Lenders Are Misvaluing Luxury Watch Collateral

Luxury watches have become collateral. Lenders accept them. Private equity funds them. The numbers look solid on paper. They are not.

The secondary watch market recorded $10.5 billion in transactions in the first half of 2026, up 37.2% year on year, according to EveryWatch data reported by JCK. That growth looks like strength. It is not the whole picture.

Behind the headline, WatchPro highlights a Morgan Stanley report noting that secondary inventory across the six biggest brands rose nearly 20% year on year, reaching record highs. Supply is piling up. Demand is not keeping pace.

That gap matters for anyone lending against watches. Michael Lebowitz has spent more than 55 years in the trade. He founded MHL Trading in 2017 to appraise inventory for asset-based lenders. When a lender calls, he says, the question is always the same. If this loan goes bad and the inventory has to be sold, what will it bring today?

The answer is rarely what the borrower expects. Lebowitz estimates the liquidation benchmark at roughly 65 cents on the dollar for high-end inventory, and closer to 35 cents for mid-market goods, depending on brand and models. "A $10 million inventory at cost might liquidate for $6.5 million," he says. "Mid-market goods might bring $3.5 million." Those are not theoretical numbers. They come from decades of forced liquidation appraisals. His firm's published methodology covers forced, gross orderly, and net orderly liquidation values, with recovery tiers documented since its 2017 launch.

The problem is that lenders often rely on indexes. An index tracks individual retail transactions. It doesn't show what a dealer gets for a bulk inventory when they have 30 days to sell. An index also cannot see what has left the building. It measures a market, not a specific shelf. Hilco Global notes that trade-in inventory aging past 180 days deserves a real discount, and that the discount needed to bring cash-only buyers to a liquidation table is bigger than most lenders expect.

The watches also move. Lebowitz describes jewelry and watches as items that tend to have little legs. They walk out the back door when no one is counting. A lender who appraises once and never returns is exposed to inventory that has quietly disappeared or been replaced with slower-moving stock. That is why he recommends biannual physical monitoring, and not a desk review. "If you don't monitor the inventory, you don't know what you have," he says. A six-month gap is enough time for the best pieces to sell and the weakest pieces to stay.

There is a second layer that most lenders miss entirely. A watch dealer can lose the right to sell the brands that back the loan. "Rolex can cancel a franchise after 50 years with no notice and no appeal," Lebowitz says. "When that happens, the high-value supply stops. What remains is the slow-moving inventory the dealer could not sell in the first place. Once the good pieces are gone, what is left liquidates for less than the original number." The collateral is still there. Its value is not.

This is why Lebowitz does not just count boxes. He interviews the C-suite. He asks where the business has been, where it is going, and what the customer demographic looks like. He asks whether the marketing has shifted and whether the sales strategy matches the inventory on the floor. A lender is not just underwriting inventory. It is underwriting the people who manage it. A management team that cannot move product is a management team that cannot service a loan. If their strategy does not work, the inventory will not either.

Lebowitz wrote an article years ago called You Don't Know What You Don't Know. That phrase has not aged. Lenders who accept watches as collateral without a real liquidation appraisal are operating in a fog. They believe they have a buffer. They believe the index protects them. They believe the brand will hold.

Watches are commodities. They are not permanent trophies. The market has already changed. So the question for lenders is not whether luxury watch collateral is valuable. It is whether they know what it is actually worth.