The $50bn market that no one is talking about with only a c. 10% online penetration: The Vintage Watch Market

Etienne

17 min readJan 29, 2020

Background

This short article aims to give an overview of the current state of the vintage watch market.
It is divided in four parts: (i) Macro overview, (ii) Business Models and Peer reviews, (iii) The current Data state and (iv) The data and opportunities. Note, the opportunity section has been removed. If you want to chat about it. Just contact me ebrunet40@gmail.com

Summary

Vintage watches are non-fungible store of value items. The value derives not only from the utility but from a combination of brand, features, lindy effect / history, features (e.g. gold) and government backing (e.g. Switzerland)
For a long time, the secondary market was small and perceived as a niche market. The high fragmentation of the sellers and the buyers as well as the importance of the geography / physical location made it difficult for the secondary watch market to really take off
A combination of technology advancements (internet, marketplace model, new payment model), a strong economic growth and new buyers (e.g. China) has transformed the secondary vintage market
Today the secondary watch market is about $20bn and about $50bn for the primary market. What is striking is that the online secondary market is only worth max $5bn but is growing. The barrier at entry for the online watch market to grow range from trust, need to vet watches and sellers, escrow payment and post-trade solutions are all being solved
The brands have also understood the important of this market and are moving fast; for example the acquisition of Watchfinder for $200m by Richemont is a strong move
The market composition of the online watch marketplace: c. 90% of seller are professionals whereas the buyers are 90% a retail. The level of asymmetry of information between the two parties is very high. Moreover, a strong vetting process for on the seller side is needed to ensure quality of the watch unlike when it is done by a retail.
There are mainly 3 business models: online forum (advertising model), marketplace (no inventory, transaction fee based) and principal agent offering vetting and post sale services which can expand to a full proprietary dealer (ie buy and sell watch for their own profit)
The barrier at entry to launch a global watch marketplace is high given Chrono24 advantage. Therefore, new entrants look for other niche: younger generations (ie StockX); focusing on high-end offerings through vetting and top customer service (Chronext). The latter has a higher inventory risk and high cost due to their online and offline models
What’s interesting is that Chrono24 is very likely to be a $1bn+ company while being already profitable. Watchfinder had £130m+ revenue with £7.5m profit in 2018.
What’s even more interesting is that this analysis could be further expanded to pretty much any other collectibles: cars, motorbikes, sneakers etc…
/ (la) fin

I Macro Overview

A) The first Swiss revolution: The Quartz crisis and Swatch

In the 1970s and 1980s, The Swiss watch market suffered from the worst economic crisis in its history, the so-called “quartz crisis”.

At the beginning of the 20th century and until well after the Second World War, 95 % of all mechanical watches sold worldwide came from Switzerland. At the time, the Swiss watch market had no competition.

In 1969, the Japanese watchmaker Seiko launched his first commercially marketed quartz wristwatch called “Astron”. Simultaneously, the company invented a new marketing strategy, focusing on the aspect of accuracy instead of craftmanship and vertical integration.

Suddenly, the Swiss watch industry was losing its market share.

At the beginning of the 1980s, Swiss banks commissioned management consultant Nicolas George Hayek to analyze the situation.

His idea was to unite the brands of the two largest watch groups (ASUAG and SSIH) under one strong umbrella brand and to develop a new watch collection offering Swiss quality at a low price. The Swatch Group was born with Nicolas G. Hayek at the helm.
The Swiss industry was able to adapt and to offer new ways to reach its current and new customers. The market became less fragmented with a strong wave of consolidation leading to 4/5 ‘Maisons Horlogeres’ leading the way

B) The second Swiss revolution: The secondary vintage market

I: The boom of the internet and the limited innovation in the internet watch market.

The Swiss watch market was able to adapt and is today strong. However, a new trend has been growing since the early ‘00s

Before 2000s, the secondary market was very fragmented, limited to few cities (e.g. NYC, London etc..) and with limited information flow and great level of opacity on pricing and access. Moreover, the buyers were used to visit their watch dealer to try and buy in-person. Owning a vintage rolex was a bit being part of a secret members club.

The vintage watch market had some strong features to benefit from moving to the web:

An international collector base
Can be shipped internationally
High fragmentation of buyer and seller
The Vintage watch marketplace provides a new experience: enables the consumer to search vintage watch across hundreds and hundreds of sellers in a matter of seconds.
Economic advantages for both buyer and seller: can compare multiple price offerings and reach more potential buyers
Opportunity in the data collected through total transaction
Friction of Supplier Sign-Up: Watch dealers need to be vetted in order to ensure best in class quality and services
Strong potential network effect: As more people transact with each others, they can build reputation

However some other features have limited the growth

Size of the market opportunity: At the beginning of the 00’s the size of the secondary market for vintage watch was considered too small
Expansion of the market seems limited — what can you up-sell?
Low frequency: buyer seems to buy a watch but not very frequently buy another one
The payment flow was challenging, it was hard to pay on the internet and there was a lack of proper escrow services

The size of the secondary market was certainly the biggest driver for the lack of innovation. Most vintage buyers were not internet savvy and were lukewarm in purchasing a high value items on the internet. The common fear of being hacked while using its credit card, receiving a fake watch or just the fear and uncertainty in trying something new was a challenge

The secondary vintage watch market took place on generalist marketplaces such as eBay, niche classified websites (e.g. Chrono24) but really happenned mostly on Forum where users would build trust between each others

II: The rise of new payment methods and a new generation of buyer

A) The chronology and recent events

The launch of Hodinkee in 2008 and the acquisition of Chrono24 by Tim Stracke in 2010 was the start of a new paradigm shift.

Chrono24 launched their escrow services in 2015 and at the same time raised a growth round of $22.8m by Insight Venture Partners. They focus on offering a trusted experience for the buyer (mostly retails) by vetting each sellers (mostly professionals). In addition, they worked on including the payment as part of their offerings.

In the meantime, other competitors gained tractions such as Chronext or Watchfinder, all focus on offering a vetting services and offering a dealer broker offerings using a principal agent models (ie buying the watch on their behalf).

However, all these market participants benefited from a wave of new buyers, millennials and GenX

These buyers are more digitally savvy and more willing to buy on the internet items with a relative high value.
These new market participants are are also using social media extensively and are eager to show their most coveted watch to other watch collector.
Moreover, the bull market started post financial crisis until today has had a significant impact on the general appetite to invest in alternative assets with a limited supply, store of value asset feature and social media-enabled.

However, the watch brands were very lukewarm in adventuring in the secondary market. They would not partner with online reseller and prefer not to operate secondary market. But this also changing.

The watch companies understood that the secondary market was a new market

The secondary market watch market is accessible to anyone unlike on the primary market where users need to be vetted and be on the list for few years.
Buyers are younger on average and from a more international background. “Look at the demographic of users; they are the first set of early adopters: buyers who are young, understand the products better and are savvy about price comparisons.” These relationships may yet to be the pre-owned market’s most valuable commodity.
Buyers are now interested in purchasing a new watch every few months / years. The relative high velocity of ownership is something very new in the market. Unlike the famous Patek Phillipe ad ‘You merely look after it for the next generation’ Buyers were not always keen to keep a watch for their lifetime and are instead more interested in changing regularly via swap or re-sale

Brands are now entering the secondary market

Watchfinder was acquired for €200m (£171m) by Richemont in 2018 “Watchfinder operates both as an ‘online’ and ‘offline’ business in a complementary, growing, and still relatively unstructured segment of the industry.” — Richemont chairman Johann Rupert
Another sign is Hodinkee becoming authorized seller for Omega in November ’19 showing that the primary market is totally ok to be sold via internet dealers
The secondary market has also started to appeal for some brands with Audemar Piguet launching secondary market [Link]

B) Market size and drivers

*All these numbers above are for 2018 — source Watchfinder, Wired and Vontenberg*

What’s interesting is that the primary market, defined as the market for new watch is very slowly growing. Hence, watch makers are moving up the supply chain by owning their distribution in addition to partnership with local partner. This is expensive and limited to the well established brand.

On the other hand, the secondary market is growing 9–10% and reaching $13–20bn of annual market

However, the main opportunity appears to be to move online. However, this is sill a very nascent marke with only c. 10% of the total market is online and is led by a handful of online marketplace and brokers such as Chrono24 and Watchfinder.

These numbers assume about 12m of total watch collectors based on the assumption of Chrono24 that they have about 1/3 of the watch collector market and 100% of the online watch buyer
This assumption seems rather conservative as it does not seem to include much of the Asian Market or the Emerging Markets

With no real surprise, Switzerland is leading the way for the total export of luxury watch in the world
Asia accounts for c. 70% of the buyer market driven by China with 40% where luxury watch are very popular among government officials. The latter can be a systemic risk as the political instability in China is the biggest external risk for Swiss high end watchmakers.
An example of this was the 2010–11, Chinese political shakeup. A big anti corruption campaign as well as change in the advertising format had a negative effect on the sale in China directly impacting the Swiss makers

As China growth is maturing, Watch makers are looking at the next emerging markets that could sustain growth in the primary market. Some examples of targets include Mexico, Ukraine, India, Brazil, Russia or Canada.
Watch makers have understood the need to diversify their geography exposure

the Swiss watch industry owes its success to its foresight in actively targeting growth in the emerging markets. By far the biggest contribution to the growth of Swiss watch exports over the past decade has come from Asia**. In overall terms, the Asian countries were responsible for around 70% of the rise in exports during the 2000–2012 period**
In particular, we would identify Vietnam, India, Russia, Ukraine, Malaysia, South Korea, and Mexico as potential sources of growth over the next few years. Brazil, South Africa, and Turkey also offer opportunities.

Switzerland

Although the Swiss watch industry accounts for only around 2.5% of global production in terms of unit numbers, it is by far the leading exporter of watches in value terms.
The industry is now Switzerland’s third largest export sector after the pharmaceuticals industry and machinery.
At 95%, almost its entire production is exported. Virtually no other sector is so focused on exports and consequently reliant on achieving success in an international environment.
The government and the financial sector is backing the entire sector and will support the watch makers in case of a crash. This is very important as it shows that the luxury watch market is government backed ensuring a sense of store of value in the underlying assets

II Business Models and Peer reviews

A) Business Models

Forum: No fee — Users create threads and build reputation in a community. Sellers can advertise their items and Buyers can make an inquiry to buy the items. The purchase happens outside of the platform using payment provider such as PayPal or else. The platform does not aggregate much proprietary data.
Classified: Sellers pay a flat fee to advertise an item — It is a more advanced version of a forum but also lack the ability to aggregate user and transaction data and does not incorporate the payment leaving both sellers and buyers at risk

Marketplace

How does it work? Buyers can sign up, create a profile and buy for free. The sellers advertise and pay a 2.85% transaction fees for each sell
What does the marketplace providers provide? Each sellers is vetted by the platforms, moreover the system of points / reviews enable a certain level of trust. Moreover, some platforms such as Chrono24 offers for free an escrow service ensuring the payment is only made when the buyer receives the item and is happy with it
Pros: It allows to build a large and international user base, aggregate transaction and user data. The features such as payment and price discovery help to make the transaction as frictionless as possible. The platform does not have inventories and enjoy a high level of data
Cons: The watch are not vetted by the platform, hence, there is always a risk that a sellers may sell a counterfeit. The shipping service is not controlled by the marketplace. Sellers can use the platform to advertise and settle the transaction outside of the platform. Finally, the website may lack the customer service and support to answer customer help leaving new buyers a bit confused

What does the marketplace providers provide? The platform handles each steps of the transaction. In addition to offer a discovery and payment function, the platform ensures the quality of the watch and offer shipping and complete post-trade services. The platform can take up to 19% fee
Pros? For buyer, they have a great experience and benefit sometimes of showroom where they can visit the watches. The company highlights the importance on the guarantee of the watch and the post trade support. Moreover, they have access to a rich level of data more rich than marketplace-only actors.
Cons? For seller, the fee can be high, 19%, greater than on a classified or marketplace. Moreover, the company does not have a reach as important as marketplace-only such as Chrono24. Hence, it may take longer to sell a watch. There is also an inventory risk as the company sometimes has to buy the watch and hold it for a long time. The inventory based model is hard to scale as it is very capital consuming

B) Peer reviews — pre-owned luxury watch space

This section aims to highlight the key players and the different type of business

Forum — pre-owned luxury watch space

Generalist: Watchuseek
Niche: Omegaforums, rolexforums
Aggregator — Watchrecon
These companies were the first to connect buyers and sellers over the internet. Interestingly, they still remain quite active as users have built a strong sense of community.

Auction houses

International
Regional
These are the ones that are facing the biggest difficulty to adapt to the online marketplace shift. On one hand, the high end market does not want to lose ownership of their client base and on the other hand, the low end market is facing difficulty to offer liquidity and best pricing to their users

Marketplace — pre-owned luxury watch space

Niche: Chrono24
Generalist: eBay
Collectible: StockX
These companies have a broader audience due to the ease for on-boarding both buyers and sellers. Moreover, buyers are incentive to register and advertise there. The high number of market participants create a high level of liquidity compare to other principal agent models. However, there is no vetting of watch and little customer service.

Principal agent, deal and broker — certified pre-owned luxury watch space / Two options: sale on your behalf or immediate purchase

Broker dealer: Chonext, TrueFacet, Watchfinder (Richemont), Crown & Caliber, Bob’s Watches, Collector’s Square
Fund: Watchbox (CMIA Capital Partners, a Singapore-based private equity firm); Watch Fund
Generalist: TheRealreal, Amazon.com
These companies want to tackle the problem of the authenticity for high value items and to ensure a high level of satisfaction among buyers and sellers. The vetting process for each items, vetting buyer→receiving watch→vetting watch→selling watch→ shipping watch→confirmation from buyer→management of returns etc.. make it more cumbersome and harder to scale. However with the right level of capital the model can become a fund / principal agent benefiting from their large war chest, access to buyer and sellers and more importantly data.

C) Deep Dive in selected companies

A Chrono24 — luxury watch marketplace

Business model: Marketplace, transaction based fee of 2.85% for professional sellers and 6.5% for retail. They have a strong vetting process from the seller sides, in order to reduce the return rate.
Founded / country: 2003 but buy-out in 2010 by two German Entrepreneurs / Germany
FTE: 160+
Funding: $80m+ from Growth Equity funds and the rolex family
Data: They are aggregating vast amount of data from their customer base, transactions and also the wish list. They have the most insights in the market. Their price discovery is the reference thanks to their global audience.
KPIs
Users: 4 million or equivalent to 33% of total global watch lover
Total value of transactions: €1.3 billion (2018), +30% YoY; €1bn (2017), +25% YoY, €300m (2013)
AoV: €7,000 to €9,000
Average touchpoint before a purchase: 36 touch points
Number of watch: 430,000+
Visits: 10–12 million per month
Dealers: 3,000+ and + 30,000 of retail
Growth plan
Partnership: convincing the brands themselves, which have been quite wary until now, to also sell their own watches directly on the platform
Users: The main benefit for brands who join is that they have access to a global user base through Chrono24, and can convey their very own message to these users
Business model: much less about generating revenue than about increasing the user base and expanding the platform through partnerships with brands and the sales of new watches

Watchfinder

Business model: buys and sells upmarket “pre-owned” watches online and via seven boutiques, as well as operating a customer service centre.
Founded / country: 2002 / UK
FTE: 200
Funding: $10m
Data: Assume only transaction data from their transactions
KPIs
Users: n/a
Total value of transactions: £100m+ of turnover in 2018 (It is assumed to be gross turnover, before their fees). Been profitable since 2011
AoV: £4,000 (2016)
Average touchpoint before a purchase: 30–90 days
Number of watch: 4,000 / year
Visits: n.a
Dealers: n.a.

Note, in addition to the two above names, we would like to highlight other major peers

Collector’s Square

Launched by the founder of Artcurial, Nicolas Orlowski, and digital entrepreneur Loïc Bocher
KPIs
Based in Paris and founded in 2013, the comany is backed by Dassault
The company seems relatively small with only 35 FTE
Business Model: In addition to the digital marketplace, the duo maintains a brick-and-mortar showroom in Paris
Data: Additionally offers an interesting tool to help clients and prospective clients understand the value of pre-owned watches better: its LuxPrice-Index has gathered and analysed data on thousands of auction results over the last 15 years.
Index: Hermès Constance bags

Chronext

Business models: Online platform for luxury watches with brick and mortar. The company vets each watch on its platform and handle the entire supply chain elements.
KPIs: Raised $34m from German investors including Endeit Capital, TEV Venture. The company was founded in 2013 and has 170+ FTE
Data: It aggregates information on the entire customer journey

Watchbox

Business model:
Data-driven: Accesses different data streams to determine and provide value and price development of mechanical wristwatches and aims to offer “secondary market pricing analysis, watch education, collection exploration and the latest news” in one central location
A global e-commerce platform for pre-owned luxury watches. They act as principal agent and buy / sell watch on their behalf
Backed by CMIA Capital Partners, a Singapore-headquartered private equity firm, led an initial investment round in WatchBox of “over $100 million of capital to be deployed over the next 18 months.”
“the number one luxury today is time. Nobody has it. So you have to put the saving of time into the business model, because a lot of wealthy consumers and a lot of consumers in general, want to save time.”

III Data and opportunities

A) The current Data state

The retail price is set by the watch makers. They sell it to wholesalers who then sell it to distributors but the price display in the shop are controlled

Until recently — assumed since 2013 — the secondary market was too small to have an impact on the primary market. However, watch makers now understand that the secondary market is now booming and lack information on:

A watch can be sold multiples times without the watch makers benefiting from the market premia
The retail price may be too low compared to the demands.
The vetted distributors may act as ‘flipper’ therefore diluting the brand
They lack of information on what a users acquired in the past, own at the moment and want to acquire is a big challenge for watch makers
In addition, most brands lack detail user information. Finally, as brands are looking in entering new markets they face challenges to gather new set of data
An important factor on the watch market is that the supply is controlled by the brand. By having price and volume information in advance, they can further predict the supply and price for the upcoming months / year

What level of data is currently shared?

Watch makers

The Marketplace and broker dealers type are all sharing metadata to brands. They are able to have a high level insights on the current market. Brands can further adapt to their environment

Retail

Chrono24 is the market reference for the price. They offer their estimated price for free if users open a wallet on their platform. In exchange, they have the data on what they have and what they owned
Another company in France Collector’s square is offering a tool to help clients understand the value of pre-owned watches better: its LuxPrice-Index has gathered and analysed data on thousands of auction results over the last 15 years

Lack of historical data and community

Even though Chrono24 is leader in the spot price, there is a lack of detailled historical watch prices. Lacotedesmontres was a leader in this area.
Though the company focused too much on the ad revenue and did not innovate on the charting / graphics or community aspect