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Explain the Grey Market to me

6K views 55 replies 22 participants last post by  aliasfox 
#1 ·
I did a search but did not find my exact question.

How does the Grey Market get new watches? There is a huge price difference between an AD and Grey for new watches. Obviously used is easy to understand.

Thanks
 
#9 ·
Let me try to explain...

You open a retail outlet and you would like to carry brand X. In order to carry brand X, brand X requires that you initially buy $250,000 of inventory through them. They also require you to buy certain amounts of various models that you may or may not want. You may also be required to purchase a certain amount every year to continue being an authorized dealer. The problem is, you the retailer may not have $250k to spend and you may not want all of those models. That's where the grey market comes in. You the authorized dealer sell off your extra inventory to the grey market dealers for close to cost, they then make them available to the public at a discounted price.
 
#11 ·
Let me try to explain...

You open a retail outlet and you would like to carry brand X. In order to carry brand X, brand X requires that you initially buy $250,000 of inventory through them. They also require you to buy certain amounts of various models that you may or may not want. You may also be required to purchase a certain amount every year to continue being an authorized dealer. The problem is, you the retailer may not have $250k to spend and you may not want all of those models. That's where the grey market comes in. You the authorized dealer sell off your extra inventory to the grey market dealers for close to cost, they then make them available to the public at a discounted price.
I feel like Neo who has just been shown the Matrix.....

Thanks!
 
#22 ·
Great example I searched AD Margins and this is what came up

"It is the quest of the watchmaker, who is concerned with chronometry, to grab these
margins no matter how small nor irrelevant they may seem."

Does this answer my question? I think not.
 
#24 ·
Grey market = Genuine watches + Heavy discount.

Costco used to sell grey market watches from famous brands, not sure how they source for the watches but they sell them pretty quick, a couple of years ago I spotted an Omega SMP (the Bond watch) in my local Costco, I had a feeling like I would buy that watch in the coming days as the price is very good, but the next time I came to Costco the watch has been sold. Asked the salesman if they would have another watches like that, he said "what you see is what we have".
 
#26 ·
One mooore time! It's been almost 6 years since I've seen the "sheets", so my numbers may be a little
off due to shaving by some of the brands.

Rolex, Patek, Cartier and Panerai - 40%

House brands that buy direct, no middle man, - about 60%, about 5% less for Gold.

Just about all others, 50%, about 5% less for Gold.

Mark ups is usually twice the margin, there's no big profits made in selling watches. It's not like
jewelry or sneakers that come in from China. A watch store has nothing to fall back on like a jewelry
store. As explained to us years ago, "the pie is only so big". :-(
 
#36 ·
One mooore time! It's been almost 6 years since I've seen the "sheets", so my numbers may be a little
off due to shaving by some of the brands.

Rolex, Patek, Cartier and Panerai - 40%

House brands that buy direct, no middle man, - about 60%, about 5% less for Gold.

Just about all others, 50%, about 5% less for Gold.

Mark ups is usually twice the margin, there's no big profits made in selling watches. It's not like
jewelry or sneakers that come in from China. A watch store has nothing to fall back on like a jewelry
store. As explained to us years ago, "the pie is only so big". :-(
Hi Watchbreath - I would like to understand these numbers a little more even if they are out of date.

Lets take the Patek at 40%. What are you saying here?

If a Patek retails for £100,000 the AD shop buys it for £60,000 and has a gross profit of £40,000?

Or are you saying that a Patek that retails for £100,000 would have been bought for about £71,400 and 40% of that (£28,600 = £100,000 retail) leaves a £28,600 gross profit?

I'm sorry to be a little dense on this but I'm not sure what to relate the percentages to?

Regards,
 
#27 ·
You can often buy grey market photographic/electronic items from the same AD. B&H, for ex., will occasionally sell you the same lens in "import" or "USA" livery, the difference being that the "import" lens lacks the mfg's warranty but is covered under the seller's 1 yr warranty. There is no way that this practice is not known to, and condoned by, the manufacturer.
 
#28 ·
That used to happen with Costco and name brand tools, the Mfg. refused to sell to them because of market dealer protections deals, so they would grey market and then the dealers would be livid.
I remember some years ago the National Manager for a certain brand freaked out because they had sold containers of tools to somebody who lied to them about how they were going to sell them.
When they ended up at Costco, they terminated their business relationship. So it is not always an supported arrangement. And the warranty might not be honored either, they have serial numbers and they know who they sold it to.
 
#29 ·
This is the reason why grey market dealers used to polish off the serial numbers from the watches they sold, so that the brand couldn't trace the grey market watches back to the ADs that sold them.
 
#34 · (Edited)
The Omega SA v Costco lawsuit really brought grey market sales into the open back in 2008. Initially the Trial Court ruled in favor of Costco, which was a real Win for consumers. Omega appealed to the 9th Circuit US Court of Appeals who reversed the decision. The case eventually found its way into the Supreme Court, who deadlocked 4-4 (with one justice who did not participate), and sent the case back to the Appeals Court. To my knowledge, they are still in litigation. It will be interesting to see what comes of this, as it could possibly open up all sorts of opportunities for consumers.

EDIT: Here is a Wiki link of an explanation of the case.
http://en.wikipedia.org/wiki/Omega_S.A._v._Costco_Wholesale_Corp.
 
#37 ·
There's a lot more to the grey market than an AD selling out the back door. I work at a watch store, and we have no idea how the grey market works.

For instance
A watch MSRP is $1000
Our Cost $500

A WUS walks in spends some time with the salesperson, and it goes out the door at $750.

Of the $250 "profit", salesperson takes a % (3, 5?), The credit card gets a cut (4%).
In the end, the store made $200. It's a mail order? Maybe we have to throw in free shipping ($25). $175 in the till. Maybe.

So, on the legit front, there's not a lot of gravy on a $1000 watch sale.

VS

Overstock.com

Same watch $520 posted sale price
less 10% with your coupon
including free shipping

There's no way these watches are coming from legit retailers selling for just over cost, because these prices reflect prices LESS than cost. Maybe they lose money on every sale and make it up in volume? Amazon/Joma/Overstock are paying the Amex fees too.

The worst part (from a retailer perspective) is that sometimes overstock/joma have more stock than the distributor! We have actually sourced from the grey market to supply a AD customer, costing less with our coupon, shipped faster, etc.

So, it's not as simple as the watches going out the back door @ the AD level.

Now, what I can't figure, is that there is no pickier/finicky customer than a watch nut. How can a razor thin margin business service the client?

There's another thread about a guy who's chrono isn't resetting on a luxury brand watch- a watchmaker capable of repairing that/sealing that and not mucking up the hands is neither easy to find nor inexpensive. How are these grey dealers warrantying these watches? What if they sell a brand new Omega Planet Ocean and it needs a repair to the coax escapement? How do they undersell everyone, free shipping, and still warranty these watches that the manufacturer's can barely keep up with servicing? How are they putting parts on watches on brands that don't sell parts?

I have no answers. Just questions.


Pedro
 
#45 ·
There's no way these watches are coming from legit retailers selling for just over cost, because these prices reflect prices LESS than cost. Maybe they lose money on every sale and make it up in volume? Amazon/Joma/Overstock are paying the Amex fees too.
Besides , grey market buyers are not always buying from AD's in the same market/territory, they can be making their points (margin) on favourable exchange rates from the country they are buying in from.
 
#39 · (Edited)
It has to be a combination of factors that vary from GM seller to GM seller. For one, at a certain low price point it involves shaving points at every step of the way. 4% to Amex is high. A vendor paying that rate has very little volume. 2 3/4% is routinely given to higher volume merchants. MC and VISA routinely charge those rates and less but Amex gets their money from the merchant, not the consumer.

It's pure speculation on my part but I can't believe dumping doesn't occur in the watch business when production outpaces sales. Watches and electronics are not the only GM merchant types out there. Look at stores in the US like Costco and National Liquidators and the popularity of so-called 99-cent stores run by recent immigrants in large cities like NY. Sources for watches can be as varied as ADs to distributors to manufactures.

To those who opined that camera manufacturers have no interest in controlling sales look to Canon and others who brand their products differently for different markets.
 
#40 ·
There's no way these watches are coming from legit retailers selling for just over cost, because these prices reflect prices LESS than cost. Maybe they lose money on every sale and make it up in volume? Amazon/Joma/Overstock are paying the Amex fees too.
"Cost" would vary depending on "how much" (and how often) volume you're prepared to buy from manufacturer - and to another extent "when"

your "cost" might not be another retailers "cost"
 
#44 ·
I think everything has been explained, so I'm just regurgitating information,

to my knowledge, grey market gets their watches from AD and distributors,

I highly doubt they get theirs directly from the manufacturer. The manufacturers have a contract with the AD, they expect the AD to abide by the rules, they should no less do the same (for example, not selling to anyone else but the AD, a breach of contract could have dire consequences).

there are several ways the grey market can get their watches from the AD,
order through/with the AD or buy it off from the AD when the AD need to get rid of old stock.

As an AD, ordering a bigger stock (with the secret help of a grey market) is beneficial, and getting rid of old stock (even at cost) is crisis averted (because in most cases, you are not allowed to have a sale, the manufacturer sets your selling price).
 
#50 ·
I'd say the real cost is close to but still lower than 50% so it is more likely that the discounters are selling at slight losses and then make up for it through volume, and the sale of other watches that weren't priced at 50% off. We, who happen to be more knowledgeable on these prices, only represent a minority of buyers, most people will not do as much research and will probably get a "worse" deal.

Indonesian grey market dealers have a habit of selling with AD warranty, if it means anything. This happens with Casio, Seiko, Citizen, all the fashion brands, and even the likes of Tissot. But even then the ADs will always recognize watches that weren't purchased through them - it would've been easier to explain if they simply thought it came from another branch AD, but no, they actually know when a watch brought to them is purchased through grey market dealers. It is obvious that someone high enough in the local AD hierarchy supplies the goods to the grey dealers. The way I see it, this is done to help the AD offload stock. Citizen is locally famous for always selling for 50% off as long as you haggle patiently. And don't be surprised if you see the likes of a Promaster 1000m sold in a 2x2m stall. Grey dealers seem to be involved in a consignment type of deal with the ADs - a la multilevel marketing schemes.

Sent from my GT-I9100 using Tapatalk 2
 
#52 ·
MSRP is a joke, and is only paid if either the demand is super high like with certain guns in America right now, or if the buyer is really undereducated on his prices of a product.
Computers and the internet make for no reason for overpaying these days.
I have not been paying full list for the last few watches I got new.
 
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