Trouble at Chrono24 Part 2
Please first read Part 1, published on October 1, for context. Yesterday, WatchPro and NZZ published articles on the situation with Chrono24. The story is still developing and there will be a Part 3. Below is my personal take on the current situation.
In response to the new Chrono24 price structure announced on Sept 4, 900+ sellers have organized, and on Sept 27 sent a formal letter to Chrono24 requesting a meeting to discuss the following:
Revision of pricing structure to a lower commission rate and a reduction in the current monthly listing fees.
Implementation of a clear and transparent pricing policy and fixed commission rate, ensuring consistency and predictability in business planning.
Establish an open communication channel between Chrono24 with its seller community via the formation of an annual advisory body, consisting of seller representatives of various sizes and regions.
Respect for commercial autonomy by allowing buyers to easily identify the sellers offering each watch in search results, ensuring transparency and fairness in competition.
Address the rise of “procurement dealers” who use duplicate photos sourced from dealer chats and other online channels to pre-sell watches on Chrono24 prior to procuring them.
On Sept 28, the total number of listings on Chrono24 was 579,778. By Oct 15, the total number of listings dropped by 4.7% to 552,826.
Representatives of the organized sellers have requested a meeting with Chrono24, which is scheduled to take place next week.
In the meantime, WatchPro publicized a statement by Chrono241, which I encourage you to read. The 346-word statement does not seem to clearly address any of the points raised by the sellers, but perhaps this is because the meeting has not been held yet. The wording is quite ambiguous and I may be reading it wrong, but I tried to summarize it into 5 bullet points:
Chrono24 is concerned about sales leakage and abuse of their platform for advertising purposes.
Considers themselves a sophisticated marketplace, and no longer an advertising platform. Reiterates that they have an escrow feature (introduced back in 2016), and an authentication service which provides trust to their buyer base. They also have services (tools) beneficial for sellers.
Needs to continue to invest in “new capabilities.”
Advertising (ie monthly listing) fees and commissions are an important source of revenue and so the new price structure will be enforced.
Claims that fees will stay stable or decrease for sellers that succeed in turnover, but increase for sellers whose primary goal is visibility (implying sales leakage)
The first 4 points seem contradictory - people definitely need trust, which we provide on our platform via our escrow service, but we’re afraid you won’t need the trust we provide and deal among yourselves and treat us like an advertising platform. We’re not an advertising platform, but we need recurring advertising revenue to fund and develop “new capabilities” to protect and maintain the trust that you need.
Secondly, Chrono24 states that “merchants’ transaction (commission) fees will stay stable or decrease.” But as I wrote in Part 1, the commission rates have been switched to a fluctuating rate set at the discretion of Chrono24 for each listing via their “revenue calculator.” It has no relation to the seller’s cost basis, and can change depending on the type of listing.2 For example, if, going forth, I happen to list watches which Chrono24 decides should have a higher commission rate, my total commission fees have increased. Therefore it is unclear what is the basis and calculation behind this statement.
Thirdly, Chrono24 admits that sellers who use Chrono24 for “visibility” will incur higher monthly listing fees. What is not explicitly admitted is that slow turnover will also lead to higher fees. Soft market aside, we have learned from social media in the past decade that turnover is highly dependent on individual promotion of the seller, something that Chrono24 does not allow on their platform.
Fourthly, and most interestingly, the organized sellers are against procurement dealing, while Chrono24 allows it. As of Sept 28, listings classified as “needs to be procured” or “available on request” made up 32% of the total listings on Chrono24.com, so it is probably an important revenue source for them. But procurement dealing is trouble prone (you are selling something that is not in your possession) and highly likely to undermine trust in the platform. This again seems to be contradictory to their statement, which emphasizes the importance of trust.
Finally, the statement is also an admission that Chrono24 cannot control repeat business nor the substantial dealer-to-dealer business, where trust affirming structures exist outside of their platform. But this is a feature, not a bug, of most brokers and marketplaces - when trust is established, there is no need for them any longer, and caps the compounding of their revenue growth. Hence why marketplaces, unless they reach Amazon levels of scale and service, are relatively low growth businesses that end up relying on price hikes to increase revenue.
Price hikes are fine if they are accompanied by salient, value-add services in the platform. Unfortunately, sellers feel that the current mix of platform services3 do not warrant these price increases. And let’s not forget that some of the increase will be indirectly passed on to buyers.
The Chrono24 price structure - a combination of a flat monthly listing fee and a fluctuating commission rate but no escrow fees- does not seem to be an optimal, clear, and customer-centric pricing structure for a platform that is essentially a listing and escrow service. I would encourage Chrono24 to simplify and align both their incentive and organizational4 structure with actual services performed.
In the takeaways section in Part 1, I suggested some other ways in which Chrono24 could adjust their business model and increase revenues while delivering value to sellers, shareholders and buyers. I believe that central marketplaces such as Chrono24 confer strong value to all participants by increasing transparency and symmetry of information in the market. I hope that both sides can meet next week and agree on a mutually beneficial solution.
Stay tuned for Part 3.
For your convenience, I have Google translated it and pasted it here:
Statement from Chrono24
"Many years ago, Chrono24 was a classifieds website where sellers could easily list their luxury watches. The reason we have evolved our business model into a much more sophisticated transactional marketplace where the entire sales process takes place on our website is simple: trust.
Trust is essential when trading rare and expensive items; Chrono24 has been able to build its wide reach by bringing sellers and buyers of luxury watches together in a secure environment. We have added features such as buyer protection and certification to build our reputation as a global watch marketplace."
"We believe that the recent simplification of our pricing model is the right strategic move to further strengthen Chrono24's position as a starting point for watch lovers worldwide."
We are committed to continuing to build a company that sets the standards for online luxury watch retail, which in turn enables our partners to grow their businesses.
Doing this over the long term requires investing in new capabilities that build trust and create a solid foundation to help partners achieve greater success.
To strengthen our position as a transaction marketplace, we want to offer incentives to our partners: Active sellers who transact via the Chrono24 platform will continue to benefit from a variety of tools that make it as easy as possible for them to reach the right buyers and complete transactions."
These merchants' transaction fees will either remain stable or even decrease. Sellers who use Chrono24 primarily for visibility rather than for completing transactions may face higher fees."
“We stand by this decision as it is a necessary step to bring Chrono24 ever closer to its intended purpose of providing a secure and integrated ecosystem for the sale and purchase of luxury watches.
By streamlining fees and replacing the previous tiered system, we hope sellers can take advantage of all of Chrono24's features and focus on driving sales through the platform.
By more strictly enforcing parcel limits, we will ensure that sellers operate within their allocated limits, creating a fairer marketplace and addressing cases where inventory exceeds agreed thresholds.”
Per Chrono24.com, “A commission fee is charged for every watch sold on our platform. We calculate each individual commission fee according to various criteria such as the brand, price, and condition of the watch. You can use our revenue calculator to determine the exact commission fee for each watch.” However it also seems to depend on the seller’s price bracket and seller type. Perhaps it is also based on analysis of historic transaction data and forecasts thereof. You can register as a professional seller on Chrono24 and use the calculator or contact your RM to get your commission rate.
For example, the escrow service itself is one-sided - it is able to protect buyers by withholding funds, but is unable to protect sellers from “never received it chargeback” frauds.
I mean human resources.
In any fragmented industry characterized by a high number of small businesses offering nearly identical products this is the way things simply go... booking.com, the various marketplaces of the Adevinta group, Amazon MP (their pricing and e.g. FBA conditions are terrible btw), price comparison pages in general. It is either differentiate by product offering, content, service experience etc. or succumb to the dependency.
P.S. I am no way unbiased on this topic as I have worked in the marketplace and platform business for many years. But the suppliers always tend to blame the platform (especially in dire times) instead of thinking strategically in the long term. Kudos to Watchbox getting this early on and to Govberg/1916 snatching them up.