The Second-Hand Uprising

The founders of used watch retailer Watchfinder & Co have secured £6.2m of investment in their company from VCs. Aside from taking the business into the major league, what exactly will this cash injection achieve for the hitherto organically-grown internet startup? By MICHAEL NORTHCOTT. Co-founder and brand director of Watchfinder & Co, Lloyd Amsdon, has just travelled in from the firm’s Maidstone headquarters to meet for a coffee and a chat in the Royal Exchange. For anyone who has not been to this area of London before, it is a small, pavilion-style collection of shops and cafes housed in an imperious neo-classical building that has stood opposite the Bank of England on Threadneedle Street since the Victorian era. There is a feeling of prestige as you walk through the St. Paul’s-style pillars and portico to enter the atrium inside. It is not a surprise that the founders at Watchfinder wanted their retail boutique located in premises of this ilk: you could as easily be looking around a Rolex-owned shop in Bond Street. The visual cues and their intended effect are unmissable: expensive premises equals expensive lease, equals serious business, equals trusted brand. Watchfinder’s shop has smart branding, state-of-the-art window displays and graphics, a spacious in-store layout, and given its proximity to Bremont, Bvlgari, Theo Fennell, Omega, Watches of Switzerland, and Tiffany & Co., one gets the feeling this choice of location was quite deliberate. Amsdon is sitting at a table in the atrium area just outside the shop, dressed casually - he is not the besuited corporate type you might expect of someone who has just secured an investment that would buy a house in Mustique. He begins the backstory to the company in earnest. As an idea, Watchfinder & Co originated in the mid-90s, when Amsdon was working on an automotive sales portal which became Motors.co.uk, and which was subsequently sold to the Daily Mail Group. Amsdon says he “saw some parallels between motors and watches”, and began buying and selling pre-owned timepieces in 2000. The company was incorporated in 2002, and grew slowly, organically from there. Amsdon is brand director and co-owner and his business partner Stuart Hennell, also a co-owner, is managing director. Amsdon pulls no punches: “We think we changed the market.” Now that he employs 80 people and turns over £3m worth of watches every month, that is an easy thing to say. But it is true to say that the company boasts some unique qualities in this space. It is the only second-hand consumer-facing dealer to offer warranties (Amsdon says “we stand behind the watch”), and it has the luxury of its own service centre down in Maidstone employing 30 people and counting amongst its staff a former Rolex watchmaker and skilled craftspeople from other major brands, too. “We think we changed the market.” A key to the company’s success is its marketing collateral and outward appearance, which, says Amsdon, “look like a proper brand.” Part and parcel of this was the introduction of the retail stores in February last year. The Royal Exchange unit was the first proper premises, but Amsdon and his business partner have secured the lease on a unit in Bluewater shopping centre, and they have also been looking tentatively at Mayfair as a possible future locale, too. In the story so far, it sounds rather like there is plenty enough momentum to be getting on without additional investment or indeed the burden the inevitably comes with ceding equity to private equity men whose aim is rapid growth and handsome return. Amsdon says the process of securing investment has taken around two years, but they have had the luxury of being choosy about who to sell to. “We’ve had VCs contacting us this year because of the coverage, and this round of investment gives us a valuation of around £24m.” Plans for how to spend the investment capital do not principally include expensive store openings or fancy from-scratch service centres. Instead, and somewhat surprisingly, it is about stock. “They want us to increase inventory broader and deeper. In the pre-owned market, [customers] won’t buy to order - they want to know you’ve got it in stock, so it means our stock turn is about five weeks.” It has meant that so far, in operational terms, if Watchfinder buys stock, not only will it almost definitely sell but it sells very quickly - too quickly for this limited (in the legal sense) company to grow its stock using organic cash flow. The two investors to have come on board for the first round are Piton Capital (which is in the marketplaces space, with investments in Betfair and QXL), and also Beringea, which has a large portfolio of investments in everything from the Detroit Institute of Music Education to Freeosk, a developer of interactive kiosks that dispense samples to customers in retail spaces. It has a small association in jewellery already with an investment in jewellery brand Monica Vinader. “It was a simply equity purchase,” says Amsdon, “none of that ‘preferred shares’ type of deal or any of that kind of thing.” At this point in the interview it is still not entirely clear what the investment is for: with a healthy, growing business that plays with figures like Watchfinder’s and is evidently growing steadily, surely bridging loans or an ongoing finance facility from a bank are more the order of the day? “Every retailer is trying to get into the second-hand market now, so we needed to establish dominance. We’re the gorilla in the room now. In the old days, you would never see pre-owned watches, but the bigger players such as Aurum have been watching us closely.” Aurum is patently attempting to park its tanks on Watchfinder’s lawn. Back in August it was announced that the luxury jeweller, which owns Mappin & Webb and Goldsmiths, had acquired 100% share capital of the Watch Shop from its father-and-son owners, and weeks later revealed a new click-and-collect service, which would naturally require a slick, easy-to-use website with product libraries and fluid searchability. To collect data from a platform like this is to conjure power in the market. And it is not Aurum’s first foray in the online selling of watches, having launched an e-commerce platform for its Watches of Switzerland brand back in 2011. It is that data, says Amsdon, that is so key to Watchfinder’s success. “We’ve sold £130m worth of watches so we have a lot of data on the models. We have an app in development which will use face recognition technology to allow users to take a photo of their watch, upload it to our system, which will recognise the exact model, and provide a quote there and then.” One senses that this will provide a rather serious barrier to entry for pretenders to the Watchfinder throne. “Every retailer is trying to get into the second-hand market now, so we needed to establish dominance. We’re the gorilla in the room now." So what’s next? Amsdon is 41 and has a family (including two young daughters) - is he thinking of exiting the business for a handsome sum and retiring? “At the moment our turnover is about £40m. We want to double it and possibly get into the USA or the Far East.” Even if he is thinking of selling his chunk at some point in the future, the simple fact of this ambitious strategy means that it is probably some years way. As Amsdon puts it: “The need for part exchange is everywhere, and there is a lot of room for us to expand.” Speaking to Amsdon is to encounter a driven company with big plans and - thanks to that investment round - the money to make them happen. He points specifically to the service centre and the warranty offering as being particularly expensive offerings to emulate - it would take significant upfront investment to simply open a service centre with a coterie of experienced watchmakers and engineers, and given Watchfinder’s pre-eminence in the space, it is hard to imagine anyone with their hand on the purse strings thinking it is a good idea to sink so much money into an operation which may fail against Watchfinder’s hard-won reputation. Anyone else looking to get serious about the pre-owned space has got some catching up to do.