. You don’t want to become “budget” or too accessible. So if I’m Breitling, why would I want to allow an AD to price my product at the market clearing price, cementing my image as “inferior” brand equity relative to Rolex? I’m happy because the AD is buying my stock. And successful AD’s are obviously able to find enough customers or sell enough of the desirable watches to manage the inventory float and push other items, that makes carrying these brands valuable to them, or they would stop carrying the brands. So the idea is great for watch collectors, it is the textbook definition of market efficiency, but market efficiency is not necessarily the profit maximizing option for the manufacturers or retailers themselves over the long run.
I somehow would believe that most if not everyone are affected by this practice, being an (aspiring) owner or not. For the relevant watches one would profit or suffer from the increased value, and the relevant watches have altered the perspective of valuation within the entire market, more or less.
When the watches becomes (even more) attractive and beyond reach, the customers will focus elsewhere and generate a certain pressure on the alternatives. Would argue the “sudden increase” in popularity of e.g. vintage and present Chopard L.U.C XPS is due to collectors realising profits from the usual culprits, looking for quality at lower pricepoints.
Would vary with jurisdiction, IN THEORY, fixed A.D retail prices by brands punishing deviation would be considered non-competitive behaviour which tend to be illegal. A brand owned botique is different, they may follow whatever the brand decides freely.