Following a year of sluggish economic growth, naturally one might think the luxury market would be the first to take a hit.
Without spare cash, that new car, handbag, or watch has to wait.
Or so the thinking goes.
Chronext, a digital marketplace for high-end luxury watches, bucks the trend. Co-founder and chief executive Philipp Man says that the firm is typically growing 20 per cent month-on-month.
Last year, as the Federation of the Swiss Watch Industry’s barometer of luxury goods sales dropped 10 per cent, Chronext grew around 250 per cent, and 380 per cent the year prior.
The growth is market-beating, which, for a company just a few years old, is remarkable.
Man and his co-founder Ludwig Wurlitzer shared a flat at university, and initially set out to make a platform upon which students could trade university books on an exchange, like stocks. Realising the variables such as quality and edition made standardising trade near-impossible, they pivoted early.
But why watches?
“I really can’t say,” says Man. “I guess it sounds a bit esoteric, but I like that they’re completely irrational. Nobody needs a mechanical timepiece. If you think about it, you can tell the time on your phone or buy a $10 Timex. I think the irrational aspect of it is quite fascinating.”
The platform itself comprises two primary revenue streams.
About 85 per cent of the business is Chronext acting as a market maker, whereby commercial re-sellers or individuals use the site to sell their own wares. The other 15 per cent of so is their own stock.
At present, there are about 25,000 watches for sale.
Watches, like all luxury industries – from wine to handbags – are prone to the bane of counterfeiting. Man says that, as a result, trust and transparency are paramount to the ongoing success of the business.
“When you’re two people in a flat, it’s kind of difficult to claim you’re trusted. But as you grow and scale it changes. And the good and bad thing about the internet is that it’s extremely transparent. It means that we don’t have the luxury of messing up like offline retailers.
“If you have a bad experience on Bond Street in store, you probably won’t go back there – but the chances of you writing a review are not that high. With online businesses, if you love us, you’ll tell everybody about it. If you hate us, you’ll definitely tell everyone about it.”
When one purchases a Mercedes, having an authorised MOT certificate adds a validity to the product. As such, every watch sold on Chronext is authorised as a genuine, quality product by its team of certified watchmakers before even being allowed onto the platform.
This focus on trust and transparency has pushed the firm’s staggering growth. Watches from every major brand are available, not just second hand, but from the brands themselves, which can list on Chronext. The traditional watch industry hasn’t pushed back in the same way that others, such as taxis, have against innovation.
“We would never say we’re a disrupter, because we think we evolve the market, with everyone who’s currently in it. So unlike Uber, which tries to kill the taxi industry, many of our suppliers – and our platform being a marketplace – the little shops actually sell through us. As a result, we actually help them grow, and they help us get more products on the site. So it’s a partnership.”
One outcome of Brexit is the adjusted pound, making the UK luxury goods market more robust. Recently, international buyers in London could expect a 20 per cent discount on items, compared to the year prior. Chronext is a truly international company which, while London-based, buys in 34 geographies, allowing for significant arbitrage.
“Generally speaking the nice thing with watches is that 95 per cent of the products are identical globally. So you have a global customer, and the result is you can really use these global differences in price to optimise for the consumer.
“I think for us, Brexit doesn’t make any difference because the UK is one of our 130 markets.
“That being said,” adds Man, “I think that quite a few people who are having a run in this space right now in the UK, because prices are considerably cheap compared to other parts of Europe, will in the long term have a bit of a problem.
“This will reverse and their buying will become more expensive, so the price advantage will reduce.”
Watches have a duality as an item of beauty and a tangible asset, which in an uncertain, low interest economy, adds an investment dynamic to the secondary market.
“I think it’s a pleasurable investment,” says Man. “Not every watch is a good investment, like not every stock is a good investment. I think it’s a good way to buy something you like and to rationalise it as being an investment. And if you do your research and you buy the right products, you can actually sustain value – or even accumulate.”
Man says that, while the simple pleasure of owning the timepiece usually trumps its investment potential, purchasing as an alternative asset class it is a trend that the firm is increasingly seeing.
“We get people approaching us saying ‘I want to invest 200k into watches, how do I allocate this?’. And we’re starting to see this more and more. But I wouldn’t say that the mainstream buyer thinks of investing into watches.
“That being said, a lot more people consider buying a watch now because interest is so low. And the thing is, you’re not going to buy a house for five thousand, right?
“So either drink it away in the bars of London, or buy something for your wrist.”