What is the grey market and why does it exist?
There are many authorized dealers who simply can't afford to inventory the minimums required by their watchmaking company partners. So they sell-off their excess inventory to the so-called grey market, which are largely legitimate wholesalers and small businesses. Because the factory warranty may not always be honored by the manufacturer after a grey market sale, these dealers sometimes offer their own warranties.
Is it worth the small risk and potentially hundreds of dollars in savings?
It might be. Lots of people think it is and there are some extremely successful, reputable grey market dealers. With an authorized dealer (AD), you might be able to save 10-30 percent off a brand-new watch. With a reputable grey market dealer, those savings are typically 30-70 percent.
However, if you are extremely risk-adverse, then the AD is the way to go. Keep in mind that ADs are usually required by manufacturers to limit their discounts, or in some cases, aren't allowed to offer them at all. The grey market isn't beholden to these rules and that's why some businesses actually choose to be grey market dealers instead of ADs. It's also important to note that many ADs/grey market dealers are actually both. That is to say, an Omega AD might actually also be a grey-market Rolex dealer.
And what do the manufacturers think of the grey market?
They generally make pious claims on their Web sites about not selling product on the Internet, etc., but many can't survive without the grey market. In some cases it's actually tolerated, although perhaps not promoted, in the boardrooms of these companies. Omega, Hamilton, Movado, and Swiss Army, are examples of brands that tolerate the grey market.
Why can't they survive without it?
Because manufacturers need to move their product. Many of these companies make thousands of pieces a year and it is well understood that they can only all be sold if a grey market thrives.
Which manufacturers don't condone the grey market?
Rolex, Patek Phillipe, and other higher-end manufacturers that don't discount their product and are extremely careful about who they let become ADs.