The Western market for luxury watches, particularly in the United States, has been skimming the stratosphere at Mach 2 since the pandemic, but is about to descend to normal cruising altitude and speed, according to Danny Govberg, the architect of a deal to merge pre-owned watch specialist WatchBox with three major family-owned Official Rolex Jewellers.
The journey to creating The 1916 Company began with a traditional family jeweller in Philadelphia, Govberg Jewelers, which had (and still has) two Rolex-anchored multibrand showrooms.
The Govbergs were early money on buying and selling pre-owned watches, and getting behind independent watchmakers including F.P. Journe, but were otherwise typical of the family-owned authorised dealer community.
That changed in 2017 when Mr Govberg joined forces with Liam Wee Tay, former owner of Sincere Watch, and investor-entrepreneur Justin Reis to launch WatchBox as a global e-commerce platform for the buying, selling and trading of luxury pre-owned timepieces.
CMIA Capital Partners, a Singapore-headquartered private equity firm, led an initial investment round in WatchBox with access to funds of $100 million and a promise of more if required.
Steady growth for WatchBox up until 2020 accelerated after the pandemic as a surge of interest in tangible assets like timepieces; pent-up demand and savings, particularly among the wealthy; and a new breed of investors and flippers drove demand and secondary market prices for new and used unicorn watches to record highs.
WatchBox surfed ahead of the wave, innovating and expanding internationally, and opening collectors’ lounges in several US cities, plus further afield in Switzerland, Shanghai, Hong Kong, Dubai and Riyadh.
Despite, or perhaps because of, that growth, Mr Govberg was getting a sense that he had too many eggs in the pre-owned basket, and was overlooking opportunities to expand further up the luxury watch pyramid with fine and collectible watches from the hottest living independent watchmakers.
He started planning an upgrade to Govberg Jewelers’ Rolex- and Patek Philippe-anchored Philadelphia flagship and, in the summer of 2021, WatchBox bought De Bethune.
A freeze followed by a price slump for pre-owned watches that began in the second quarter of 2022 hammered all secondary market specialists, but WatchBox was already seeing through the gloom to how the market would look on the other side.
Rolex was also considering how the future of luxury watches would look, and how primary and secondary markets were converging.
WatchPro first started hearing rumours that Rolex had a plan to enter the pre-owned market at Watches & Wonders in 2022, and broke news of its Certified Pre-Owned launch programme later that year.
More than the 2022 price crash, this was the moment Mr Govberg and his team recognised the need to change.
He first told WatchPro in August this year that the Rolex CPO programme would have such a profound impact on non-aligned pre-owned watch specialists that he could see WatchBox getting out of Rolex altogether.
His view was that the Rolex programme would be so successful that it would be impossible to compete with the brand’s authorised dealers selling new and gold-standard used watches side-by-side.
So the operation pivoted towards the primary, acquiring and merging WatchBox with Hyde Park Jewelers and its 10 showrooms in Arizona and California with Radcliffe Jewelers’ three multibrand stores in Maryland, and Govberg Jewelers’ two locations in Philadelphia.
In addition to a dozen collectors’ lounges around the world, the merged business The 1916 Company was born with 27 points of sale — eight of them Rolex doors.
Oh, and it is building a Rolex accredited service centre of capable of processing up to 4,000 watches per year.
It might take the watch world a while to catch up with what Mr Govberg has pulled-off with this deal, but it will not be long before The 1916 Company is mentioned in the same conversation as Bucherer, The Watches of Switzerland Group, Hour Glass, and Seddiqi.
And it already leads all of those global giants in the fastest-growing part of the luxury watch market: pre-owned.
Competition will commence in a cooling market, Mr Govberg tells WatchPro in our Big Interview for December, but he is confident we will not see the sort of rout experienced during the global financial crisis of 2018.
“Until 2008, our industry was cruising along at 35,000 feet. We crashed down to 2,000 feet in a matter of months with the financial crisis,” Mr Govberg remembers.
“From 2008 through to 2019, we saw the plane gradually climb back to 30,000. We hit the pandemic and we dropped to 25,000 feet, but as that eased, we took off like a rocket to 60,000 feet at Mach 2. We were no longer an airplane, we were a rocket ship,” he continues, warming to his analogy.
“Today, that aircraft has dropped down to 50,000 feet. It hasn’t crashed, it has just come down like a normal airplane. What you are going to see is 35,000, maybe 38,000 feet in the coming year. Then we will cruise at around that, and try to get back up to 40,000 feet. I do not think we are dropping to 10,000 feet. That experience in 2008 was a once in a lifetime event,” he predicts.
The secondary and primary markets will normalise as demand and supply for the hottest brands balances. That might mean the most traded Rolex watches selling at a discount to retail prices, but scarcity for some models will still make them solid investments.
“In three to four years, primary and secondary will look more normal. A new watch costing $20,000 might sell pre-owned for $15,000, but some watches will still cost more than retail,” Mr Govberg believes.
The 1916 Company is now a Rolex power-player, and has the full backing of the Crown (the deal to merge Radcliffe, Hyde Park and Govberg Jewelers could not have proceeded without Rolex’s green light).
That is exactly where Mr Govberg wants to be. “In the new order, Rolex and its ADs are setting a new standard. If a customer is dealing with a Rolex AD, watches being authentic is a given. On top, they are going to be offering so much more. Nobody will be able to do that to the same level as an AD, and in the future that is going to apply to many watch brands,” he concludes.
