Rolex Buys Rolex Watches To Prevent Price Drops

[diablojota]

Originally Posted by nylawbiz

I was referring to a scheme where Rolex eliminates their AD's in a particular market, and only sell direct to consumers at Rolex company owned stores, at full MSRP.

Does Rolex actually have company owned stores? I believe that your example was more in terms of hypothetical, correct?

[BigHat]

I doesn't understand why people don't see the logic of reabsorbing a small amount of stock from ADs in trouble. Why is a watch in the safe of an AD aging any differently than in the Rolex warehouse?

Again, not saying I have a clue if it's happening, but if they have dealers (that they want to keep) in dire straits in terms of cash flow, why isn't it better to suck back some stock than sit by and watch them dilute the prices by excessive discounts?

I also don't think it's a "reduce production" vs "buy back" issue. First, I'd bet they have dropped production at least 50% already. The aggregated Swiss watch output is known to have taken a huge hit. Rolex is such a large piece of that it must be severely impacted too. Have we forgotten about the RSC closures and the bldg sales? Doesn't sound like the "Federal Reserve" level cash balances either, but that's another topic.
Second, screwing around with production at the plant means zero to the ADs stuck with expensive stock. If they are in a situation where they wish/need to help the ADs and they think it's in the best interest to the brand, they basically buy their own product. Aside from an uncollateralized loan or car dealer style rebates and hold backs, what can they do?

If this is an issue at all, it's a transitory issue. Rolex isn't going vertical, it isn't an anti-trust issue (in about 99% of the ways they could do it), or any of that other "I stayed at a Holiday Inn Express last night level" MBA opining underway.

[nylawbiz]

Originally Posted by diablojota

Does Rolex actually have company owned stores? I believe that your example was more in terms of hypothetical, correct?

Yes, hypothetical. I'm sure they have considered the idea of controlling their product form raw materials, to retail sales.

[diablojota]

Originally Posted by nylawbiz

Yes, hypothetical. I'm sure they have considered the idea of controlling their product form raw materials, to retail sales.

Well, let me fill in the blanks a bit. Rolex is about as vertical as they want to get. They produce their own gold ore for their watches, etc. They basically control their raw materials all the way up to the distribution of their watches. To complete the integration, they would have to go retail, but I think they'll avoid that just because of the costs involved. That's all I know.

[BigHat]

Originally Posted by diablojota

Well, let me fill in the blanks a bit. Rolex is about as vertical as they want to get. They produce their own gold ore for their watches, etc. They basically control their raw materials all the way up to the distribution of their watches. To complete the integration, they would have to go retail, but I think they'll avoid that just because of the costs involved. That's all I know.

I agree. I'd be astonished to see top to bottom control, or even the slightest interest in trying.
They produce their own gold alloy because they have the economies of scale that make it a wise move. That's an ENTIRELY different issue than trying to take control of sales end. The reality is that very few stores, in only a couple of markets could exist with a single brand. Additionally, Rolex doesn't have the panache to do so; they're no AP and AP can only pull it off in a couple of bastions of wealth like NYC and Bal Harbour.

[Art 1]

Originally Posted by BigHat

I agree. I'd be astonished to see top to bottom control, or even the slightest interest in trying.
They produce their own gold alloy because they have the economies of scale that make it a wise move. That's an ENTIRELY different issue than trying to take control of sales end. The reality is that very few stores, in only a couple of markets could exist with a single brand. Additionally, Rolex doesn't have the panache to do so; they're no AP and AP can only pull it off in a couple of bastions of wealth like NYC and Bal Harbour.

Rolex does own 2 or 3 stores world wide. I disagree with your last statement.

[BigHat]

Originally Posted by Art 1

Rolex does own 2 or 3 stores world wide. I disagree with your last statement.

Maybe you aren't understanding my last statement. So you are saying they can successfully market ALL of their watches via Rolex boutiques? Two or three stores world-wide for a brand selling nearly 800K watches means they have some sort of exclusivity? Actually I thought it more than 2 or 3, especially if you consider Rolex only stores owned by others, which are basically the same thing to the consumer. I maintain I'm on solid ground saying they could NEVER pull it off.

[nylawbiz]

They could have stores in large cities, augmented by very personalized e-tailing. This is the 21st century, and and there are alternatives to brick and mortar. I know Rolex bans e-tailing of their watches, but if there were the only source for their product, then e-tailing would be a way to accomplish it. Think about it. They have a name that can pull it off, if done 100% correctly.

[diablojota]

Originally Posted by nylawbiz

They could have stores in large cities, augmented by very personalized e-tailing. This is the 21st century, and and there are alternatives to brick and mortar. I know Rolex bans e-tailing of their watches, but if there were the only source for their product, then e-tailing would be a way to accomplish it. Think about it. They have a name that can pull it off, if done 100% correctly.

I agree with that completely.

[cmr]

that will never happen.

[nylawbiz]

Originally Posted by BigHat

Maybe you aren't understanding my last statement. So you are saying they can successfully market ALL of their watches via Rolex boutiques? Two or three stores world-wide for a brand selling nearly 800K watches means they have some sort of exclusivity? Actually I thought it more than 2 or 3, especially if you consider Rolex only stores owned by others, which are basically the same thing to the consumer. I maintain I'm on solid ground saying they could NEVER pull it off.

They can pull it off with a mix of boutiques, e-tailing, product placement and advertising.

[nylawbiz]

Originally Posted by cmr

that will never happen.

never say never.

[cmr]

Originally Posted by nylawbiz

never say never.

they will never e-tail their own watches.

[BigHat]

Originally Posted by cmr

they will never e-tail their own watches.

Agree. The minute they e-tail their watches they join Casio, not even Breitling seeks that imagine even though they have it.

[Strut99GT]

Originally Posted by cmr

they will never e-tail their own watches.

I'm going to have to agree with this. As soon as their product is available via the internet, forget about the concept of low discounts on a Rolex. Seriously.

I read these threads with great interest because I'm someone you'd probably consider a "high potential" Rolex customer. I have a couple Omegas and a handful of other watches. I like Rolexes. I think they have great movements, a good history, and great after-purchase service (though expensive). What I can't wrap my brain around is why in the world anyone in their right mind would pay over $5,000 for an all-stainless-steel watch like the Sub. For something like the Daytona, it's an availability issue, and let's be frank, exclusivity plays a huge role in owning and collecting watches for most people, so I can see why the SS Daytonas go for so much money.

But let's get back to something like the Sub. Would I pay an extra $1000 for a sub over my Omega Seamaster Professional? I probably would, because "it's a Sub," and "it's a Rolex," and I'm one of the few that loves the date bubble, and because Rolexes have such great after-purchase service (while most other brands are spotty) I can feel like my watch is truly timeless.

But then something strange happens - the price of the Sub not only surpasses the Seamaster by $1000, but it rises to more than double when you factor in reality - i.e. the fact that a Seamaster can be bought new for 30%-ish of retail and the Sub comes with low discounts. Suddenly I'm not thinking warm and fuzzy feelings about Rolex, and I can't justify the price delta due to rarity, so I'm just somewhat "price offended" if that makes any sense. I just think the pricing is hilarious and choose to stand on the sideline and see if the business model is sustainable - massive volume, high price. How long can it go? If Ferrari cranked out a million cars per year, do you think they could keep charging those prices?!

Let me be clear - I still covet a Rolex and intend to buy one at some point, probably when market conditions create a situation where I can find one at a great deal. (or if you view my posting history, you can tell I have a thing for rose gold, and Rolex does that by far better than anyone, so it's a unique product in a way) In the meantime, I'm extremely curious to see what happens. I don't see the economy bouncing upward for a few years. Is Rolex willing to play the low-discount game for that long? We'll see.

Sorry for the long, rambling post

[Andad]

I can see it now.

I walk into my AD and ask for a 20% discount on a Sub.

Sorry Eddie, I'd rather send it back to Rolex, have it credited at cost and buy it back at a higher cost price when things pick up than sell it to you for a 33% profit, goodbye.

[malolo]

In somehow I don't think this make sense to me. In Hong Kong, we all understand that Rolex releases watches to AD in a pattern of AD take many non-favourable models then get one or two hot models (e.g. daytona). If Rolex is going to trade in the non-saleable items then possibly it will be all non-favourable models. It will hurt the whole distribution system and all returned items will take a long time to re-release them to AD again.

BTW, in Hong Kong, Rolex is doing something like monitoring toughly on AD on offering discount. Some AD were being checked out and already have lost their dealership license. And some AD, especially some chained watchshop have returned their part of dealership license to Rolex, i.e. reduce the branches which sell Rolex in order to save up some dealership fee.

[malolo]

Originally Posted by Art 1

Rolex does own 2 or 3 stores world wide. I disagree with your last statement.

I hope you all understand that Hong Kong is a major selling point of Rolex in Asia.

Sorry, as far as I know, there are many Rolex boutiques in Hong Kong but they are not operating and funded by Rolex, they are run by large AD. The different in licensing term is the shop can only selling Rolex and Tutor products but with Rolex's name, it creates a confident to some customers, e.g. people from mainland China to buy at their shop. In these shops they don't offer any discount to customers.

The Rolex lovers in Hong Kong will never buy watch at these shop because they know the serect behind and most importantly they know that there is commonly all Hong Kong's AD are allowed to offer 8% discount (standard rate as I think Rolex Hong Kong know and allow it). However, if there was any AD offer more than 8%, then Rolex Hong Kong will investigate and terminate their license (if they know). So, if AD in Hong Kong want to offer more than 8%, the customer should be known customer or referred by known customer to avoid caught by Rolex Hong Kong.

[BigHat]

Originally Posted by directioneng

I can see it now.

I walk into my AD and ask for a 20% discount on a Sub.

Sorry Eddie, I'd rather send it back to Rolex, have it credited at cost and buy it back at a higher cost price when things pick up than sell it to you for a 33% profit, goodbye.

Maybe the conversation that's happening more and more these days is:

AD: Eddie, I can't sell enough watches to keep the lights on and the staff employed. You want buy at 20% off? Line them up, they're all yours, as many as you can afford. If I dropped prices to 30% I doubt I'd sell enough watches to stay afloat. Hell, even the GM guys don't want my stock at cost. Of course, Rolex will pull my franchise in a micro-second if I do either one.

[chris_1001]

So what is the typical mark up on a Rolex? Anyone know for sure?

[Art 1]

Originally Posted by chris_1001

So what is the typical mark up on a Rolex? Anyone know for sure?

Around 45%.

[chris_1001]

Originally Posted by Art 1

Around 45%.

(i.e. wholesale $10,000.00 + 45% = $14,500.00 retail)

Much lower than I would have thought...

I would have guessed more as many dealers on other watches will knock of 40% with out much effort. So they would seem to be marking them up 100% (the other non Rolex brands) and still getting a minor profit for moving inventory.

[Art 1]

Originally Posted by chris_1001

(i.e. wholesale $10,000.00 + 45% = $14,500.00 retail)

Much lower than I would have thought...

I would have guessed more as many dealers on other watches will knock of 40% with out much effort. So they would seem to be marking them up 100% (the other non Rolex brands) and still getting a minor profit for moving inventory.

Other watch brands have a higher mark-up. The commission for a salesmen is also lower on a Rolex sale, when discounted at all the commision % goes down also.

[Atl]

Originally Posted by Art 1

Around 45%.

That's about what it was when I worked at Mayors in Fla. BTW, here in Atlanta, Mayors is closing shops left and right, and another AD in Sandy Springs just opened a massive new store about 6 months ago, I would be sweating bullets if I was one of the two owners. They went from a small 3000 sq. ft. strip mall store to this huge two story stand alone with ceiling fresco paintings. It's nice, but I cannot see how they keep the lights on.
As for Rolex, The US, Japan, Europe (esp. UK), and Dubai's economies might be not so good now, but China, India, and S. Korea, seem to be in good shape, and China alone has millions of people buying luxury goods. I would think China alone would prop up sales until everyone else recovers.

As an aside, I am still very worried about our economy, I am still all cash, no stock, no more rental houses. I have absolutely no idea where to invest in anything, and sleep well. I am leaning towards gold stocks, but have not pulled the trigger yet.

[drtooth73]

Originally Posted by chris_1001

(i.e. wholesale $10,000.00 + 45% = $14,500.00 retail)

Much lower than I would have thought...

I would have guessed more as many dealers on other watches will knock of 40% with out much effort. So they would seem to be marking them up 100% (the other non Rolex brands) and still getting a minor profit for moving inventory.

Try this math:
Rolex GMT TT: retail $10500.
Dealer pays 60% of that, ie $6000.

[Lol-x]

Does Rolex buy back it's own watches from retailers in these depressed economic times?

http://www.luxist.com/2009/06/16/rol...t-price-drops/

I don't think so.......

[BigHat]

Already discussing this point elsewhere. Never heard of it happening, doubt that it is too.

We are in a strange economic situation here in the US though. I certainly wouldn't want to be a jewelry or car dealer right now. I can certainly see the scenario the author the article cites as possible.

The question appears to me to boil down to if Rolex is more concerned about price stabilization (thus helping ADs with cash flow), let them sell at any price to move stock to keep the lights on, or just do nothing. Of course, I doubt anyone knows just what kind of trouble the average AD is in.

[diablojota]

Hey Steve,
Here's where we've been discussing this one: http://www.rolexforums.com/showthread.php?t=83861

[Lol-x]

Originally Posted by diablojota

Hey Steve,
Here's where we've been discussing this one: http://www.rolexforums.com/showthread.php?t=83861

You were saying......

[diablojota]

Originally Posted by Lol-x

You were saying......

Hmm... Mysteriously there is now only one thread?

Glad to see you read the same site I do.