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Thursday, Mar 28, 2024

Time Sharing

It was Friday at the Studio City headquarters of Watch Gang Inc., and someone was about to win a Rolex. Broadcasting live on the company’s Facebook Inc. page, Watch Gang founder Matt Gallagher and a model clapped as a name appeared on the screen behind them. “Congratulations Felipe Morales!” Gallagher announced to the more than 4,000 viewers who had tuned in for the giveaway. “Thanks guys – we’ll see you on Tuesday for Tag Tuesday!” Even before Watch Gang had amassed more than 16,000 members for its subscription watch service, the chance to win a free Rolex was a perk of joining the club. Just under a year after shipping its first batch of watches, the company generates more than $1 million in monthly revenue – and has gone from being able to afford to give away one Rolex a month to one a week, on top of a Tag Heuer timepiece every Tuesday. Watch Gang is a “subscription box” service that gives customers the option to purchase subscriptions at different prices, depending on the value of the watches inside the box. The “Watch Gang Original” membership, priced at $25 a month, guarantees watches that retail between $50 and $150, while the highest tier at $275 a month offers watches valued between $500 and $1,500. Watch Gang is often mistaken for a rental service, Gallagher said, but the pieces it distributes every month are for keeps. That aspect of its model appeals to avid watch collectors, especially those who are comfortable not knowing what each month’s box will bring. “Before, you had to go out and buy a watch rather than receive one as a surprise,” Hunter Morris, chief operating officer at Watch Gang, explained. The mystery-box model makes it feel like Christmas every 30 days, Gallagher added. While receiving a new watch every month may seem strange in the age of time-telling smartphones, Watch Gang’s community of enthusiasts is more than happy to shell out cash to put a nice timepiece on their wrist. Hundreds of trades take place each day on the “Watch Gang Exchange” Facebook group, which boasts more than 17,000 members. “It’s funny because a lot of people we talk to are like, ‘No way – who needs a watch every month?’” Gallagher said. “We have guys who have 10 memberships – they want 10 watches every month.” Too much time From a supply standpoint, the company’s business model comes at a perfect time for watch brands. Exports of Swiss watches have declined for the past three years, according to the Federation of the Swiss Watch Industry, dropping 8 percent between 2015 and 2016. Much of the industry’s problems stem from chronic oversupply, said Ariel Adams, founder of the horology website A Blog to Watch. “Brands are addicted to the wholesale model in a world that doesn’t need to purchase watches in a wholesale way,” Adams said. Smartwatches are proliferating as demand for traditional wristwatches is falling. At the same time, brands have failed to reach their target market, he added. Watch Gang’s subscription service bridges that gap, Morris said. By forming partnerships with watch companies, Watch Gang offers them the chance to offload surplus product while also getting their brand in front of an eager audience. The company has partnerships with brands including Citizen Watch, Seiko Holdings Corp. and Egard Watch Co. “There was a need on both sides for this,” Morris said. “The watch companies needed somebody to start taking large inventories and move products straight to consumers, and watch collectors needed someone to satisfy their hobby.” With an oversupply of high-end watches, they are rarely procured through authorized retailers; instead, they are sold at a 10 to 40 percent discount through gray market channels, Adams explained. “Watch Gang is clever in that they’re selling watches at a discount without publicizing that it’s a discount,” he said. “Brands like it because it doesn’t actually say anywhere that their $700 (timepiece) is now available for $300.” Craft watchmakers Legacy brands are not the only ones that benefit from working with Watch Gang. The company recently partnered with Italian brand Out of Order, which offers one-of-a-kind timepieces with a “worn in” look, to introduce its products to the U.S. market. Customers loved the pieces, Gallagher said, and Out of Order saw more sales in the following months than it had in five years of marketing. “We’re finding brands that only sell in Malaysia, or are huge in Germany and haven’t made a dent here,” Gallagher said. “We’re a discovery platform now.” California companies also have benefitted from exposure to Watch Gang’s community. Justin Eterovich, founder of Bay Area-based Blacklist Watches, was motivated to turn some of his inventory over to Watch Gang after his company’s sales plateaued. “Things just weren’t selling like I thought they should be – I knew it wasn’t that people didn’t like them, because I’ve sold nearly 1,000 and have never had a return,” Eterovich said. “I just wasn’t reaching my target market.” Traffic to Blacklist’s website jumped from roughly 30 daily pageviews to more than 350 after the company’s products were delivered to Watch Gang members, Eterovich said. While visitors do not necessarily translate to sales, he is glad to see that Blacklist is finding an audience. Clocking out? Consumer enthusiasm for Watch Gang’s service was apparent within hours of bringing the idea to life, Gallagher recalled. He put up the website before he had any watches to deliver. “I got a sale the second day without doing any advertising,” he said. “I didn’t even have to spend any money to get that sale.” A few Facebook ads later, subscribers were rolling in. There appeared to be something intriguing about the concept of receiving a “mystery” watch, Gallagher said. “It didn’t sell itself, but it was a new concept for people,” he said. “As soon as I saw that sales were coming in, I was like, ‘I need to start buying watches.’” While online consumers immediately liked the subscription model, brands at first were hesitant to sell their products to Watch Gang, Gallagher said. “The really big worry for these companies at the beginning was that we were going to devalue their brand,” Gallagher said. “That’s kind of the bane of the watch industry right now.” But brands quickly realized that selling to Watch Gang – even at bulk prices – was preferable to having watches sold at deep discounts on the shelves of stores like TJX Cos.’s TJ Maxx or online retailers. “Walking into a store and seeing the watch sold at 80 percent off retail hurts the brand’s image,” Morris said. “Companies are selling to us for a little bit less than they might sell to TJ Maxx, but their products go straight into the customer’s hands and it’s good publicity for them.” Watch Gang has experienced between 20 and 30 percent growth every month since its inception last October, according to Gallagher. While those figures demonstrate demand, the company will be at risk of outgrowing its capacity to deliver as the watch industry re-balances supply and demand, said Adams, the watch blogger. “The long-term viability will be directly related to Watch Gang’s ability to adapt to changing business environments,” he said. Brands will pull back on production, leaving Watch Gang with fewer watches to distribute. “Selling products with a liquidation or wholesale mentality is not something brands want,” Adams said. “The industry knows that the culture of overproduction isn’t working.” Gallagher is confident his company will have morphed into something much bigger than a subscription business by the time watch companies pull back on their supply. He envisions Watch Gang as someday being a platform not only for procuring watches, but also for learning about them. As part of its strategy to become an educational platform, Watch Gang is working on a series of videos about horology. While the company will not directly make money off the videos, they will serve to add value to its members, Gallagher explained. “At the end of the day, these are watch-lovers,” he said. “They want content, they want watches, they want to learn more and discuss them. We’ve given them a space to do that.” Other long-term projects include deals with brands to design Watch Gang-exclusive watches, the production of which will likely have a philanthropic element. The company already has supplied watches to Career Gear, a New York nonprofit that provides professional clothes to low-income men who are going on job interviews. Ultimately, Gallagher would like his company to become synonymous with the watch industry. While Watch Gang could easily expand into cufflinks and other men’s accessories, the demand he has witnessed so far suggests that his core product has enough momentum to keep the startup ticking. “The watch industry as a whole has such a huge appeal to people,” he said. “I would love to have a company where if you know anything about watches, you know Watch Gang.”

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