Why Rolex will emerge unscathed from this downturn

[inadeje]

Over the past three years we’ve witnessed something that hasn’t happened during Rolex’s century old history. The brand has rapidly accrued unsurpassed international recognition, thrusting it into the territory previously reserved for the holy trinity of luxury watches, namely Audemars Piguet, Patek Philippe, and Vacheron Constantin. As the downturn in luxury goods sales continues its course I think that Rolex is likely to emerge largely unscathed, due specifically to it’s unlikely entry into the hyper admired and desired brands in whose company it now finds itself. But Rolex holds a stronger hand than the aforementioned three, despite it now being an unexpected bedfellow.

Brand - the main catalyst that fuels huge post hype downturns is weak fundamentals. History and cache are paramount when the money starts drying up in a given luxury market. For a luxury brand to continue to attract capital and prevail during uncertain times there needs to be some endearing advantage in which the brand recognition is far greater than the underlying price point. For this reason there’s a very unusual disconnect between the relatively low price of a Rolex (in comparison to the holy trinity brands) and its new outsized worldwide brand recognition.

Price Point - there’s no doubt that the company in which Rolex now finds itself offer their timepieces at several multiples of the price of an equivalent category Rolex. The major dilemma for these brands now is that since Rolex gate crashed their previous status quo, seizing it’s seat at the table in the higher echelons previously reserved for the three elite brands, it’s quite possible that Rolex’s new oversized status puts the pricing disparity of these other brands under extreme pressure. You see, for 90% of these new watch aficionados the Rolex brand is more omnipresent and prestigious than the previous holy trinity brands.

Outliers will topple - I see a dismal period approaching for some neo-hype brands. Especially those whose rise to prominence and stratospheric values have been fueled by these past three or so years of craziness. A prime example is probably Richard Mille, but we all know the others. I would assume their rapid rise be followed by a crash and burn of epic proportions during this downturn.

Solid Following - we’ve gone from luxury mechanical wrist watches being the quirky passion of few to a world in which having one on your wrist is a sign of success. But today’s scenario is so uncommon that it requires we take a moment to think. The prevalence of social media, influencers and a largely superficial image based society means that huge swathes of the population have been exposed to luxury watches in a manner and impactful volume never before experienced. Complete strangers and none watch lovers, from 16 to 50 all now know which watch is which, they know their quirky nicknames, and more importantly, how much they are or must be worth if influencer Mr or Miss X has one on their wrist. The unlikely masses have assigned cache and status to them because people they follow on social media are “flexing” their watches in a way fashion models of old used to pout their lips. Rolex has been at center stage during this whole mechanical watch renaissance and it’s perceived value amongst this huge new market is far greater than the underlying cost of the product. A very rare phenomenon.

Unquenchable Thirst - The economic downturn is upon us, necessarily capital will migrate to the best bang-per-buck brands and those that portray the desired status for less. The difference in this particular downturn to any other we’ve ever experienced is that the aforementioned new fraternity of watch buyers who’ve been seduced over recent times by the wrist watch hype are a brand new and enormous worldwide following that have predominantly been exposed to which brand? Well, that’s Rolex..

Conclusion - prices will undoubtedly correct, but Rolex prices won’t collapse in the way some brands will. Rolex will probably emerge as the go-to brand and quite probably will emerge unscathed, while it’s secondary market prices remain solid and the burgeoning demand continues to outstrip supply.

[rolexpure]

I dont think anyone is saying Rolex is going under MSRP but it is 100% going to be dropping a SIGNIFICANT amount of money from the current gray dealer prices. I'm talking 40-50% drops over the next 6 months. We are already at 15-20% drops in all the classifieds groups I'm in.

I also dont believe we will be going back to 2016/2017 prices BUT...........what we have seen in the last 12 months is just utter ridiculous and NEVER going to be sustainable.

Not for luxury veblin goods that provide absolutely ZERO benefit to anyone's life except for the hobby aspect.

[Kostas]

Glad its coming off the boil.

I hope AP and Patek follows suit

[Laszlo]

Yeah, good times over for sure. Oh well.

[csaltphoto]

I think it's a little early to scream "DOWNTURN". But yeah, free money just floating through the air. Probably over for a bit. The wealthy always have money anyway and pay people well to make sure they do.

That being said I've always thought of Rolex as the thinking persons luxury watch. Good looking, timeless designs, yada. But it is also a very good watch. Not fussy or fragile (by mechanical watch standards), has always retained it's value well (meaning the SRP is in line with perceived value) and has always managed to carve out this idea of credibility vis a vis it's marketing. Race car drivers really wore Daytona's. Divers really wore Rolex dive watches. Pilots really wore GMT's. And so on. It's an aspirational brand but not out of reach. And it delivers what it promises.

[ArtNouveau]

I dunno. Rolex has had the most sales of any higher end Swiss watch for decades. The haute horology brands have always had their fans but saleswise are still not that much of a factor.
As a 38 year buyer of nice watches I’ve seen a few cases of flash in the pan trends that didn’t last although the brands did.
1. In the early 90’s the Breitling Chronomat became the darling of the Formula One crowd. I had a tutone in all its glory. 5 years later it was still a respected brand but without that cachet.
2. Long dormant Panerai came back on the market in the late 90’s. No one wanted the hockey puck sized watch for a few years then it was on FIRE. They are still there but their own inept handling of their new success imploded. They still have a following but not nearly as rabid.
3. Hublot Big Bang exploded on the market around 2008 with Jean Claude Biver at the helm and quickly became the IT watch. Where are they now? Another brand that over produced until they became a caricature of itself.
Meanwhile Rolex continues being Rolex. A solid aspirational watch that will last a lifetime, a brand that makes a million watches a year and sells them all. Other than hype I just don’t believe they are competing with anyone in particular. Yes they will survive any downturn and yes current hype pricing and demand should settle down at sometime.

[rolex16]

Originally Posted by inadeje

The brand has rapidly accrued unsurpassed international recognition, thrusting it into the territory previously reserved for the holy trinity of luxury watches, namely Audemars Piguet, Patek Philippe, and Vacheron Constantin.

You lost me with this statement…

[JParm]

Originally Posted by ArtNouveau

2. Long dormant Panerai came back on the market in the late 90’s. No one wanted the hockey puck sized watch for a few years then it was on FIRE. They are still there but their own inept handling of their new success imploded. They still have a following but not nearly as rabid.
3. Hublot Big Bang exploded on the market around 2008 with Jean Claude Biver at the helm and quickly became the IT watch. Where are they now? Another brand that over produced until they became a caricature of itself.
Meanwhile Rolex continues being Rolex. A solid aspirational watch that will last a lifetime, a brand that makes a million watches a year and sells them all. Other than hype I just don’t believe they are competing with anyone in particular. Yes they will survive any downturn and yes current hype pricing and demand should settle down at sometime.

What differentiates Rolex from the other two? Business model. Rolex continues to produce at their pace, instead of catering to every whim from the crowd. Panerai absolutely botched it up with all of their LEs and constant releases. Hublot was the new, different kid on the block that was good for its time but not timeless.

Rolex has been Rolex for so long and they will continue to be the "IT" brand for decades to come if they stay on their path. Let's be honest, up-and-comers looking for their first watch to establish themselves aren't looking at AP, Patek, VC - you find all that after years around Rolex.

The fact that they haven't increased production to meet demand, haven't created everything that the public wants (ceramic Coke, anyone?) and yet continues to innovate (the Parachrom hairspring, bracelet micro-adjustments when their bracelets were already top-tier, etc.) are exactly what sets them apart and what keeps them at the top.

[GB-man]

Honestly you lost me early on. I appreciate the book report and long posts with effort are always welcomed around here. With that said, yes Rolex is the strongest brand and will be around no matter what. I wouldn’t be surprised if prices went back to msrp any more than if they went to new highs. Life is a random walk.

[francoamerican]

1. Rapid appreciation over the past three years is not unique to Rolex. Rarity matters too.

2. You must be more specific about which Rolex models and what you mean by “unscathed” and “solid”. Very likely many models become available at MSRP.

3. There have been times when it was cooler to not follow the herd. In the 2000s Rolex were quite the yawn in many communities. It’s a pendulum. I undervalued and didn’t think I wanted one up until a couple years ago. I would never have more than half my watches be Rolex but I think you need one if you’re a watch person.

In my little corner of the Bay Area people mostly wear Apple watches.

[beshannon]

Originally Posted by inadeje

As the downturn in luxury goods sales continues

After rising by 4% between 2019 and 2021, luxury goods sales are estimated to go from €283 billion in 2021 to €300/310 billion in 2022 (source: Citi). This is almost a growth of 10%

https://luxuryactivist.com/luxury/5-...%20past%20year.

[Kenny Powers]

Is it too early in the thread for a "box and papers bro"?

[brandrea]

Originally Posted by GB-man

Honestly you lost me early on….

Have to agree … I’m not sure I’d equate Rolex to the Trinity.

That said, they’ve built a brand that consumers want for an aspirational purchase. Price will go up and down I suppose.

[inadeje]

Originally Posted by ArtNouveau

I dunno. Rolex has had the most sales of any higher end Swiss watch for decades. The haute horology brands have always had their fans but saleswise are still not that much of a factor.
As a 38 year buyer of nice watches I’ve seen a few cases of flash in the pan trends that didn’t last although the brands did.
1. In the early 90’s the Breitling Chronomat became the darling of the Formula One crowd. I had a tutone in all its glory. 5 years later it was still a respected brand but without that cachet.
2. Long dormant Panerai came back on the market in the late 90’s. No one wanted the hockey puck sized watch for a few years then it was on FIRE. They are still there but their own inept handling of their new success imploded. They still have a following but not nearly as rabid.
3. Hublot Big Bang exploded on the market around 2008 with Jean Claude Biver at the helm and quickly became the IT watch. Where are they now? Another brand that over produced until they became a caricature of itself.
Meanwhile Rolex continues being Rolex. A solid aspirational watch that will last a lifetime, a brand that makes a million watches a year and sells them all. Other than hype I just don’t believe they are competing with anyone in particular. Yes they will survive any downturn and yes current hype pricing and demand should settle down at sometime.

Come to think of it, I’d completely forgotten about the Breitling Chronomat being on everyone’s wrist in the 90s, thanks for brushing those cobwebs away.

Thanks for the memory lane trip, I had remembered Panerai but not the Hublot. You have a great memory

[BroncoOne]

Originally Posted by csaltphoto

I think it's a little early to scream "DOWNTURN". But yeah, free money just floating through the air. Probably over for a bit. The wealthy always have money anyway and pay people well to make sure they do.

That being said I've always thought of Rolex as the thinking persons luxury watch. Good looking, timeless designs, yada. But it is also a very good watch. Not fussy or fragile (by mechanical watch standards), has always retained it's value well (meaning the SRP is in line with perceived value) and has always managed to carve out this idea of credibility vis a vis it's marketing. Race car drivers really wore Daytona's. Divers really wore Rolex dive watches. Pilots really wore GMT's. And so on. It's an aspirational brand but not out of reach. And it delivers what it promises.

100% agreed.

[mountainjogger]

Originally Posted by beshannon

After rising by 4% between 2019 and 2021, luxury goods sales are estimated to go from €283 billion in 2021 to €300/310 billion in 2022 (source: Citi). This is almost a growth of 10%

https://luxuryactivist.com/luxury/5-...%20past%20year.

Indeed.

[m j b]

Originally Posted by rolex16

You lost me with this statement…

LOL, you and me both brother. I thought I was reading some kind of romance novelist take on watches. Someone who just bought a new thesaurus and wanted to try it out.

[blargle]

translation:

"i have no idea what i am talking about, but am so burdened with watches i must spread my biased opinion to as many people as possible to convince them the sky isnt falling (until i have offloaded my watches)"

i see it in equities all the time, give us a break

[White Collar Boy]

I appreciate your carefully made opinions, OP.

On your point of ‘solid following’, I do wonder if social media’s influence is grossly overstated. Despite whatever content is out there that looks popular, the hobby still feels niche and somehow peculiarly male, mostly. In my experience, almost no one (including the younger people I know) cares about watches, even Rolex; they’re all spending money on tech, cars, or mortgages, or saving for house deposits. For those normies, splurging on a Rolex is irrational and a bit weird.

As ever, I think it’s perhaps impossible to work out what’s real online without reliable data. When YouTuber Adrian Barker from Bark & Jack said last year that “social media is killing the luxury watch world”, the implied conceit was to exaggerate the impact people like him have on what people buy. I just can’t envision social media being so important to Rolex that a “new fraternity [apt word!] of watch buyers” comprising a “brand new and enormous worldwide following” would suddenly be turned on to the crown. Received wisdom is that it’s always been the aspirational choice of wristwatch.

[White Collar Boy]

Originally Posted by m j b

LOL, you and me both brother. I thought I was reading some kind of romance novelist take on watches. Someone who just bought a new thesaurus and wanted to try it out.

I didn’t think there was anything pretentious about OP’s writing. Rather, the generalisations were just too absolute and taken too far for the purpose of being persuasive. Whatever its flaws, I thought it was thoughtful and not worthy of derision. But that's what makes this a lively forum, so cool!

[rolex16]

Originally Posted by White Collar Boy

I didn’t think there was anything pretentious about OP’s writing. Rather, the generalisations were just too absolute and taken too far for the purpose of being persuasive. Whatever its flaws, I thought it was thoughtful and not worthy of derision. But that's what makes this a lively forum, so cool!

Nothing pretentious about trying to say Rolex is now in Trinity territory? I won’t comment on the literally style…

[77T]

Worthwhile topic and there is room for technical analysis that indicates a slowing rate of resale price growth.

But that is only a “slowing rate”. Rolex’s resale market will likely outpace their competitors due to the sheer volume of growth.

What I mean is this: if the Rolex resale price growth rate dropped by half, that annual sales volume would still outstrip all other competitors by 5x due to Rolex’s high production volume year-over-year. Rolex doesn’t benefit financially, but that robust secondary market is better advertising for their brand than all the advertising/sponsorship they do each year.

Shifting gears…
Here is something I think deserves observation. If Rolex leadership was bullish about continued high demand then they’d maybe increase production. But they don’t seem to be raising that aspect. Being as conservative as they are, I think they never expected it to continue - nor be as resilient in the face of other headwinds.


Sent from my iPhone using Tapatalk Pro

[inadeje]

Originally Posted by m j b

LOL, you and me both brother. I thought I was reading some kind of romance novelist take on watches. Someone who just bought a new thesaurus and wanted to try it out.

No thesaurus buddy

[inadeje]

Originally Posted by rolex16

Nothing pretentious about trying to say Rolex is now in Trinity territory? I won’t comment on the literally style…

Once again, thanks for your valued critiques fellow Floridian

[Calatrava r]

What downturn? Rolex watches will continue to sell robustly at retail. Who cares what the crazy aftermarket is doing? it got way ahead of itself and was due for a correction. Used watch premiums coming closer to MSRP is really a rational normalization of the market. It is nuts to pay 3X retail for any goods in current production and folks are realizing that spending has limits. Sanity is returning.

[Chris]

Originally Posted by Calatrava r

What downturn? Rolex watches will continue to sell robustly at retail. Who cares what the crazy aftermarket is doing? it got way ahead of itself and was due for a correction. Used watch premiums coming closer to MSRP is really a rational normalization of the market. It is nuts to pay 3X retail for any goods in current production and folks are realizing that as spending has limits. Sanity is returning.

[inadeje]

Originally Posted by 77T

Worthwhile topic and there is room for technical analysis that indicates a slowing rate of resale price growth.

But that is only a “slowing rate”. Rolex’s resale market will likely outpace their competitors due to the sheer volume of growth.

What I mean is this: if the Rolex resale price growth rate dropped by half, that annual sales volume would still outstrip all other competitors by 5x due to Rolex’s high production volume year-over-year. Rolex doesn’t benefit financially, but that robust secondary market is better advertising for their brand than all the advertising/sponsorship they do each year.

Shifting gears…
Here is something I think deserves observation. If Rolex leadership was bullish about continued high demand then they’d maybe increase production. But they don’t seem to be raising that aspect. Being as conservative as they are, I think they never expected it to continue - nor be as resilient in the face of other headwinds.


Sent from my iPhone using Tapatalk Pro

Excellent synopsis 77T. I think that Rolex has “semi” admitted that they know what’s happening in the secondary market. This years price increases detracted from any I can remember (+30 years collecting), in so much as Rolex specifically raised prices on what we (and the market) consider hot models by a much greater ratio than less popular variants. To a certain extent that’s a tacit recognition and a desire to also capitalize specifically on hype surrounding those specific variants. 10-11% increase on those models is quite a jump (all things being equal) if then they only raise the remaining models by 2-3% across the board (as they did)

Also, raising prices on key products by say 10% provides a similar financial outcome (corporately speaking) to having increased production by 10%. Especially if underlying production costs remain unchanged.

[Son Goku]

Originally Posted by inadeje

The brand has rapidly accrued unsurpassed international recognition, thrusting it into the territory previously reserved for the holy trinity of luxury watches, namely Audemars Piguet, Patek Philippe, and Vacheron Constantin.

I think your take is off here OP in that if you ask the average person around the world what they think of when you say luxury watch the vast majority would say Rolex. Even with social media unless you at least remotely follow watches chances are you won’t know who any of the holy trinity are. My point being that Rolex has always been and most likely always will be the most recognizable luxury watch brand in the world. This isn’t a phenomenon of recent years.

[francoamerican]

I do agree on a more granular level that a steel Daytona is a $20k-$25k watch and the gmt is a $15k-$20k watch. When people stop buying with fallacious house money thinking about Rolex current production like an “asset class” is likely going die off.

[HHIslander]

Every Rolex is sold before it is made. I don't see that ever changing anytime soon. It would take a public image disaster of colossal proportions for them to see any huge reduction in demand.