Rock ‘n Rolex
Rolex announced the acquisition of Bucherer, a retailer with some 100 stores globally. This marks an important change of direction from the world’s second-largest Luxury brand – moving into retail. The impact was immediate with Watches of Switzerland, a major Rolex partner, dropping over 20% on the news. This is a rare event – and it matters. We look at why.
The world of watches has been shaken by the news that Rolex SA will acquire one of its longstanding partners and authorised dealers, Bucherer, a Swiss name that has a presence in Europe and the US and is known to have been badly hit by Covid disruption. As Industry experts Hodinkeewrite ‘This is massive news in our industry, and we will be monitoring it as things progress’…and they are right – it’s big news in Luxury overall too and we need to understand why.
Rolex is a very special company with phenomenal brand appeal amongst its Luxury peers so it’s worth having a closer look here.
A very special company
Rolex, originally based in London, is a made-up name that sounds expensive when it was originally set up as a brand in 1908 by Hand Wilsdorf and Alfred Davis with the Rolex Watch Co established in 1915 moving to Geneva (yes, for tax reasons). Wilsdorf was a brilliant marketer and rapidly established what was a relative newcomer at the time in one of the go-to brands for reliability and performance over time, with a more sedate pace of growth relative to others in the industry, at least it used to be that way. All sorts of patents and innovations and clever marketing followed, all leading to what is Rolex SA today once the original rather messy structure was cleaned up in more recent years.
Rolex is secretive and it’s officially not even a business…it’s a sort of charitable foundation, at least according to the Swiss Authorities which of course avoids them the unpleasant experience of having to pay taxes. Rolex is owned by the Hans Wilsdorf Foundation since 1960, which funds the largest scholarship endowment in Europe and is a prolific donor to various social causes which is a kind of quid pro quo clouded in discretion and 0 accountability. We know it operates at least four sites in Switzerland where all the timepieces are manufactured, and those lucky enough to have visited talk of incredible security, vast underground spaces, remarkably meticulous production lines and the strictest testing regimes….a bit Bond-like if you will. Even the Board of Directors of Rolex, with nine members, is a very discrete affair, although we do know that it includes a Geneva-based notary and of course the CEO, J-F Dufour who was appointed in 2015.
The Rolex stores
Now the intriguing thing about Rolex is that it chose not to be vertically integrated in any way beyond the manufacturing of the timepiece: this is of course exactly the opposite of what all the major brands in Luxury (including the likes of Cartier and Bulgari, but also pure watch players like Patek Philippe and Audemars Piguet as well as the Richemont brands) have pursued and told us had to be done. In other words, all the Rolex stores you see in the world are never owned and operated by Rolex (well, possibly apart one in Geneva but even that is not fully confirmed to my knowledge) but are authorised dealerships run by third parties…they all look pretty much the same as Rolex enforces a strict policy in terms of set-up, colours, windows, furnishings etc…but are not run by Rolex, none of them.
Rolex is huge: whilst not a lot of data is available, I estimate 1.1mn timepieces manufactured and sold every year. Watchpro recently published an industry estimate of CHF 9.3bn 2022 revenues, up midteens on 2021 (the dynamics at Rolex and for the top watch brands in general were different at the time of Covid versus say, a vertically integrated Soft Luxury name in that they would be just supplying existing waitlists beyond minimal production disruption). Now there may be small ancillary sources of revenue but the CHF 9bn+ figure is essentially the sale of watches. Wholesale. CHF 9bn in 2022 (Rolex only, let’s ignore its much smaller sister Tudor) was the equivalent of € 9bn and much as the retail mark-up can vary slightly by product and market, it is safe to argue that the retail value of Rolex sales globally would rank it comfortably well over the equivalent at Dior (assume € 10bn), Gucci, Hermes and Cartier (think € 12bn-ish each) and probably even Chanel as the declared € 16bn includes its massive Beauty segment….indeed only Louis Vuitton ataround € 21bn is likely to be the bigger brand. Repeat after me: wow.
So if Rolex is indeed the world’s second largest Luxury brand by total revenues at retail, you would expect massive queues at all its stores globally much like the others no ? In the end, at an average retail price of under € 20k p/watch, high as this is, it’s hardly in the Birkin or Patek Philippe bracket no ? So you have the cash or the fancy card, and you want to get yourself the beautiful (it really is) Rolex Daytona Cosmograph recently released in chestnut and ice blue….think again. For some years now and certainly since Covid, Rolex stores globally have become some kind of dedicated advertising space….you can go in if you make it past the security chaps and ask to try a model on your wrist…all the models in display have no movement so are empty shells but you can see if you look good with it I suppose….then you can ask for your name to be added to the waiting list or as is more delicately known, the expression of interest’ list. For, you see, there are no Rolexes available to buy in Rolex stores (well you may get lucky with some of the less popular womens watches here and there) anywhere at anytime. Nothing, niente, nada, zilch. And the waitlists for some watches are insane unless you are a proper collector, a VIP or a very very good friend of the store manager….in many cases I know there are no more additions to these lists in certain locations and for certain timepieces…after all, who wants to be told “erm, 2028 or 2029 if you’re lucky…and you will have to pay the list price at the time of the sale…and you will have to come in person to pick it up and quickly or you will lose your place on the list [this has been quite a bummer for Russian customers recently] and we guarantee nothing….but thank you for your interest”
The Rolex authenticity certificate
The magic lies here: to get hold of a Rolex quickly you need to look at auctions or buy second-hand, and pay 2-4x the retail price (more in some cases)…thereby Rolex one of the few brands alongside Ferrari where a used model is instantly more expensive that a new one. This, of course, raises issues of authenticity, with Rolex very keen to crack down on fakes (not the cheap ones, the really good fakes that will fool most) and the frankensteins (Rolex watches made up of different Rolex watch parts to look more authentic). Rolex, always the masters in creating brand value, have now taken one step further by offering Rolex authenticity certificates issued by themselves, the ‘Certified Pre-Owned’…..along the lines of what Chanel already do (‘if we don’t authenticate it’s not a Chanel, regardless of evidence ‘) …give it a few years and it will become impossible to sell a second-hand Rolex via proper channels without the Rolex authenticity certificate, confining all others to the darkest alleyways of both certain cities and of the worldwide web. In other words, Rolex will soon control pretty much the entire relevant value chain and drive it as they wish.
Oh and ignore the doomsayers that point out that the resale value of Rolexes is dropping: that is certainly true but is just normalising after the incredible Covid price surge (to 5x-8x value). Rolex are still seen as a solid investment over the years and many collectors never actually wear the timepiece…not great for others but that is what it is.
It’s very close to being the perfect business model, no matter its oddities.
Back to the news
So back to the news. The decision taken by Rolex SA to own a part-retailer (Bucherer is also a manufacturer of medium-priced watches) is a major major shift in strategy with significant consequences. Not so much for Rolex as Buchererdistribution is small at just over 100 doors of which 53 are authorised Rolex dealers (this can change of course) and 34 in the US where it acquired Tourneau, but for its plethora of authorised dealers such as Watches of Switzerland (n.1 in the UK and US) that saw its share price drop over 20% today (almost 30% at the trough) in that all of a sudden they may have Rolex as a direct competitor in their city/mall which is not what was expected from any of them. In the short term it will make little difference as there are no watches to sell off the waitlist as we wrote, but what about the future ? Who will get the new release first ? Will potential customers add their name to waitlists at Rolex-owned stores in the belief these will have more pieces and sooner ? And what if Rolex decides to add more stores ?
Frankly, I think the definition of charitable status at Rolex will be stretched more than a bit here, but it is Switzerland after all so they will probably get away with it.
Why did Rolex do this then ? In my view it was a defensive move to ensure the survival of Bucherer, one of its main authorised dealers globally, in the form and structure more convenient to Rolex’s purpose. Clearly the reassuring press release (nothing will change…in essence) is required also as other brands supply to Bucherer, but I would take this all with a pinch of salt.
In the end, it is a shift in the business model, no matter what worried dealers may scramble to tell you today. How much of a shift will be clear in 4-5 years, but it is a shift. And that, in Luxury, is a big deal.
