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Omega, Costco relationship: 50 shades of grey

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March 2015


Costco is usually not associated with romance. Unless, of course, you feel that great deals can be romantic. I’m a sucker for a great deal, and the American wholesale retailer has tons of them… literally.

But the 50 shades of grey I’m referring to are not found in a romance novel. Rather in (not so romantic) court documents, which concern the grey market of the watch industry. When brands like Omega sell their timepieces, they distribute them via authorized dealers. Those dealers then provide the manufacturer warranty and service, all of which usually comes at a price point suggested by the brand.

The grey market, on the other hand, refers to the trading of authentic watches by third party, non-authorised dealers. The result is usually lower prices for consumers, although warranties are often not honoured. Technically they are legal, but manufacturers don’t allow them. Hence, the greyness of it all.

The romance that wasn’t meant to be

It all began when Costco wanted to carry Omega watches in its stores as an authorised dealer. The two sides, however, failed to reach an agreement. Enter the grey market: In response the following year, Costco purchased 117 Omega Seamaster watches from a non-US authorised distributor. The authentic watches, carrying a suggested retail price of US $1,995, were on sale for just US $1,299, as Forbes reported at the time.

Great for customers, bad for the authorised dealers. With their higher price points, authorised dealers started to pressure the Swatch group, owner of Omega. In a “clever” (read: “probably lawyer influenced”) response, Omega’s watches were engraved with a copyrighted globe design on the case back. So when Costco sold 43 of the engraved watches to its customers, it allowed the brand to sue Costco for copyright infringement, as Jewellery Magazine reported.

The two mega brands – Costco’s 2014 revenue was US$ 112.64 billion, and the Swatch group’s was CHF 9.219 billion - have been battling in court for years. The initial decision 8 years ago ruled in favour of Costco. It was then overturned in favour of Omega in 2008. The most recent ruling reinstated the first decision, meaning that Costco has the right to continue selling the watches legally, at a discounted price, without being an authorised distributor.

The decision is not just important for Costco and Omega, but it also has implications for how the law is interpreted and where to manufacture goods, as brands try to avoid such problems. Something tells me this love story is not over just yet. (VJ)

Omega, Costco relationship: 50 shades of grey

Retail heavyweight Costco