Black and Grey Market Watches Are TROUBLE with a Capital “T”

An In-Depth look at an Industry Issue by The American Watchmakers-Clockmakers Institate.

Luxury watches, carefully crafted with high quality parts and exceptional watchmaking skills, reveal the true creativity, craft and expertise of watchmakers. So much so, that people who cannot pay the price for the luxury brands are sometimes willing to pay a discounted rate for counterfeits or black market watches, just to “look the part.”

What’s the Difference Between a Black and Grey Market Watch?

A black market watch is a stolen, counterfeit or fake watch.  Grey market watches are genuine products that are sold through an unauthorized source. These will not have a warranty and probably will not have the same resale value as a watch from an authorized dealer. (Read more about grey market watches later in this article.)

What’s so Wrong with Black Market Watches?

Beyond the obvious ethics, U.S. federal, state and most international laws make the manufacture and sale of counterfeit watches illegal. Laws vary from place-to-place, but punishment for the conviction of dealing in the trade of fake or stolen watches and other goods can often be imprisonment. In some countries, even the purchase of black market products can be illegal.

Watches have long been popular with thieves because they’re not only a desirable item, they’re small and easy to conceal. Large scale theft can occur at distribution points and retailers. Additionally, burglaries at the homes of collectors and the rich and famous are another common source for stolen luxury watches. These watches can be sold on any street corner anywhere.

Counterfeit Production Can Involve Exploitation of Labor, Including Child Labor

When it comes to counterfeiting, the producers in third world countries have no interest in industry standards for quality, safety practices or cleanliness. There is no interest in using safe materials, or concern for the health and safety of workers. They are willing to use lower quality materials, even if they are toxic, allergenic or otherwise harmful to someone’s health.

For example, the process to gold plate a watch requires the use of cyanide. Is this poison properly handled in a black market production facility? Is there proper ventilation in the area where the gold plating is being done? Just imagine what the working conditions are like in an “underground” production operation.

Often, workers are exploited through human trafficking. And sometimes, these workers are children. They receive very low wages (if any), no medical benefits, and no legal protection. Some are, in almost every way, slaves.

Counterfeiters Steal Knowledge

Watchmakers have gained a unique knowledge through training and years of experience. They use their talent to create the new designs, unique features and flawless quality that represent a luxury timepiece. Their creativity, their investment of time, and their company’s investment and risk must be protected – and rewarded.

Counterfeiters steal this knowledge when they copy a manufacturer’s design. They take the company’s work, imitate it and seek to profit with no regard for the legal rights of the real creator. This is a breach of intellectual property rights, which are protected by national and international laws. The purchase of a counterfeit watch supports the theft of intellectual property.

Purchasing Fakes Costs Jobs and Business

The purchase of black market items by otherwise law-abiding citizens, and their sale by criminals, produces a range of negative results impacting the economy. An estimated loss of 200,000 jobs are lost worldwide annually* in the legitimate luxury watch industry as a result of criminal counterfeit watch production and trade. That means lost tax revenue for municipal, state and federal funding which decreases benefits to citizens everywhere. Just think about the ripple effect counterfeit activity causes throughout the economy.

A New Trend: High Quality Fakes from the Pacific Rim and the Rise in Internet Sales

A relatively new, very sophisticated form of black market luxury watches is coming from the Pacific Rim. These watches are not produced in the typical sweat shop environment of third world countries. These are high-quality reproductions done by people with some degree of knowledge who can produce very good knock-offs.  Even trained watchmakers must open the watch and inspect the movement to find the telltale signs of a fake.

Due to the internet, the black market for luxury watches is escalating rapidly. Jean-Daniel Pasche, who leads the “Fake Watches are for Fake People” anti-counterfeiting campaign sponsored by the Federation of the Swiss Watch Industry and Foundation de la Haute Horlogerie, openly states his concern about the large number of sites selling fakes. In a Financial Times article,** Mr. Pasche says, “Mainly these are managed from Asia, even though they look like they are in Europe or America. They are difficult to shut down. It is difficult to find out who is behind them. On the web it is easy to be anonymous. It is easy for the owners of these sites to close one and open another if they know we are aware of them.” Sometimes even the packaging, instructions and authenticating letters will look similar to the original. Anyone with a scanner and photo retouching software can insure that these accompanying details of the fake also appear real.

One well-publicized example was highlighted in another story in 2011 from Financial Times.*** “Groupon’s Chinese daily deals website has promised to refund hundreds of customers after Tissot-branded watches sold in a deal turned out to be counterfeit. The company [Groupon] said it was ‘outraged’ to discover that the merchant involved had given it fake agent qualification documents.”

Another trick in counterfeiting luxury watches is the multi-tiered assembly process. For example, well-made fake gold cases are produced in China or wherever. Then, genuine steel watches with decent movements are purchased.  The movements from the steel watches are removed and placed in the fake gold cases to give the appearance of authenticity or quality. These watches can be passed off as luxury watches. Then, lower-grade, fake movements are placed in the steel cases, which are sold for a lesser—but still profitable—price. It’s a very insidious switch of movements and cases designed to fool customers and earn black marketers a huge profit—for very little effort.

In Some Cases, Just Buying a Fake Watch Is Illegal

In some European countries it is criminal to simply be in possession of counterfeit items. If you purchase or possess fakes, you can be subject to punishment as a criminal to the full extent of their laws, including, but not limited to, financial penalties and imprisonment. The discounted price you pay for the counterfeit item may not be the only price you pay.

In many countries, Intellectual Property (IP) rights holders may have the right to claim damages. Illegal luxury watches –counterfeit items—can be seized and destroyed by customs agents. Some countries also allow customs to administer financial penalties for possession.

Why Support Fair Competition, Fair Trade and Free Market Development?

The purchase of counterfeits:

  • Is illegal and criminally punishable in some countries
  • Can promote human trafficking and child exploitation
  • Allows theft of design, creativity and intellectual property
  • Costs jobs and negatively impacts the economy
  • Can jeopardize the health and safety of workers

Just think about it: Is “looking the part” really worth the risk?

What About “Grey Market” Watches?

Dealers could be selling new watches they are NOT AUTHORIZED to sell. It is important to know the risks and problems associated with buying these “grey market” watches.

It Is Important to Understand:

  • What is a grey market watch
  • How to identify a grey market watch
  • The direct effect buying a grey market watch has on you
  • The impact of the serial number being removed by the seller

What Is a Grey Market Watch?

These are genuine watches made by the luxury brands. Fine watches can be purchased in many places. When making the decision to buy a luxury watch, it is important to know the difference between an “authorized dealer” over the “grey market dealer,” and the impact the grey market has on price, warranty and the resale value of the watch purchased.

Makers of fine watches only sell them through authorized dealers and distributors. Luxury watches arrive at the authorized dealer directly from the factory where the watch was made. Each major brand carried by a dealer can come with agreement requirements for initial inventory and future inventory minimums up to USD $250,000 dollars. Occasionally these agreements cause smaller dealers who have made large purchases to be left with excess inventory. Sometimes they will sell this extra inventory to unauthorized dealers. This is just one way the grey market gets unauthorized inventory at wholesale prices. Then, grey market dealers sell these watches at higher discounts than those allowed by authorized dealers. Illegal? Well, in some ways, and this practice also violates the reseller agreement between the authorized dealer and manufacturer of the luxury watch.  

Warranties Are Voided

In an effort to deter heavily-discounted grey market sales by unauthorized dealers, manufacturers rightfully refuse warranty service on these watches. Unfortunately, many customers are not informed that they are purchasing a grey market watch.  Sometimes, they simply think they’re “getting a good deal.”  Customers usually learn of the problem when the watch needs repair and warranty service is denied by an authorized repair center or the manufacturer of the watch.

What Signs Indicate a Grey Market Watch?

Grey market watches are not fakes or factory seconds. A grey market watch is an original watch produced by the manufacturer. The clear difference is they have been passed on to you—the consumer—through an unauthorized reseller. (Of course there are the occasional unethical grey market dealers also selling old stock, returns, or even refurbished watches as “new” merchandise.)

How to Spot a Grey Market Watch:

  • You might see higher discounts on grey market watches, such as 30-40%, versus the maximum allowable discounts by authorized dealers of 20% off manufacturer’s suggested retail price.
  • Missing manufacturer’s warranty card and/no authorized dealer stamp.
  • Missing serial number. Grey market watches often have the external serial number removed. This is done to stop the manufacturers from tracing the authorized dealer who sells to the grey market.

The question becomes: Is saving an additional 10-20% worth the risk of warranty and resale problems you may face following the purchase of your luxury watch?

When the Seller Removes the Serial Number

Oning a watch with the serial number removed can have many consequences:

  • It is illegal in some U.S. states and in many countries to possess property with the serial number removed. In some cases, changing or removing serial numbers makes an item the same as if it were stolen property.  
  • In the case where a watch is lost or stolen, if it has no serial number, a claim to your insurance company could be problematic.
  • Important information about your watch, such as the date of manufacture, country of original shipment, information on features, and even a copy of the COSC certificate**** will not be available to you.
  • Authorized repair providers may refuse to service the watch, even if the warranty has expired. It is known that some grey market watches have been confiscated when sent in for service.

Protection for the Buyer

The practice of removing serial numbers, violating manufacturer contracts, and reselling merchandise by unauthorized dealers is more commonplace than one might think.  If there is any uncertainty about the status of the watch you are about to purchase, ask if the seller is an authorized dealer.  If you discover a watch you’ve bought has had the serial number removed, insist upon a refund or replacement with a watch that has the proper serial number.

Whether you’re dealing with a black market or a grey market watch—or any illegal product for that matter—you’re risking quite a lot. There are numerous laws on the books in the U.S. and many countries with hefty penalties. The companies who expend so much time and effort on developing their intellectual property also have a right to pursue remedies. Additionally, law enforcement across the world is stepping up efforts to put a damper on the multi-billion dollar criminal business of counterfeited goods.

So the next time you might be tempted to buy a knock off, or if you suspect someone may be passing off a grey market product, take a minute to think. Consider the warning signs and the social impact mentioned in this article. If you choose to walk away, you may be doing yourself—and many other people—a very big favor.

The best advice we can give you at AWCI is simple:  Make certain you are working with an authorized dealer when purchasing a luxury watch. You will be happy with your watch for years to come. You will have a watch that holds its value when properly maintained. And, you could have an heirloom you’ll be passing on for others to cherish.

 

References:

*Federation of the Swiss Watch Industry FH  April 5, 2007, You wanted to sell a counterfeit watch? Sorry!, http://www.fhs.ch/en/net_replica_seller.php

**Financial Times, March 27, 2009, Ever more sophisticated confidence tricks by Michael Clerizo, http://search.ft.com/search?queryText=ever+more+sophisticated+confidence+tricks

***Financial Times, November 7, 2011, Groupon in refund pledge over fakes by Kathrin Hill, http://www.ft.com/intl/cms/s/0/fe9b0d36-0959-11e1-a20c-00144feabdc0.html#axzz27QEvcJhb

****COSC is short for Controle Officiel Suisse des Chronometres, which translates to the Official Swiss Chronometer Control. Founded in 1973, this is a conglomeration of several formerly independent testing agencies. The headquarters is in La Chaux-de-Fonds with testing offices are in Bienne, Geneva, and Le Loche. If you own a COSC-certified watch you should have the appropriate testing paperwork that accompanies it.

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