Video: Rolex Profit Margins

[locutus49]

This is an excellent video by a UK Rolex dealer on his margins, the grey market, etc.

https://www.youtube.com/watch?v=OAzDPvviQCo

[Chewbacca]

Thanks John.

[Colin M]

38% profit on most watches ! What i do find disturbing is the fact that not one UK AD will even think about giving discount and highly unlikely to sell you 5 or 6 watches at one time !
A complete boycott of all UK AD for a while would maybe change the attitude !

Dick Turpin is alive and well !

[breitlings]

Originally Posted by Colin M

38% profit on most watches ! What i do find disturbing is the fact that not one UK AD will even think about giving discount and highly unlikely to sell you 5 or 6 watches at one time !
A complete boycott of all UK AD for a while would maybe change the attitude !

Dick Turpin is alive and well !

I don't think that is super profitable. They have payroll, taxes right off the bat takes a huge chunk, rent, insurance, and they have to send their kids to college. I can't believe that video goes on for 21 minutes.

[locutus49]

Thanks for your comments. I wonder if margins are the same in the US as they are in the UK?

[Danny83]

Originally Posted by locutus49

Thanks for your comments. I wonder if margins are the same in the US as they are in the UK?

My friend is an ad here in ca yes they are 38.5%

[locutus49]

Thanks for the quick response.

Originally Posted by Danny83

My friend is an ad here in ca yes they are 38.5%

[Colin M]

Its the fact that they are non-negotiable that annoys me ! When you go to buy a car the first thing you do is enter into a negotiation with the sales man [well i do ] If there is no movement from them you move on !

[Jocke]

That is how it works. The dealer should cover employees, a expensive shop and pay for all the watches he have trouble
to sell just to get the ones that walk out from the store in a eyeblink. Then customers requires he should have all
models in stock so the customer can try it out and then go home and order it from a greydealer on Internet.

[AS1]

Originally Posted by Jocke

That is how it works. The dealer should cover employees, a expensive shop and pay for all the watches he have trouble
to sell just to get the ones that walk out from the store in a eyeblink. Then customers requires he should have all
models in stock so the customer can try it out and then go home and order it from a greydealer on Internet.

Ha, well put.

[powerfunk]

Originally Posted by Colin M

Its the fact that they are non-negotiable that annoys me ! When you go to buy a car the first thing you do is enter into a negotiation with the sales man [well i do ] If there is no movement from them you move on !

Yeah wouldn't it be lovely if buying everything was like buying a car?

[DubaiWatchGuy]

thanks for this :)

[SMD]

Buying at 38% of retail does not equate to a 38% margin, it's more like 61. In any event, there is this little thing called working capital that needs to be factored into any discussion of costs. Being an AD means buying lots of inventory on shortish terms, and most pieces do not turn quickly. That is a lot of dead money sitting in those showcases and why some ADs turn to resellers to help them turn dead inventory into cash flow to pay the bills.

[Welshwatchman]

Originally Posted by SMD

Buying at 38% of retail does not equate to a 38% margin, it's more like 61.

You've taken the word "off" and changed it to "of".

There will be a UK MRSP of say, £6,000.

Remove VAT, that's a net selling price of £5,000.

The dealer obtains a discount of 38% (or 38.5) from this price (£1,900 gross profit) leaving them having to pay Rolex £3,100 for the watch.

The dealer would love to only have paid 38% of the MRSP for the watch. That would change their margin amount from £1,900 to £3,100 and give far more opportunity for a juicy discount.

I've not got a dog in the fight. I bought the vast majority of my collection in 2007-2009 when prices were sensible.

[SMD]

Originally Posted by Welshwatchman

You've taken the word "off" and changed it to "of".

There will be a UK MRSP of say, £6,000.

Remove VAT, that's a net selling price of £5,000.

The dealer obtains a discount of 38% (or 38.5) from this price (£1,900 gross profit) leaving them having to pay Rolex £3,100 for the watch.

The dealer would love to only have paid 38% of the MRSP for the watch. That would change their margin amount from £1,900 to £3,100 and give far more opportunity for a juicy discount.

I've not got a dog in the fight. I bought the vast majority of my collection in 2007-2009 when prices were sensible.

No, I understand what I did. The smallish point I was trying to make is that you do not figure out a "percent" of profit by starting with the list price, you need to start with what the dealer pays to acquire the watch. So in your example, the watch was acquired for 3100 and sold it for 5000. That is 1900 gross margin, but the denominator should be 3100, not 5000. That is why the margin is 61%, you need to figure the profit relative to what the item cost to acquire, not what the sale price is.

[boat73]

Originally Posted by SMD

No, I understand what I did. The smallish point I was trying to make is that you do not figure out a "percent" of profit by starting with the list price, you need to start with what the dealer pays to acquire the watch. So in your example, the watch was acquired for 3100 and sold it for 5000. That is 1900 gross margin, but the denominator should be 3100, not 5000. That is why the margin is 61%, you need to figure the profit relative to what the item cost to acquire, not what the sale price is.

Profit margin is calculated as a percentage of the sell price. Markup is calculated from the dealers cost of the goods. In this case, If $3100 is dealer cost and you marked it up 62% you would sell it for $5000. The resulting profit margin would be 38%. (The amount of profit divided by the selling price)


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[SMD]

Originally Posted by boat73

Profit margin is calculated as a percentage of the sell price. Markup is calculated from the dealers cost of the goods. In this case, If $3100 is dealer cost and you marked it up 62% you would sell it for $5000. The resulting profit margin would be 38%. (The amount of profit divided by the selling price)


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So, doing it your way, what is my return on invested capital?

[bgolfo]

Very informative, thanks

[omitohud]

Not to mention all those cellini inventory.


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[Welshwatchman]

This guy isn't a dealer though.

He operates a shop in East Grimstead selling second hand watches, or watches obtained properly from ADs.

[Vivalas]

I believe it's dropped slightly now to around 37% in the last couple of months. Also remember that 20% of the sale price in the UK is VAT so whilst still a good level of profit it's not as good as it first appears. Generally AD's are fairly impressive shops in good locations so running costs, with staffing are high.

AD's in the UK will discount - depends on the model and the relationship you have with them. My Daytona not a penny off, my BLNR 5% off. I have friends who have got 10% off subs. Rolex certainly don't encourage it though.

[jay1988]

It's certainly refreshing to have someone just come out and say all of this. I don't know how truthful he is but he seemed very balanced. Saying that they only keep 20p for every £1 of profit but also admitting they did very well.

Profit margins exist. I suspect they're quite high for a lot of things. Unless you want to adopt a very minimalistic lifestyle, you're lining someone's pockets no matter what you do.

[omx5o]

Might be worth taking a look at the definition of profit. It's what you get after all your costs. That includes staff salaries, taxes, rent, etc, etc. It's very misleading to say that an AD make 38.5% profit from selling a Rolex. It'll be a small fraction of that.

[Norbert]

Originally Posted by omx5o

Might be worth taking a look at the definition of profit. It's what you get after all your costs. That includes staff salaries, taxes, rent, etc, etc. It's very misleading to say that an AD make 38.5% profit from selling a Rolex. It'll be a small fraction of that.

Exactly. You guys must not own your own business or aren't in retail because that's not a huge profit margin for a luxury item. These same guys that complain also want to go into a store that's nice and up to date.

[HL65]

Originally Posted by Norbert

Exactly. You guys must not own your own business or aren't in retail because that's not a huge profit margin for a luxury item. These same guys that complain also want to go into a store that's nice and up to date.

Of course it is easy to say Rolex AD buys watch for 62% of retail therefore they pocket 38%. So much for variable and fixed expenses i.e. payroll, rent, utilities, advertising, benefits, taxes, inventory carrying cost, etc etc.

[SeaDweller50]

It all depends on the price of the watch. A watch that sells for 30 Grand is an incredible profit margin.

[THC]

Shop well and one can circumvent a lot of the profits had by retail...

[Mr Daytona]

Evil capitalism....... bwahahahah

[subtona]

Agree that it doesn't seem like astronomical profits, rent is expensive nowadays. I guess what becomes a bit off putting is the refusal of a discount to a walk in customer, specifically when that customer has knowledge that there are so many significant discounts being given out to gray dealers.

Now if the customer service were as good as it is advertised to be and the warranty needs were satisfied as good as expected... Maybe then it would be a moot point but neither of those have been my experience, so the charade with the no discount policy and the existence gray dealers will continue.

[franzy]

I'm sure most AD's are doing just fine. I would imagine that they receive a lot of customers that purchase on impulse and pay full retail.