Understanding the Grey Market: Insights into the Luxury Watch Secondary Market

The luxury watchmaking market generates a lot of interest and sometimes stirs up passions, especially when the topic revolves around what is commonly called the "Grey Market" or "Second Market," referring to the secondary market of unauthorized resellers. We would like to share our perspective and answer your questions. In a Q&A format, 41Watch provides you with the keys to understanding an opaque market. This is not a witch hunt or a plea, just an exposition of the facts for both the less informed and enthusiasts who have perfectly legitimate questions.

Recently, we have noticed a particularly pronounced enthusiasm (more than usual) for certain models from Rolex, Audemars Piguet, and Patek Philippe. Some watch enthusiasts are offended by the prices and margins practiced by secondary market resellers, which seem indecent. We thought it was urgent to clarify the situation and explain it to the "consumer."

What are we talking about?

When referring to the secondary market (colloquially known as the "grey market"), we are specifically talking about the following models:

• The Rolex Daytona 116500LN
• The Rolex Submariner Hulk 116610LV
• The Rolex GMT MASTER II Batman 116710BLNR and GMT MASTER II Pepsi 126710 BLRO
• The Royal Oak 15400ST.OO.1220ST.03 and 15202ST.OO.1240ST.01 from Audemars Piguet
• The Aquanaut 5167A-001 and Nautilus 5711/1A-010 from Patek Philippe

All these models are resold new, in like-new condition, or as very recent pre-owned pieces at significant premiums compared to the manufacturer's listed price—sometimes more than 50%. This is what creates such a stir in the microcosm of luxury watchmaking.

For example, a Rolex 116500LN Cosmograph Daytona with a white dial is officially sold by brand distributors for €12,400 EUR, but it can be found on the "secondary market" on specialized platforms (whose names we won’t mention to avoid additional publicity) for €18,000 EUR or more, in a "brand new, never worn" condition. (Edit May 2021: think closer to €34,000!)

Let’s call a spade a spade: a watch in "brand new, never worn" condition is technically new, sometimes still adorned with its transportation stickers, but is considered pre-owned from an accounting perspective (as it has changed hands).

Take another example, the Patek Philippe Nautilus 5711, which you can acquire at Patek, if you're lucky and very patient, for €27,000 EUR, but it will cost you over €45,000 EUR in "new" condition from an unauthorized reseller. (Edit May 2021: think more like €85,000!)

Source: Chrono24

Several questions naturally arise, and we have tried to compile them and provide transparent answers.

Why do brands allow this kind of practice? Can we believe that brands encourage the situation?

The official policy of brands is to combat the secondary market, which they most often denounce vehemently. Patek Philippe recently increased its prices by 20% to curb the phenomenon. The real question is understanding how brands have created this situation and to what extent they can mitigate it.

The high prices in the secondary market for a steel Rolex Daytona Cosmograph with a ceramic bezel are primarily due to product scarcity at distributors. Most of the time, distributors do not know when they will receive this product (2 to 3 units per year per distributor?), even though they receive daily inquiries about it and maintain a waiting list for their VIP clients. Needless to say, the average person, who might dream of owning this "grail" without a "letter of introduction," stands little chance of success or even being placed on the waiting list in certain cases.

It is evident that, with such phenomena (90% of Rolex production is sold at retail price or with a slight discount on the secondary market), the manufacturer could simply increase production and even raise prices to eliminate all speculative attempts. So, is the brand capable of increasing its production of steel Daytonas?

The following response is purely our opinion: we find it difficult to understand how a manufacturer producing roughly 900,000 watches per year cannot increase the production of a specific model that, while iconic, is not particularly extraordinary from a watchmaking technical perspective. Certainly, the product quality is exceptional... But what else? Our theory is that brands benefit from this and are happy to reward their best clients with nearly unattainable models.

How do unauthorized resellers acquire these exclusive models?

We do not intend to reveal secrets or denounce certain practices. We will simply respond succinctly: the different players involved, namely the brand, multi-brand resellers, and unauthorized distributors, often find common ground in the secondary market practice because, above all, there is an economic logic for everyone. Most of the time, unauthorized resellers, either directly or through specialized intermediaries, handle high volumes, which earns them "entitlements" for the most sought-after models. From our point of view, it is that simple. Additionally, there is a whole category of intermediaries, which can be called "brokers," who capture a significant portion of the margin. We will intentionally refrain from commenting further on the practices of some individuals who obtain a watch in-store after several years of waiting and immediately turn to the secondary market to make a profit.

Do unauthorized resellers make excessive profits in the secondary market?

At the risk of disappointing some, the answer is: NO, NO, and NO. The ability to "source" an extremely coveted model is primarily part of a customer acquisition strategy and is essentially a communication operation. Being able to provide a Rolex GMT 126710 BLRO, known as “Pepsi,” to their most loyal clients is a fantastic showcase for market players. We at 41Watch do not hide this at all. It is a way to thank our good clients or to meet new ones. One thing is certain: we are unaware of excessive profits being made in this market. We even dare to assert that the margins achieved by resellers are among the lowest in their business.

Is there a risk for the end consumer?

If a customer turns to a reputable, established reseller, the risk is very limited, even non-existent. Always ensure that the watch comes with its box and the magnetic property card. If you have any doubts, a quick visit to an authorized dealer is in order. It is essential to note that a watch purchased on the secondary market, when sold as a full set, is always covered by the manufacturer’s warranty. The buyer therefore enjoys the same benefits and guarantees as if they had purchased it from the manufacturer.

Are we witnessing a speculative bubble similar to the vintage car market of a few years ago?

A few lines will not suffice to answer this delicate question. However, we observe a new category of customers, more investment-oriented, driving prices up. We notice increasingly informed, international buyers seeking returns on investment. Notably, a new wave of younger Patek enthusiasts has emerged, focusing on the most iconic models.

One of our recent publications discusses this topic, relying in part on the price evolution of the Nautilus. Recent auction records for exceptional pieces have also helped drive prices higher.

What perspectives can we foresee?

In conclusion, when dealing with products of genuinely limited or confidential production, we feel quite comfortable with the speculative risk. Simply put, we must distinguish between short-lived trends and the long-term dynamics of the luxury watchmaking market.

The production of a Patek Philippe 5711 or an Audemars Piguet 15202ST will always remain highly limited, if only due to production capacity, and demand will always outstrip supply.

We at 41Watch hope these insights have shed light on the mechanisms of the secondary market for both seasoned enthusiasts and newcomers. If you want to know the catalog prices of various manufacturers, feel free to check out our latest publications on the catalog prices of Audemars Piguet, Rolex, Breitling, and Patek Philippe. And for guidance on your next investment, don’t hesitate to contact us!

Cyril - Co-founder of 41Watch