zOwie Omega Discussion Forum

I have a few thoughts on the matter that I'd like to get here in print.

1. I don't think that Omega views the grey market as beneficial. More like a necessary evil. Omega produces a large variety of watch models, some of which sell very well at AD's, some which don't. The grey market exists mainly to help AD's find a market for the slow selling inventory.

2. Copyright and patent laws are protected at the federal level. This issue in the USA is what is known as "fair trade" laws. Under a fair trade law, a manufacturer was allowed to set a retail price for an AD. If the AD sold for less, the manufacturer could legally terminate their relationship. The USA did away with these laws years ago. Therefore, AD's are free to discount, or not, as their circumstances allow. The flip side to this situation is that manufacturers may require AD's to stock a greater depth of inventory, thus increasing the manufacturer's profit at the expense of the AD, who has to pay interest to finance all these watches. So it's understandable why some merchandise turns grey if it doesn't sell.

3. On the warranty issue, you are partially correct. Omega should book a warranty expense against each watch sold to the AD. Since Omega does not know which ones are ultimately sold via grey market, they cannot reverse this liability until the warranty expires 2 years later. BTW, I am a CPA and have worked with manufacturers in other industries which have similar issues.

For several years now, Omega has been trying to weed out their dealer network, squeezing out smaller AD's in favor of larger chain jewelers, such as Tourneau, Mayors, Birks and Jared. These retailers are generally well capitalized and less likely to require grey market channels to move inventory. I also predict a rise in the number of US Omega Boutiques, likely in partnership with one or more of the above retailers.

If Omega is successful, the grey market (at least for Omega) will slowly be choked by a lack of supply. If Omega continues to produce overpriced and underselling models, the grey market will continue to increase and absorb this excess inventory.

The other way to eliminate the grey market is to do what Rolex has done. That is, double the price, then use this extra money to create a marketing mystique of a "must have" product. Later, lower production and distribution to the point that almost every watch is sold before it is produced. The problem with this strategy, is that if a company fails, it is commercial suicide.

I don't believe Omega is ready to take that step...yet.

Just my $0.02,
gatorcpa