The luxury watch market is an oligopoly dominated by a small group of predominately Swiss-based watch manufacturers, with Rolex, Patek Philippe and Audemars Piguet being the most commonly recognized market players. Supply and distribution of product is tightly controlled by the manufacturers with exclusivity being at the centre of the industry’s strategy towards driving brand reputation and thereby demand.
As a new customer entering a Rolex boutique today you will need to discover that it will be impossible for you to acquire a Rolex with stock on display usually being for viewing purposes only and new customers often being required to spend on other products first before being offered the “honour” of acquiring a most sought-after Rolex timepiece. Production volumes across the industry are tightly controlled and kept artificially low to add to the enigma of scarcity.
Secondary market
Compared to the secondary market for pre-owned cars, the secondary market for luxury watches is in its infancy stages. Liquidity of assets is limited, with only 5 per cent of the available asset pool being actively traded. Growth is forecast to outpace the primary market for many years to come with McKinsey forecasting the secondary market’s potential to be 10 times the primary market, which amounts to €40 billion. Surprisingly, most primary market players seem to be oblivious to this opportunity often trying to actively supress the establishment of a legitimized and structured secondary market. They continue to believe that primary market and secondary market stock competes with one another not yet understanding that a developed secondary market helps to drive overall demand.
Market opportunity
We launched Watchmaster with the objective of capitalising on this market opportunity. We operate a C2B2C value-add marketplace whereby we provide consumer sellers with a watch valuation, refurbishment and certification service and enable them to sell their fine watches to and through Watchmaster. Consumer buyers benefit from a wide range of certified, fully refurbished fine watches at highly attractive prices with a two-year warranty and guaranteed authenticity. We function as a trusted agent minimizing transaction costs and thereby driving asset liquidity. This contributes to an increasing share of wallet spent by our loyal, highly valuable customer base.
Launched in 2015 Watchmaster has grown to 80 employees across three geographies (Berlin, Paris, London). We operate three watch service centres employing more than 15 watchmakers with a combined expertise of over a quarter millennium allowing us
to process up to 1,000 luxury watches every month. Generating a total revenue of €52 million in 2021, we are forecast to continue to grow 20 per cent year-on-year reaching +€100 million in revenue in 2025. Watchmaster is due to achieve the break-even point in Q4 of this year with an aspired EBITDA profitability of €1 million in 2023.
Investment opportunity
Historically 20 per cent of the inventory featured on Watchmaster is traded on balance sheet, while the residual 80 per cent are consigned. A split that originated in limited access to capital, however, has converted into a virtue. Utilizing the consignment stock as a protective layer we are capable of achieving maximum capital efficiency on our balance sheet inventory, which generally achieves higher margins and turns over 6 times per year (every 90 days).
To continue Watchmaster’s growth trajectory we are looking for additional debt at 12 per cent interest to put towards an asset-backed security loan (luxury watches as collateral, 85 per cent loan to value ratio). Please reach out to Watchmaster’s CEO (Tim-Hendrik Meyer, tim@ watchmaster.com) to obtain more detailed information.
