Why Private Customers Ship or Wire First
Risk is not equal on both sides
Recently I agreed to buy a couple watches from a very good, long-time customer of mine. We have done probably 7 figures of deals over a decade. He is in Asia and, like many of my customers, we have never met or even talked on the phone. We chat on Whatsapp, agree on a deal, and the wire arrives promptly in my account the next day. I ship the watch to him, and we go on our merry ways until the next time.
This deal is different as it is the first time I am buying from him. And it is significant, to the tune of several hundred thousand dollars. After our usual easy negotiations, we agreed on the deal. Then came the curveball: he asked if I had his wire instructions and said he’d ship after the wire arrives. In all my time in this business, I have had a clear policy — retail customers wire first on sells and ship first on buys. Yet here was one of my most reliable customers expecting an exception. The risks seem so minimum, and yet two days later I am stressed out about it. I was about to write him a long text explaining why it’s still too much risk for me, but figured I’d write it as a post here instead as it is an important concept for this business that many people don’t understand. I hope by the end of this it will be clear why the industry standard of “customer first” makes total sense.
The Chicken and The Pig
This problem of who goes first is a common question I get from non-watch friends at dinner parties. It seems intractable. We’ve agreed on the value, so it appears we are exchanging X for X and therefore someone must take all the risk and the other none. But look closer and you see that the risk is not as symmetrical as it seems.
Let’s call the customer Joe. Joe obviously loves watches, but he is a neuro-surgeon by day and they are a hobby for him. His watches are purchased with income from his job, the same income that pays the rest of his bills. On the other side is dealer Steve. Steve buys watches to resell them and hopefully make a small percentage. With that percentage, he pays all of his bills and feeds his family. You may be able to see where this is going…
Let’s look at what happens if something goes wrong. First, let’s have Steve defect. Joe ships the watches to Steve, who doesn’t pay. Joe probably cuts him some slack, but after it becomes clear that something’s up, Joe contacts other dealers, social media, the local police, etc. The police have no problem finding and charging Steve because he has a company, pays taxes as a reseller, etc and it is easy to prove clear-cut fraud. In the meantime his reputation is ruined and his income stops almost immediately. He has lost his entire business. He has to start over from scratch.
Now let’s have Joe defect. It turns out that Joe, despite being extremely reliable for a decade, has run into some hard times. Steve sends Joe a wire, but Joe does not ship the watches. What can Steve do? Well he can contact the local authorities half the world away. He finally figures out how to contact someone, but when they start asking him questions he realizes he knows very little about Joe. He puts up an Instagram story “Beware of Joe, the scammer”. In the meantime, Joe’s income is unaffected. In fact nothing at all changes for him. Now sure, this story will probably not end well for Joe, but it will take a long time to play out. Joe will have a lot of options until the very end. Most likely, at the end of all of it, he’s still a neuro-surgeon and the whole thing is a speed bump at worst.
And it doesn’t even have to be this dramatic. Say there’s no evil intent, but one side is simply slow for whatever reason. Again, the cost of damage to business and reputation far outweighs the cost to a collector.
These incentives actually make the whole business work. Dealers work hard to provide great service and build their reputation. Collectors trust that if a dealer has been in business for a long time with many happy customers, they are highly incentivized to make each next deal go smoothly. It’s this mechanism that makes dealers so much safer to do business with than collector-collector deals. Of course it feels rude to discuss such things, especially when all sides are likely extremely honest people. I live life assuming most people are good, and especially trust those who have given me plenty of reason to trust them. But when you look at it in this way, no matter how reliable those involved are it only makes sense in one direction.
In a bacon and egg sandwich, the chicken is involved while the pig is committed. In every deal, a retail customer is the chicken and the dealer is the pig.
