Interesting recent interview with Justin Reis, the co-founder and CEO of Watchbox, a fast-growing global platform for buying, selling, and trading pre-owned luxury watches. Justin was previously the co-founder of and a partner at Presidio Capital, a private investment firm focused primarily on Asia. Some notes from the interview are below (as always, these are for personal reference only and any mistakes in transcription are my own).

On his background: He was born in Australia. He has a twin brother and a younger brother. His father is from HK and his mother is Australian. He grew up and went to school in Singapore and HK. His father was involved in restaurants and the family spent a lot of their time travelling around Asia. That exposed him to different cultures and trends, made him very perceptive about how people behave in different environments. His father always taught them to build financial independence and that was a really important skill set growing up. The whole psychology of collecting and storing value was ingrained in them as children. 

On his early career journey: If you asked him 20 years ago what he would be doing today, the last thing he would imagine is that he would be selling pre-owned watches. After university, he was living in London and looking for a job. He applied to many different investment banks wanting to get into trading. He had always been interested in financial markets, bond trading, option theory etc. He started his career as a bond trader in London, trading emerging markets and interest rate derivatives. Shortly thereafter, he went to work in Australia working for the early start of what a hedge fund was because back then there were very few hedge funds, it was more about direct investment PE-style companies. He eventually started his own private equity firm with a partner and ran it for close to 17 years. It was very much investing large pools of capital in traditional businesses such as telecoms, mining, real estate and aviation. But he always had a bug for consumer businesses, which goes all the way back to when he was a kid helping out in his father’s restaurants. The whole concept of taking a brand and scaling it was something that was really appealing to him. 

On starting Watchbox: He took a career break in 2012, looking to invest personally in consumer businesses across Asia. A close friend of his introduced him to someone in Philadelphia who had a watch retail business. He started studying the whole concept of pre-owned watches together with his eventual co-founders in Watchbox. As they started looking at the value and volume of watches that were in the secondary market, they realized that consumers were trained to buy watches but not to resell them later on. This whole notion of a super large volume of watches sitting in the drawers of consumers was interesting and they started thinking about building a platform that made it really easy for consumers to transact. Before going any further, his two co-founders advised him to study the market and learn, so he spent the next 8-12 months travelling to different countries that were at the epicenter of watch trading. It was a very fragmented market with many mom and pop dealers (almost like pawn shops) where you can buy and sell a watch but there was no institutional framework. Coming from a financial markets background, he realized that structured data, trust, platforms and counterparty risk were big factors to making a commodity or market succeed.

On the eventual business model: They came back to the drawing board trying to figure out what the right model would be and decided to build a platform which would be the principal counterpart to the consumer who wanted to buy or sell a watch. That was different to what most people suggested they do, which was open up a marketplace. The reason they went the more capital, inventory-heavy route was they were very intentional about going after a market which was at the higher price point as opposed to the lower priced segment, where there was a lot of competition. The consumer wanted something that was trusted and made it easy for them to transact. Wanted to take away the ordeal of having to list on a marketplace and respond to questions etc. To do that, they had to really invest in building an infrastructure.

On how they are different from marketplaces: They categorize themselves as a managed inventory marketplace. For the price point they are going after, they believe they have the winning model and that goes back to understanding the customer’s psychology. When someone is looking to spend ~US$50k on a watch, they don’t necessarily just want to go click and buy it. The customer experience is critical – you need to build trust, provide the education, allow them to ask questions that gives them comfort etc. The whole concept of collecting is not a one and done transaction, these are lifetime partnerships they are building with their customers. The challenge with the marketplace model is that you may be looking to buy a product but the counterpart may not own that product and they have to go out and find that product. Then you are looking at the mechanical veracity of the product – is it working, does it come with a warranty, what happens if there is a problem etc.? Marketplaces do have a degree of financial security but what you traditionally need is you want to see the watch and know that someone close to the seller has inspected and tested it. That’s where they found there was a very high barrier to entry in this space.

On leveraging technology: Technology has been an incredible enabler for their business. One of the challenges you had traditionally was that the inventory available from a single location is very limited. What they’ve tried to get clever about is the whole cross-section of the industry by brand and making sure they always have the offering that is available to the consumer. They also use technology for pricing. Because they have offices around the world, allows them to take pricing and inventory sourcing from each of the markets they operate in. 96% of their inventory comes from the end consumer. Constantly mining inventory from their customers and tracking what they own, so they have access to several billions of dollars of inventory sitting in the watch drawers of their customers. Having that data and connectivity gives them the opportunity to find the product you are looking for in case they don’t have it on their balance sheet. Watchbox sits in the middle and take this market risk, but that allows them to add liquidity and velocity in the market. 

On the importance of content & education: They lead with education in their business. Horology is a wide world that spans many different brands, model families, then there are dates and other peculiarities around what makes one watch worth more than another. It can be kind of intimidating. They are really doubling down on education where consumers get to understand the structure, what the materials are, how one brand compares to another etc. They break it down into core components, so the mechanical elements of a watch, but also production volumes and capacity. They believe that if they can impart their knowledge onto their collectors and let them retell the stories around watches, it is not just about buying a watch, but about building a knowledge base so they can create this community connectivity where others can also join in on the conversation. 

His passion for collecting: He kind of stumbled into collecting watches. When he was growing up, he had a real passion to succeed from a very young age and become financially independent. Living in Asia, you were surrounded by a lot of material wealth and when you didn’t have that as a child, you wanted it. His parents were adamant they wanted their kids to learn how to succeed in life through hard work and that kind of trained his mindset to find new ways to make money and think about what he would do with it. When he was at university in London, he had a fixed budget. He remembers looking through the shop windows and he saw a Rolex model he was amazed at. When he got his first job and bonus, he bought his twin brother and himself those watches. He knew it was a possession where you knew what it was worth. Rolex was almost like a currency or store of value where you could turn it into money at short notice, so you weren’t just throwing your money away on something. That milestone stayed with him, he could look back and think about how hard he worked to get there. Throughout his life, every time something significant happened in his life, he went out and bought a new watch.  

On the growth of the watch market: 5 years ago, there was very little public data about the size of these markets were. There were a few data sources like the Swiss watch export market, which publishes a monthly and quarterly report. The primary watch market size is ~US$20bn of wholesale value which is ~US$40bn of primary retail value. So if you track back for the last 15+ years, there is probably around US$600-750bn of these watches that have come into the marketplace. The secondary watch market was ~US$20bn in 2021, and will be over US$40bn by 2025. The combined primary + secondary market will be close to ~US$100bn by then. The secondary market growing far faster by nature of the inventories being out there, and customers now being more comfortable with transacting in the secondary market. By 2030, he thinks the secondary market will overtake the primary market. The difference for watches vs. clothing, cars etc. is you don’t have a lot of depreciation in this asset class. In fashion and clothing, you’ve got this curve that tapers down on the residual value of their item. With watches, you have the pricing at retail being continuously raised by the brands. The luxury watch companies are very careful about the supply dynamic that goes into the market, they are careful to keep that slight imbalance such that there is always more demand than supply, which allows these price floors to increase. As a result, the secondary pricing of a product in the watch market also grows consistently over time and that’s great from a collecting standpoint. 

On how people approach collecting or investing in watches: we are at all-time highs today in the watch market. The minute the watch price trades above its retail price, there is a bit of multiplier effect with new consumers come into the market that would not have historically participated at these prices. Their customers come to them primarily because they are passionate about watches rather than viewing it as purely an investment. However, what changes in terms of the demand dynamic when pricing starts increasing over retail and there is more data, is that you bring in a new customer that feels more comfortable buying because they can see the liquidity in the secondary market. Back in the day when you didn’t have that liquidity, it would be hard to spend that kind of money knowing that you would have to go to an auction house to try and sell it, and not knowing whether you’d get the money back. More data and greater liquidity has trained this younger emerging customer to feel more comfortable spending their money in this category. 

On NFTs: the whole idea of creating a virtual asset to represent ownership in a rare item is already here. He loves the idea of building collectability for all. These items can be price prohibitive and you want a larger, more inclusive community for all. Many thought the watch industry would die over time because people would just go to Apple but the reverse has happened. It has taken share away from the smaller, lower priced products, but the mechanical timepieces have turned into what he would call mechanical art.