* Swiss watch shipments down 10 pct in 2016
* Luxury brands face dilemma over unsold stock in demand
* Excess inventory often flows into grey market
* Some watchmakers cooperating with unofficial sellers
ZURICH, April 12 (Reuters) - A diamond-studded Rolex at 40
percent off the $34,000 retail price or an Omega Speedmaster
Moonphase for less than $10,000? While still out of reach for
most people, the increasing prevalence of such deals highlights
the perplexing predicament in which luxury watchmakers now find
With sales falling, more unsold timepieces are finding their
way from the Swiss-dominated industry's carefully controlled
official retail networks to online platforms where they are
often offered at steep discounts.
Swiss watchmakers say they loathe this "grey market" because
high discounts damage the meticulously crafted aura of prestige
and make it harder to sell their goods at the full price.
"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," Jean-Claude Biver, head of LVMH's
watch division, told Reuters at last month's
Baselworld watch fair, describing the grey market as the
However, a sudden end to a boom in Chinese demand is forcing
the brands to begin working quietly with dealers in the grey
market, occasionally to help with sales but mostly to secure
some influence over the unofficial resellers, according to
dealers and industry executives interviewed by Reuters.
"There are many sources for grey market watches: authorised
retailers who want to get rid of slow-selling models, country
distributors or even the brands themselves," said one watch
industry executive who asked not to be named.
He said that in some cases operators in the grey market are
cooperating with the brands, removing new models from sale when
asked or reducing discounts manufacturers consider excessive.
Though representatives of the biggest luxury watchmakers,
including Swatch Group and Richemont, refused to
discuss their strategy with regard to the grey market, some
manufacturers may find that it offers benefits.
"For every timepiece we sell, the manufacturer is getting
the lion's share of the profit, and then all the search engine
queries, image searches, social media brand posts, tweets and
pins are terrific and free (advertising)," said Darryl Randall,
founder and owner of United States-based online platform
SwissLuxury.com, which he said generates sales of about $10
million in good years.
Another grey market dealer said he will sometimes withdraw
watches if asked by manufacturers and that brands regularly
offer U.S. dealers packages of 15 or 20 pieces at a discount.
"As much as the brands dislike us, we have more or less the
same goals they have -- we also want to sell the goods and be
able to make a profit," he said.
Chinese demand for luxury timepieces boomed after the
2008/09 financial crisis, leading to a surge in production and
retail prices. But demand has dropped sharply in the past two
years as extremist attacks have deterred tourists from visiting
Europe, where many of the watches are sold, and China has
cracked down on luxury gift-giving by civil servants.
It was difficult to rein in production when demand fell,
partly because the watches are put together slowly in stages,
meaning production plans are often made two years in advance.
Nobody needs a luxury product, but the brands find that when
customers see and touch an intricately crafted watch in an
opulent boutique and are drawn into its "story", they will want
it so much that the price becomes secondary.
In the good times, the industry can take home 20 percent of
sales as profit and retailers are still left with an attractive
margin of up to 45 percent.
But when business tails off, the manufacturers do not allow
official retailers to cut sticker prices too far, fearing that
big discounts will damage their brands -- a policy that may push
cash-strapped retailers to sell to the grey market.
Swiss watch exports fell 8 percent in the first two months
of this year, on top of a 10 percent drop last year.
In the grey market sales are often clinched in small, shabby
stores or via online platforms that do not have most of the
watches in stock and source them only when orders are placed.
Randall said that brands vary in their efforts to keep
products out of the grey market. Some of the hardest to source
are Patek Philippe and Richard Mille, which both keep a tight
rein on production. Audemars Piguet, another independent brand,
only distributes certain models through its own boutiques.
"Brands like (Swatch's) Omega and (LVMH's) Tag Heuer are
easily available at all times," Randall said.
The unnamed U.S. grey market dealer agreed and said that
Richemont's Jaeger-LeCoultre and Vacheron Constantin and
Swatch's Breguet are also easy to source.
The United States is the second-biggest market for Swiss
watches and is a hub for grey market watches, with online
platforms such as Jomashop.com, AuthenticWatches.com and
"There's a lot of grey market watches coming in from outside
the country. The excess of the world's products used to flow to
Hong Kong, now it flows to the States," said Danny Govberg, an
official U.S. retail partner for Switzerland's biggest brands
but who also sells pre-owned watches online.
He confirmed that brands sometimes offer him new pieces to
sell as pre-owned but would not name them and said it was only a
small share of his flourishing business.
FROM ZURICH WITH A DISCOUNT
The grey market is by no means restricted to the United
States. Germany's Chrono24.com has sales offices in both Hong
Kong and New York, while a lot of grey market watches are also
sold on Amazon and eBay, the unnamed watch
industry executive said.
As its name suggests, there are no statistics on the grey
market and few dealers are willing to explain how the system
Unlike fakes, grey market watches are legal, authentic goods
sold by their rightful owners, though they generally come
without factory warranties because brands refuse to service
watches that are not sold via their official networks.
While that might deter some buyers, other more
price-conscious shoppers may actually prefer the convenience of
the online platforms that are tempting potential customers with
trade-in schemes for old watches, financing solutions,
price-match guarantees and their own warranty and service
Randall said he has been sourcing most of his watches in the
United States to get them to customers quickly but can also find
good deals in Europe thanks in part to the strong dollar.
"We just sold a beautiful Jaquet Droz Eclipse to a Chicago
businessman and were able to get a great deal and quick shipment
out of Zurich. The price was so good we gave him an additional
$2,000 discount," Randall said, adding he sold the watch at 22
percent below the list price of $29,300.
Saifullah Kazmi, from Karachi, said he bought a TAG Heuer
Carrera at almost half price on Jomashop.com and had a relative
bring it to Pakistan, where a local retailer confirmed that it
Kazmi was concerned at first about the legitimacy of
Jomashop and the absence of a factory warranty, but the big
discount tipped the scales, he said.
(Editing by David Goodman)