A. Lange & Söhne does not care about buying pre owned watches

Should they start caring?

Yesterday, Russell Sheldrake (RPS) shared his rather interesting interview with Wilhelm Schmid (WS), chief executive of A. Lange & Söhne (ALS). Feel free to read the entire interview here, but for convenience, I will be reposting quotes from the interview as well.

I will start from the end of the interview, where WS reacts to the idea of a certified pre-owned (CPO) offering from ALS.

RPS: Another big trend we have seen of late in the retail space is brands launching their own certified pre-owned programmes, yet there has been no news of A. Lange & Sohne considering this option. Is it something you have discussed internally? 

WS: When you build watches and you say they will easily outlast the people that you sold them to in the first place; for example, I think maybe 95% of the pocket watches that we’ve ever produced are still in existence, there will undoubtedly be a secondary market. But we struggle so much in satisfying the supply of the primary market that I don’t worry too much about the secondary market. Specifically, when we look at the part of the market that is really concerned with selling above retail and all of that, I take it with a pinch of salt. 

On one hand it’s good to know if you spend a lot of money on something, and if your wife asks, you can call it an investment. That’s what I always do if I buy something expensive.

On the other hand, it has also attracted a lot of people that are not passionate watch collectors. They just want to take you for a ride. They want to buy your watch and sell it tomorrow because there is a lot of money in it. There’s more money in that than we make, and we are the ones developing, producing and selling it.

If you then don’t have your market under control you will feed these people, and that’s not my job. So as much as I enjoy that people don’t lose money by buying our watches, I’m also aware of the struggle that comes with it. And I’m also not sure of the longevity of this flipping culture and doubling your money. 

RPS: So you don’t see it as part of your responsibility as a brand to follow your clients’ journey, so they can buy it from you, and if they wish to part with it further down the line, you are there then too? 

WS: No. Very clearly no, because we have our after-sales service. You buy a watch from us, you wear it, you enjoy it, you need it serviced, you can come to us and we will do that. Regardless of how old the watch is, we will do that for you. Not a question.

You buy a watch second hand and you’re not happy with it, you can send it to us, you get a like-new watch back. That’s our commitment.

But we are not the ones to get involved with those who want to sell their watch. That is someone else’s job. We support all of the auction houses, we make sure numbers are correct and no funny stuff is happening. But we don’t get involved with the sale. We have Watchfinder in the group, so if someone wants to trade in a watch we will refer them to Watchfinder. But we do not get involved ourselves, and we don’t have plans to do so.

I was bamboozled when I first read this, because the logic of WS’s statements didn’t add up. I continued to think about it, and must have been thinking about it subconsciously, as I woke up and had a slew of additional analysis to compute. Let’s go through it.

Certified pre-owned program for Lange?

I previously shared this awesome Forbes article about the McLaren CPO Program, when I first wrote about the Rolex CPO launch. In the Forbes article, the head of McLaren USA shared a few interesting thoughts (emphases mine):

Our CPO program is a great opportunity to either enter the brand or stay with the brand. Depending on the car, depending on the dealership...

For McLaren and its dealers, the CPO warranty and service contract make it far, far easier to resell older models, buoying values and keeping the entire enterprise successful and profitable.

As the Germans learned long ago with luxury sedans, it’s not the first sale or lease that matters most but finding a second or third owner to extend the car well over the horizon. Unlike workaday luxury sedans and SUVs, supercars tend not to gather high mileage. They can thus migrate from one loving home to another. Oftentimes the second owner is the first owner’s friend.

There are many telltale signs of track use: running a diagnostic, inspecting the undercarriage of the car. The buyer of a CPO vehicle would know and be able to factor that into the decision-making process.

Here again, the value of the dealership is knowledge of prior owners and their use of the vehicle. We all know it’s not the year or the mileage, but how hard the car was used.

...with specialty cars, particularly high-performance cars, it is almost always preferable to buy and sell through the dealership. Sure, there’s the cost of the transaction through the dealer, but it’s a much cleaner process and opens the door to the certified pre-owned warranty, which is of great value.

That sounds like a guy who deserves to be the Head of an entity which sells luxury items, because he clearly understands the market, and the users of his product.

Contrast that with the following quotes from WS, the CEO of ALS, with my commentary in between:

WS acknowledges ALS are selling products which last for a very long time, but is somehow also thinks it is better if they only sell it once (no CPO). Then he says:

Here he complains about the flippers making more money from ALS watches, than ALS themselves… while also complaining about being unable to satisfy demand:

Is this guy serious? He speaks earlier in the interview, about being data driven:

…So about five years ago we made the decision to invest heavily in analytics in order to get a clearer picture of our client base… because the most important thing for us is that we know where our watches end up.

How can it be true, that ALS wants to know where the watches end up, but also say:

I remain dumbfounded by the misfortune… which is WS being in charge of this excellent brand.

Concluding thoughts

A few weeks ago, following Rolex’s acquisition of Bucherer, I wrote about the implications for Rolex with regards to CPO, and what benefits they might enjoy in the CPO program as a result of the vertical integration. If you haven’t already seen it, have a look:

SDC Weekly 12; Rolex Acquires Bucherer

The most ignorant part of WS’s view of the world, is how it implies people who buy watches from ALS should ideally never sell them. He speaks about his customer relationship management (CRM) system, and this being the solution to “knowing where ALS watches end up” - but what about watches which are sold? Sure, they may eventually come in for a service, but this might be after passing through several owners! Would ALS not like to know who owned it between services, and potentially get these people to buy a new watch someday? I don’t think his view fully captures the breadth or potential for CRM to add value to ALS.

In the Rolex post, I also touched on the idea of profit margins when CPO is controlled by the brand. WS states in the interview:

You buy a watch second hand and you’re not happy with it, you can send it to us, you get a like-new watch back. That’s our commitment.

If ALS can take a used watch, restore it to ‘like new’ condition, surely this can be done for pre-owned watches too? In doing so, there is potential for additional profit - particularly because they will be able to do restoration and service for their CPO program ‘at cost’ - as opposed to the usual (exorbitant) prices they charge ALS clients to fix their own watches.

Finally, while this might be viewed as cannibalisation or competition between two Richemont portfolio companies (Watchfinder and ALS are both owned by Richemont), the operating model of having ALS run their own CPO program is much cleaner and likely more profitable, because the intra-company complexities of diverting ALS watches to Watchfinder (and vice-versa) are probably quite costly (which is why Watchfinder employs in-house watchmakers to service many brands they sell).

What do you think?

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