THE BIG INTERVIEW: Inside Ebay’s billion dollar luxury watch business

2018 will forever be the year when the secondary market for prestige timepieces got serious. The numbers are impossible to ignore. Swiss watchmakers will export product worth just over $20 billion at wholesale prices in 2018; still far larger than the $5 billion expected in global sales of pre-owned, vintage and grey market watches, but the secondary market is growing at a staggering pace compared to the traditional primary watch retail sector. Ebay says its sales of luxury watches are already worth more than $1 billion, making it the biggest secondary market player, and a new authentication service aims to address the platform’s Achilles heel, a lack of trust in the authenticity and provenance of thousands of watches listed for sale. James Hendy, senior director of eBay Authenticate is the man charged with cleaning up the image of the company’s watch offering, and has terrifyingly ambitious plans, as WatchPro’s Rob Corder discovered in this wide-ranging conversation.

WatchPro: Could you give me a quick description of eBay Authenticate, how it operates, the way it will affect the way eBay treats watches, and how you came to be running an operation already selling watches worth over $1 billion per year?

James Hendy: I am British and spent many years working in London with Bonhams and Sotheby’s. I made the choice to move from a 250 year-old company to a 23 year-old company to look at what authentication would look like to eBay. We know that eBay is this huge monster; we know it has its challenges, but when you look at the ever-changing landscape, there is so much more that eBay could be doing.

I came in with the background of working in the historic auction houses and looking at how we can make eBay a much more relevant player. I took the approach of looking at the luxury space first, and we launched first with handbags last year. When we looked at watches, we decided to take a three step approach. We have so far only announced step one, which is looking at how we authenticate our top sellers in the watch category. We have some of the biggest sellers in the world trading on our platform, including Watchfinder in the UK, Govberg [parent company of Watchbox] in the US; huge watch sellers. We met with a number of them and explained that we want to light up this category. They know the watch world better than we do, but we are the people that can connect everything together and sell globally to an incredible audience.

The phase that we launched in September has four of our top sellers that have each been through a vetting process where a third party organisation meets them, looks at their facilities, examines their watch service department, and takes watches away to have them independently verified. They then monitor a percentage of their listings over a three month period and continue to monitor their listings as they go up on a daily basis. They can do spot checks to see if there are any issues.

Phase two will be launched next year in Q1 and phase three in Q3. I can’t talk about what exactly those will look like, but they will extend what we are doing for the top watch sellers on eBay to other sellers.

If you consider that 20% of sales on eBay are being made by people that are top seller-rated, have been on the platform for 10 years and have their own dotcom sites, these are the first sellers we will work with, but we also need to extend the benefits of authentication to everybody. That is what the later phases attempt to do.

WP: When I think about eBay, I picture tens of thousands of individuals, not businesses, listing watches. Do you have a solution that will bring trust to this lawless part of the market?

James Hendy: We have been testing different ways that we can ignite the jewel in the crown for eBay, which is the consumer-to-consumer, C2C, transactions. That is always the hardest thing on the buyer side because they do not always know what they are looking for and the right questions to ask. We need to help these customers come onto eBay and shop with confidence, even if they do not know the seller and that seller is not a huge dealer with an amazing track record.
If we are able to do that, and ignite the authentication and trust across all inventory, that will be a game changer. This is a multi-year project to change eBay and change people’s perceptions. eBay has an incredible breadth and depth of inventory, but it is all different. We want to get as close as possible to bringing the same experience across the inventory.

WP: When you speak about your top four watch top sellers, is that a meaningful definition to eBay in terms of quality, or do you just mean your biggest by volume or transaction values?

JH: It is not purely about volume of watches. Top-rated sellers means zero issues in terms of counterfeit returns, you need to have been on eBay for a certain amount of time and had a certain number of transactions. It not purely the biggest that are top sellers, it is more about quality.

In the watch category, we have some terrific sellers that may only transact ten to 20 items per month, but they are all $30,000+. We have one seller who in the last three months has sold a Patek Philippe for $500,000 and backed it up with two more for $120,000 and $180,000.

Govberg is one of our top sellers, and they have a 100% feedback score, which is pretty much unheard of. All of the top sellers we are working with are in the 98-100% area.

 

 

WP: In the first phase, is the authentication mainly about interrogating the seller rather than the inventory of watches being sold?

James Hendy: In this first phase, we are only working with sellers that have in-house authentication that has been vetted by a third party. It is similar to the certified pre-owned on Amazon where they have a third party to vet the sellers. It is not so much high street jewelers and watch retailers, and more the specialists in pre-owned watches. Some might have a physical presence, but most are purely online stores.

WP: Do you have any issue with brand new watches being sold that are quite clearly grey market sales? I would imagine during your time at Bonhams, you would not touch grey market watches because that would have damaged your relationships with the major watchmakers like Rolex and Patek Philippe. Does eBay care in the same way?

James Hendy: The grey market is interesting. Who is ultimately responsible? It is the over-production on the brand side and these watches feed through to market in all sorts of ways, not just platforms and marketplaces.

We are going to see huge changes in the coming years. If you look at Richemont’s acquisition of Watchfinder or Audemars Piguet’s creation of its own secondary marketplace, it is going to be a fascinating time and there are going to be great opportunities for players like eBay that already have scale and global reach.

Right now, for me and for eBay, I want to get this right and better enable our marketplace to be more than just a dominant player, but also a transparent and trusted player in this field. The grey material — there is so much out there — can be difficult to identify on eBay. There are lots of ways that brand new watches that are not grey market can appear on marketplaces.

 

 

WP: You must have data on the percentage of watches that are, say, priced above $1000, unused, boxed and with papers. That should be fairly easy to trace and would give an idea of the proportion of watches that could be grey.

James Hendy: I cannot share that data, but part of the challenge is that consumers get to decide how they would like to label their watches. Sometimes they might choose a category like ‘new with tags’ or ‘new other’. There are a couple of different ways that things can be labelled. The predominate business is pre-owned, but there are a lot that people say are ‘new with tags’, some of which are as described and some that are not. There is a variation there that, as we go into this watch category in more depth, we will look into.

WP: I agree with you that the grey market is a problem that watchmakers have helped to create and they have to find a way to fix. For Richemont, Watchfinder, Net-A-Porter and Mr Porter could be useful channels to sell inventory that could not be sold elsewhere by their authorized dealers. But that does not diminish the fact that there is a general mistrust of eBay and the brands do not feel it is the right environment to sell their luxury watches.

James Hendy: I can certainly understand what you are saying, having had a very different opinion of eBay while I was working in the traditional auction business. However, coming in here I can see the potential in the future of true marketplaces like this once we understand the importance of authentication and enabling people to have a much better experience.

For me, it is a case of getting better at what we do and I truly believe that the authentication plays that we roll out next year in the various phases will be transformative for what is already the world’s biggest platform. We will enable more people to benefit from the scale that eBay brings; 175 million active buyers across the world is a huge opportunity.

WP: I recently interviewed the CEO of Chrono24, and he said that he thought that there would be a winner takes all situation when it comes to marketplaces for luxury watches. If he is right, I wonder whether eBay is focusing on the category too late and offering too little to push back against a platform like Chrono24 that already says it is interacting with one third of the world’s luxury watch customers and appears to have overcome many of the trust issues that still plague eBay. For example, the company set up an escrow service that they thought would inject trust and confidence between buyers and sellers, but I was told that there was very little take up because the trust was already there.

James Hendy: Some of that is because they launched purely as a watch platform, so there is a certain amount of trust and credibility that comes as default with that. eBay sold everything for over 20 years. When I joined I was blown away by the numbers eBay is doing in luxury watches. I was in the business working for auction houses and I had no idea eBay was so big in luxury watches.

The fact that Chrono24’s customers are not using the escrow service would be of concern to me because it suggests that transactions are taking place away from the platform and that is going to be a hard business to truly scale in terms of profitability. We have had a huge push over the years to keep sales on eBay, and that has been very successful and the watch business is very profitable.

Winner takes all? I don’t know, but I do expect to see consolidation. You have already started to see that with the acquisition of Watchfinder buying Richemont. Watchfinder is a great operation that is now tying in directly with brands.

There are five to 10 secondary market watch players globally right now and I would expect to see some consolidation in the coming years. If you look at the size of eBay and where we could be in three to four years from now, I can only see us at the top of that list of players. By bringing a better level of authentication and trust, having the best inventory, presenting it in better ways, having better content, having better and stronger partnerships; I believe eBay will remain on top.

 

 

WP: Chrono24 claims its platform will see transactions worth around €1.2 billion this year, a number that is hard to verify and it is not clear whether that only includes sales where payment is made on the site, or also includes offline deals. But, taking it at face value, is eBay doing more than that in luxury watches already?

James Hendy: Yes, we are doing more than that in luxury watches globally.

WP: Can you put a figure on it?

James Hendy: No, I cannot give you a figure, but I can say that it is higher and those are transactions that are happening on eBay so revenue is being generated [for eBay] with each transaction.

WP: Some experts think that luxury watch brands will move in the direction of providing authentication and certification for pre-owned watches and creating a legitimate industry for certified pre-owned watches that will work hand in [white] glove with the primary market. What is your view?

James Hendy: I think it is fantastic. Across all luxury categories I believe it will happen. It is not a question of whether it will happen, it is only a question of when it will happen. Particularly the big luxury brands, they will definitely come out with plays and plans for the secondary market. It is too big an opportunity to ignore.

It is also about understanding the customer. We meet with many of the luxury brands and we really do have the data and information on how people browse and shop on eBay. I can tell you many of these people are not just bargain hunters, they are the same people that would happily go into a traditional retailer and pay full listed price for an item, but are also happy to trade on. The secondary market gives a great insight into who and what your customer is, and it is a lot more than just what a retailer sees of the customers that come through their door.

WP: How big do you think the secondary market is today? I have heard people with reasonable oversight talking about $5 billion, others say $8 billion, I have even heard it is worth $15 billion already. Do you have a number for what you believe the size of the market is right now in 2018?

James Hendy: There is so much out there, and we are obviously conversing with a lot of people at the brand level and the retailer level. I think $5-6 billion is about where we think we are. That is a huge number, but at the same time I think, knowing what is out there in terms of inventory, that is going to be surpassed in the coming years.

WP: Do you think customers are going to get more and more comfortable buying pre-owned, and if they do, how much of a challenge is that to the primary market? Will people still buy brand new from an authorized dealer when they can buy the exact same watch, still brand new or as close as makes no difference, for 25% less on the secondary market?

James Hendy: The used car market is a great comparison. It was not so long ago that you would never see an authorized car dealer with a used car for sale on the same forecourt as their new cars. Now you do. Customers can see both and can clearly see the price difference between new and used.

The secondary market will provide more availability and potentially lower prices, but I think there will always be people willing to pay retail price for an item that they want: a new watch, a limited edition. I think it is more about the brands rolling back the level of inventory that is introduced to the market. When we spoke about the grey market, that inventory only comes from one place. So when the brands have a better understanding of what customers want, through partnering with marketplaces like eBay, it will be far easier to control that distribution at retail.

Brands will always have retail customers, but I hope and believe that when eBay becomes seen as a safer and more trusted place, we will bring in new buyers that are currently periphery to the luxury watch business and really drive demand. You have seen in the art world over the years, it has been all about developing the next generation of customers and collectors. I believe the secondary market is a great entry place. Some people find traditional retail intimidating. They walk into the beautiful boutiques and everybody is trying to sell them something. Online, I can sit in the evening and have Chrono24 up, or eBay up; I can go on Youtube and educate myself. This is what could bring new buyers into the market, and that could help maintain the success of [primary] retailers.

WP: Brands say that customers cannot get the full experience of sitting with a qualified sales consultant when they shop online, but others say that true luxury is, as you describe, lounging on your own sofa with a glass of fine wine while browsing for details of timepieces. But can or should eBay look at how it can improve on the level of luxury with the experience of shopping on your platform? Could you, for example, go the Mr Porter route where white gloved couriers deliver watches to customers’ doors in beautiful packaging?

James Hendy: I think there is a happy medium, and that is where eBay is. The chap turning up wearing white gloves and a dinner jacket is unlikely to be where eBay plays. But there is a lovely area between where eBay was at, and where we are already taking it to. Already, you can come to eBay and shop for 12,000 authenticated watches ready to be shipped today. We do not have the out of stock problems that you get on Mr Porter and multiple other sites. So often customers get excited about a watch, but then find out they cannot buy it because there is a waiting list. For me, that is counter to the luxury experience when I have spent three weeks researching, I have come to press buy, and I am told it is out of stock. You do not get that on eBay.

We will sit slightly below that white glove experience, but we can for sure raise our level of luxury from presentation to delivery, to pick up and drop off. We are exploring all those things right now.

WP: In simple terms, secondary markets are essentially searchable lists of watches. Compare that to something like Cartier.com and you find the brand evangelizing about their watches and jewelry with incredibly rich content and opulent presentation. If you were able to work directly with brands, you would be able to bring a lot more of that brand content into the experience, but that looks a long way off at the moment.

James Hendy: That is the dream. If I could put on a piece of paper how the watch industry should work, the first thing would be the connection between brands and the secondary market. That is how you solve the grey market; that is how you solve counterfeit. If you connect the dots from lead generation by the manufacturer, to a sale in an [authorized] retailer, to re-sale when the customer is brought back into the orbit of the brand.

You are absolutely right that when you go onto the brand’s website where they have wonderful content about the history, the watchmaking, and the collections. It is a wonderful experience. But I would question how many people are then sold into the acquisition there, versus doing their research there and then coming to the secondary market to make the acquisition. Tying those two together is so important.

WP: You have said you are having conversations all the time with the brands. What are they demanding of you and what are you saying to them?

James Hendy: Brand executives are curious about our data. We have 23 years’ of data. Our conversations are always about how we understand brands’ need to protect their image, but the world is ever-changing. It is really about data, understanding customers and better engaging with them so that they get the service they expect from a luxury brand.

The best way to bring new customers to a watch brand is not through primary retail, it is through the secondary market. They may grow to become a primary retail client, but that is unlikely to be their first contact with luxury watches.

WP: I have spoken to heads of many brands that have needed to buy back watches from their channel partners in order to clear out old and unsold inventory. They then want to sell those watches on the secondary market in a way that does as little damage to their primary partners as possible. Do you have a solution for these companies, and do you have any formal partnerships with brands in this position at the moment?

James Hendy: That is an active part of the model here at eBay. It is mainly the high end luxury brands looking at ways in which they might become partners in the future, or at least work with us on shared information and education. For a watchmaker, building a channel that deals with overstock is far more difficult than working with a company like eBay that has been doing it for 23 years. We have the velocity, the scale, the global reach. There is a definite business case for watch brands to plug into that.

We do it with Adidas, which has a branded store on eBay that is a phenomenal success. It is end of line inventory, overstocked inventory. Customers come to eBay but know they are buying direct from Adidas, which controls how the store looks, and makes all of the customers’ concerns go away.

It is only a matter of time before watch brands make the same play. And if the brands decide to engage with a juggernaut like eBay and have control of how they look and feel, then I think first-in and best-dressed will win the day. Any watch brand that decides to be first to market on eBay will gain velocity and grow their secondary market very quickly; much more quickly than if they tried to build it themselves.