Even as Swiss watchmakers struggle with dwindling sales around the world, more unsold inventory is finding its way to the grey market. And as much as the industry might loathe the grey market, a report says some brands are working quietly with unofficial retailers to offload unsold inventory.

According to a report on the Business of Fashion website, the decline of Chinese demand is being cited as the principal reason why some luxury brands like Rolex and Omega are now available at up to 40 per cent off on their retail price in the grey market. Demand for luxury products has dropped in Europe as well after a spate of terrorist attacks that that have kept tourists away from shopping binges in Europe.

Retailers have seen demand dip in recent years

While the industry has never openly acknowledged working with the grey market operators, the website quoted one watch industry executive as saying that authorized retailers, distributors and brands themselves are now supplying grey market dealers. According this executive, some grey market operators are also co-operating with brands, removing new models from sale when asked or reducing discounts manufacturers consider excessive.

This is in stark contrast to the opinion of industry leaders like Jean-Claude Biver, head of luxury conglomerate LVMH’s watch division, who has been quite vocal about the damage the grey market is doing and even described it as the “industry’s cancer”.

“In luxury goods, when you break the illusion of prestige, the dream, the prices, it takes away the confidence. It means slow death for luxury goods," Jean-Claude Biver, head of LVMH's watch division, told Reuters at last month's Baselworld watch fair.

"As much as the brands dislike us, we have more or less the same goals they have — we also want to sell the goods and be able to make a profit," the website quoted a grey market dealer.

Grey market stores offer great discounts

Swiss watch exports fell 9.9 percent in 2016, the biggest drop in seven years. When times were good, brands took in 20 per cent of sales as profit while retailers were left with up to 45 per cent margins. However, when times were tough and unsold inventory piled up, brands tend to put pressure on retailers who offer hefty discounts featuring such price fluctuations damage their image in the long term. This has forced some retailers to sell to the grey market.

The US is a big hub for grey market watches and online platforms like jomashop.com and prestigetime.com have become popular with bargain hunters. Official retailers in the US have also complained about how grey market watches are flooding into the country from outside as well now.

But it’s not just the US, there are active grey markets in the rest of the world and on online sites like Amazon, Chrono24 and eBay. Grey market watches come without factory warranties because brands do not acknowledge watches not sold through authorized channels. There are online platforms like luxurymarkets.com in the UAE that offer discounted new as well as pre-owned luxury watches online.