Rolex Dealer Leaves

[FLB03TT]

Originally Posted by bewithabob

The AD agreement that Rolex makes with its dealers grants them certain rights no doubt, including the right to rescind or cancel the agreement with proper notice.

ADs need to 'turn' a certain amount of profit and volume in order to sustain their relationship with ROLEX, and 'earn' new shipments of high demand products. Rolex is certainly aware of the idea that an AD may be selling out the back door to sustain their volume, but that would seem to be a violation of their agreement. And it would be difficult to prove.

So put yourself in ROLEX shoes as you evaluate your ADs

You have one group of high performing dealers who are willing to invest in the infrastructure to make your brand more successful in the luxury segment, and you want them to put even more emphasis on your brand than your competitors. This group comprises 20% of your distribution, but they drive 80% of your volume and profits. Lets call this group your "A" Dealers. As such they earn your trust and you give them first class treatment from you in terms of inventory and orders.

On the other hand, you have another set of ADs who are not willing to step up to make your brand a success. This group is 70% of your distribution, but they drive only 17% of your volume and profits. They do a respectable volume, but are unwilling to step up and invest in their stores, retail displays, their sales team or their advertising. Lets call this group your "B" Dealers. They have the potential to do better but this group is inconsistently support the tenants that make the "A" group highly successful.

Then there is a third group of folks we will call the "C" Dealers. This group is 10% of your distribution, but they contribute only about 3% of your volume and profits. They are clearly underperforming, turn inventory very slowly and are unwilling to invest in your brand on any level as compared to the other dealers. In some cases, their stores are near A or B locations.

In the short term, for competitive reasons, you intend to elevate brand standards across your dealer network, and decide to close as many of the C Dealers as possible, knowing this will have minimal impact on your volume or profits, since that volume will transition to other locations You meanwhile raise prices to offset any short term negative impact.

Meanwhile you need to get more of the "B" group to perform like "A"s. And set higher volume goals for the B group, using high demand product models as leverage.

There is some dissent, but you have confidence, if this market does not perform, you can achieve profits objectives by tapping emerging markets in other countries.

This is an enviable position to be in. Fire bad customers and promote good ones!

A great analysis, I couldn't agree more