Which way now for the second hand Rolex market?

Chrono24 and Chronext have laid off staff, Watchmaster has fallen into administration and prices for the 50 most tradeable luxury watches have slumped by at least one third in the past year. It is fair to say that the secondary market for top end timepieces is in choppy waters right now.

Charting a path through these stormy seas has not been easy, but it helps to be a genuine watch lover at heart because you have an instinctive feel for what fellow-collectors are thinking.

That is the secret sauce for Paul Altieri, CEO of Bob’s Watches, who has been buying and selling watches — predominately Rolex watches — since he acquired the company, reportedly for just $8,000, in 2020.

Bob’s Watches flourished in California, first in Huntington Beach, and later in the even more affluent Newport Beach in Orange County.

It is now a nationwide business, or even a global operation, with Mr Altieri spending most of his time in a Florida office where he may also open a retail store.

Before the correction of the past year, second hand watch businesses were attracting significant investment from private individuals and financial institutions and there was talk of companies including Chrono24 going public.

It will be a long way back to that level of confidence, but the largest and most experienced players, like Mr Altieri at Bob’s Watches, believe we will emerge into a more healthy and sustainable market where new and used watches both contribute to a far larger global industry.

The past three years have not been for the faint hearted.

When the pandemic began in March 2020, business hit a wall. “We thought: ‘That’s it. We’re done’,” Mr Altieri recalls.

But buyers returned within weeks, and the primary and secondary market for prestige timepieces took off. At Bob’s, sales came roaring back by June and the company ended 2020 with record revenue. “We were up 40% up year-on-year,” Mr Altieri tells WATCHPRO, and 2021 was even better.

Frankly, anybody could make money in the two year gold rush since those early weeks of the pandemic. The trick is to get enough hay in the loft to survive much more challenging times.

The first few months of 2022, we now know, were the end of the party. Price rises accelerated in the first quarter, but anybody left owning stock at the end of March found it far harder to shift as buyers all-but evaporated.

For Bob’s Watches, the boom in the first quarter almost offset the pain of the next nine months, with Mr Altieri saying revenue was down by 10% by the end of the calendar year.

“For a company that’s been growing 30-40% year-on-year for the last 12 years, to be flat or down 10%, I think it’s a healthy correction. I think it was crazy what was going on. Prices were going up almost daily compared to when we bought the business 12 years ago and we would maybe make price adjustments once a quarter. It was nuts. So, I think it’s nice to see it go back down to normalcy,” Mr Altieri suggests.

What is the new normal going to look like? It is hard to say, even for a lifelong collector and trader like Mr Altieri. The vast majority of watches sell for below their recommended retail prices on the secondary market, but almost everything in the catalogue for the likes of Rolex and Audemars Piguet was suddenly selling at a premium — sometimes a massive premium — during the boom because production could not keep up with normal demand, let alone the pile-in of 2021-22.

Rolex authorised dealer stores had no new watches available to buy for walk-in customers, leading to “Exhibition Only” displays. Despite the year-long fall in prices, windows are still empty of watches to buy.

Mr Altieri thinks supply will catch up with demand, even for Rolex, but it will take time. “It took 5-7 years to get where we’re at today. It’s not going to go back overnight, it’s going to take a while but you’ll eventually walk in to an AD and you’ll see two watches, and then five. And then the next time you go in 10 or 12 or 20. Then you’ll know there’s a tidal shift going on,” he predicts.

Bob’s Watches isn’t the only business gazing into its crystal ball in the search for which way the market will move next. Rolex itself is also now in the certified pre-owned watch business. A pilot project in Europe kicked off last year with Bucherer trading watches that have been authenticated, serviced and refurbished by Rolex and issued with a two-year manufacturer’s warranty. The initiative is expected to be rolled out worldwide over the coming years.

It was a seismic announcement, according to Mr Altieri. “It is kind of shocking for Rolex to do something like this. It’s a big deal for them and it’s good that they’re validating the pre-owned category. I think it’s positive,” he says.

While welcoming Rolex to the CPO industry, Mr Altieri suggests it will take years for the initiative to fully mature. “It’s taken us 12 years to perfect and we’re still working on it daily. The logistics involved in shipping and pricing … it’s a lot of work. Staying on top of this is a whole different animal,” he cautions.

And the market does not stand still. Right now, a customer walking into one of Bucherer’s showrooms that is part of the Rolex CPO programme will see second hand watches they can buy at prices well above retail and also well above the prevailing “market” prices people can see on sites like eBay. There will be no new watches they can buy, but if they could, the new watches would cost less than second hand; a perverse situation.

Fast forward a couple of years and the situation may well reverse. Cabinets might be full of Rolex watches available to buy, and the prices of those new watches will likely be higher than the second hand watches in the same store. This would be far more normal; the sort of thing you see everyday in car showrooms where a new Mercedes will cost 30% more than one with 30,000 miles on the clock.

Rolex explicitly recommends that customers only buy from its authorised dealers, whether that be new or used watches. That is a challenge to the likes of Bob’s Watches, but not one that overly troubles its CEO. After all, new and used cars have been told through official franchised showrooms and myriad unauthorised dealers for decades.

Much more troubling is the rapid depreciation of stock that has been bought by businesses like Bob’s and its rivals. One of the most traded watches on the secondary market is the steel on steel Rolex Daytona, and the value of that watch has almost halved in the past year. Any company that was buying these watches at the top of the market will have seen its balance sheet shot and transaction volumes plummeting.

A mature business may be able to ride that out, but most traders were only in the market for months before prices turned south, and many borrowed to speculate. “You’ve got the flippers that have disappeared and the Bitcoin people that blew up. There are a lot of guys in the space and almost all of them that have borrowed tens of millions of dollars. In some cases, a hundred million dollars. A lot of them have been losing money and they’ve always been betting on the next round of funding,” Mr Altieri describes. The smart players, he suggests, are keeping the leanest inventory of the highest quality watches.

Naturally, Bob’s Watches considers itself among the long-termers that will weather the current storm, although the company does come up in conversations about which businesses are struggling, which will run out of money, which will be acquired in a fire sale, and which will be the acquirers.

There have already been casualties, with companies including Chrono24 and Chronext laying off staff, and one significant fatality with Watchmaster falling into administration.

With shrinking sales and withering balance sheets, outside investment is seemingly off the cards for companies that have been running from one funding round to the next.

“I’m just waiting for the headlines to hit on those guys because I know they’re marginal at best. Everything’s always fine until you run out of other people’s money,” Mr Altieri concludes.