Rolex availability and gray market

[Juantxo]

I just visited the Govberg store in Philadelphia and was surprised to see the empty Rolex shelves. I mean, they have hardly any Rolex watches. The ones they have are mostly 36mm Dayjust or smaller, and a couple of yellow gold Day Date. They do have a beautiful white gold Submariner with blue dial and bezel.

I guess what I’m reading here is true, and this seems to be a generalized issue. I wonder, then, what is Rolex doing...? Is this a marketing move to make the brand more exclusive or are they controlling the flow of watches to the gray market...? I see no other reason why there is such a shortage of Rolex even in well known dealers such as Govberg.

All opinions and comments will be gratefully welcome. Thank you.

[tyler1980]

rolex strategy:

[R!$]

Brian has some good Pateks if you ask...

[tbonesteak]

Shortage? First I'm hearing about it.

[tyler1980]

Originally Posted by R!$

Brian has some good Pateks if you ask...

they have plenty of everything in the preowned section

[Fleetlord]

Originally Posted by tbonesteak

Shortage? First I'm hearing about it.

Yeah...I wonder what is going on?

[lawrence1]

The big picture suggests demand is outpacing supply at this time. I would personally argue that Rolex is proving beyond incompetent at allocating production towards those watches that are being sought by buyers, and delivering desirable inventory to the marketplace. Why? Because regardless of what some argue on this forum, if a potential customer walks into an AD, looking to buy a watch, and can't buy it because there is no inventory, that is a lost sale. Period.

Some will come and argue this is pure genius but i'm not buying it. There should be an equilibrium, where a minimal wait may be acceptable with an in demand luxury good, to give buyer the perception of exclusivity. This is not what is happening however. People are told the waiting lists are years long on some models, and 6 months to a year on others, while in the same time, there is excess inventory of other models that no one is buying, yet Rolex keeps producing at seemingly unchanged output. In this day and age, many of those customers give up and buy something else, buy used, buy from greys, or don't buy at all. Each one of these scenarios represents a lost sale to Rolex.

That said, no one really knows how things will play out, and why Rolex does what it does. They obviously the only ones that know their business and hopefully they are doing everything they can to capitalize on this economic boom.

[tyler1980]

Originally Posted by lawrence1

The big picture suggests demand is outpacing supply at this time. I would personally argue that Rolex is proving beyond incompetent at allocating production towards those watches that are being sought by buyers, and delivering desirable inventory to the marketplace. Why? Because regardless of what some argue on this forum, if a potential customer walks into an AD, looking to buy a watch, and can't buy it because there is no inventory, that is a lost sale. Period.

Some will come and argue this is pure genius but i'm not buying it. There should be an equilibrium, where a minimal wait may be acceptable with an in demand luxury good, to give buyer the perception of exclusivity. This is not what is happening however. People are told the waiting lists are years long on some models, and 6 months to a year on others, while in the same time, there is excess inventory of other models that no one is buying, yet Rolex keeps producing at seemingly unchanged output. In this day and age, many of those customers give up and buy something else, buy used, buy from greys, or don't buy at all. Each one of these scenarios represents a lost sale to Rolex.

That said, no one really knows how things will play out, and why Rolex does what it does. They obviously the only ones that know their business and hopefully they are doing everything they can to capitalize on this economic boom.

their best selling model the DJ, which is largely the watch that people who just walk into an AD and want "A Rolex" buy. Sitting ready to buy.

Professional models are scarce and part of the appeal is they are hard to get. Makes them even more desirable.

Two different things going on IMO and two different types of buyers.

[tbonesteak]

Originally Posted by lawrence1

The big picture suggests demand is outpacing supply at this time. I would personally argue that Rolex is proving beyond incompetent at allocating production towards those watches that are being sought by buyers, and delivering desirable inventory to the marketplace. Why? Because regardless of what some argue on this forum, if a potential customer walks into an AD, looking to buy a watch, and can't buy it because there is no inventory, that is a lost sale. Period.

Some will come and argue this is pure genius but i'm not buying it. There should be an equilibrium, where a minimal wait may be acceptable with an in demand luxury good, to give buyer the perception of exclusivity. This is not what is happening however. People are told the waiting lists are years long on some models, and 6 months to a year on others, while in the same time, there is excess inventory of other models that no one is buying, yet Rolex keeps producing at seemingly unchanged output. In this day and age, many of those customers give up and buy something else, buy used, buy from greys, or don't buy at all. Each one of these scenarios represents a lost sale to Rolex.

That said, no one really knows how things will play out, and why Rolex does what it does. They obviously the only ones that know their business and hopefully they are doing everything they can to capitalize on this economic boom.

They shut production down for the last 4-6 weeks of the year and they're basically sold out. By almost any account, they're selling at record numbers.

IDK how anyone isn't buying that as a successful strategy.

[HorologyK]

I’m all for it.


Sent from my iPhone using Tapatalk

[lawrence1]

Originally Posted by tbonesteak

They shut production down for the last 4-6 weeks of the year and they're basically sold out. By almost any account, they're selling at record numbers.

IDK how anyone isn't buying that as a successful strategy.

I believe the record numbers, although i would argue that they could probably sell every sports watch they make right now, within reason of course. Therefore, it would make sense to make more of the product that is in high demand to ensure almost everyone that wants one could get one from an AD (i.e. demand -1 would be ideal, in theory). Having several month and year long waiting lists on some models and oversupply of others indicates inefficiency in production, allocation of manufacturing resources, etc. In my view (which is simplistic since I don't know what Rolex knows about their business), production/output does not appear to be optimized to match demand at this point in time.

I also agree that scarcity affects desirability, but only up to a point. The product must be perceived as attainable within a reasonable amount of time. You tell a customer that's ready to buy today that they'll have to wait 2 years to get a watch from you, chances are they will move on. Ask several ADs and you'll hear the same thing - the waiting list has X people on it but by the time they get a single watch in several months later, many of those customers have moved on. These customers would have bought same day, had the product been available.

Again, I am only speculating as an outsider, since there is no way to know the inner workings of Rolex SA, and surely there are other things they are considering that we know nothing about. Either way, this is a good problem to have, in the grand scheme of things.

[lawrence1]

Originally Posted by HorologyK

I’m all for it.


Sent from my iPhone using Tapatalk

good place to be, unless you're wanting to buy one.

[TonyYu]

Plenty in the grey market..

[beshannon]

Originally Posted by Juantxo

why there is such a shortage of Rolex even in well known dealers such as Govberg.

All opinions and comments will be gratefully welcome. Thank you.

What makes you think there is any shortage?

Not being able to find something right now does not mean there is a shortage.

[uansari1]

Originally Posted by Juantxo

I just visited the Govberg store in Philadelphia and was surprised to see the empty Rolex shelves. I mean, they have hardly any Rolex watches. The ones they have are mostly 36mm Dayjust or smaller, and a couple of yellow gold Day Date. They do have a beautiful white gold Submariner with blue dial and bezel.

I guess what I’m reading here is true, and this seems to be a generalized issue. I wonder, then, what is Rolex doing...? Is this a marketing move to make the brand more exclusive or are they controlling the flow of watches to the gray market...? I see no other reason why there is such a shortage of Rolex even in well known dealers such as Govberg.

All opinions and comments will be gratefully welcome. Thank you.

They’re not trying to limit supply to grey dealers. In order to do that, they’d have to push the ADs to not dump their inventory to the grey dealers, and the only way to do that is by threatening to cut them off, or by limiting the warranty transferability to named owners only.

[tyler1980]

Originally Posted by beshannon

What makes you think there is any shortage?



Not being able to find something right now does not mean there is a shortage.

Strategic distribution would be more accurate. Sure there are less hot watches being delivered but AD’s are also being strategic in who gets them which gives people the impression there are less than there really are


Sent from my iPhone using Tapatalk

[beshannon]

Originally Posted by tyler1980

Strategic distribution would be more accurate. Sure there are less hot watches being delivered but AD’s are also being strategic in who gets them which gives people the impression there are less than there really are


Sent from my iPhone using Tapatalk

Correct and also rather humorous.

How many threads hit this forum where people are complaining about seeing Rolex watches "everywhere"?

If people want their investments to go up in value they need to be harder to get! Oh the irony!

[ALF61]

Originally Posted by lawrence1

I believe the record numbers, although i would argue that they could probably sell every sports watch they make right now, within reason of course. Therefore, it would make sense to make more of the product that is in high demand to ensure almost everyone that wants one could get one from an AD (i.e. demand -1 would be ideal, in theory). Having several month and year long waiting lists on some models and oversupply of others indicates inefficiency in production, allocation of manufacturing resources, etc. In my view (which is simplistic since I don't know what Rolex knows about their business), production/output does not appear to be optimized to match demand at this point in time.

I also agree that scarcity affects desirability, but only up to a point. The product must be perceived as attainable within a reasonable amount of time. You tell a customer that's ready to buy today that they'll have to wait 2 years to get a watch from you, chances are they will move on. Ask several ADs and you'll hear the same thing - the waiting list has X people on it but by the time they get a single watch in several months later, many of those customers have moved on. These customers would have bought same day, had the product been available.

Again, I am only speculating as an outsider, since there is no way to know the inner workings of Rolex SA, and surely there are other things they are considering that we know nothing about. Either way, this is a good problem to have, in the grand scheme of things.

I respectfully disagree with the above theory. If people simply "moved on", the waiting lists would be temporary and eventually disappear. Instead they just linger and linger while those in line anxiously wait for their "call". Who knows what the limits are for Rolex in production of certain models--nothing is a simple as it seems especially those who don´t know the business. My understanding is Rolex has gone through great lengths to increase production and it is not as simple as baking cakes. They are also selling everything they produce at hug markups. Who are we to doubt their strategy ?

[jsausley]

I feel like a lot of people don't understand the effects of what is going on here.

The shortage is driving demand. The 6 months to 6 year waitlist is pushing exclusivity which makes these watches desirable.

Yes, there are some customers who would buy a watch same day that can't because it's unavailable. But they're either going to go gray market or get their name on a list. Very few Rolex buyers are moving to other brands. We hear about it here but this is the vocal minority. Most people want a Rolex that will retain value and be noticed by others, not an Omega that is worth 60% of retail and will fly under the radar.

Right now Rolex literally sells every single stainless watch they ship, pretty much instantly. There is no other market, short of Ferrari or Hermes Birkin, that moves product in this way. If these watches were not scarce they would sit on AD shelves for days or weeks and even sometimes be offered at a discount.

There are only two things that could hurt Rolex long term at this point: a global market recession, which would lead to a large number of preowned watches coming online and to the discounting of the brand, and therefore watches will start to sit in AD windows because preowned ones are cheaper, or, another brand stealing some of Rolex's market. That doesn't happen overnight. No one knows, outside of watch circles and the luxury market, what an Audemars Piguet or a Patek is. Yes, I know these are scarce and command above retail too, but you're talking about a watch reference that is made in the hundreds of units per year, not tens of thousands like a Submariner.

[tyler1980]

Originally Posted by jsausley

I feel like a lot of people don't understand the effects of what is going on here.

The shortage is driving demand. The 6 months to 6 year waitlist is pushing exclusivity which makes these watches desirable.

Yes, there are some customers who would buy a watch same day that can't because it's unavailable. But they're either going to go gray market or get their name on a list. Very few Rolex buyers are moving to other brands. We hear about it here but this is the vocal minority. Most people want a Rolex that will retain value and be noticed by others, not an Omega that is worth 60% of retail and will fly under the radar.

Right now Rolex literally sells every single stainless watch they ship, pretty much instantly. There is no other market, short of Ferrari or Hermes Birkin, that moves product in this way. If these watches were not scarce they would sit on AD shelves for days or weeks and even sometimes be offered at a discount.

There are only two things that could hurt Rolex long term at this point: a global market recession, which would lead to a large number of preowned watches coming online and to the discounting of the brand, and therefore watches will start to sit in AD windows because preowned ones are cheaper, or, another brand stealing some of Rolex's market. That doesn't happen overnight. No one knows, outside of watch circles and the luxury market, what an Audemars Piguet or a Patek is. Yes, I know these are scarce and command above retail too, but you're talking about a watch reference that is made in the hundreds of units per year, not tens of thousands like a Submariner.

people think too one dimensionally. If i have 10k for a watch and cant buy it then Rolex loses 10k... not how it works.

If you have 10K for a watch and cant get it, then 20 other people now also want it so instead of selling one watch to the guy with 10K and wants it on the shelf ready to buy they sell two because of the giant waitlist or push people to buying other watches instead.

How many threads here start buy saying "i wanted a (insert watch name here) but my AD offered me (insert other alternative watch name here) so i bought that since that is hard to get too. Im still on the WL for the other one though"

[meyers]

Rolex doesn't give a damn about me, or any of us, or what we think of their business model. And frankly, I respect them for that

[beshannon]

Originally Posted by meyers

Rolex doesn't give a damn about me, or any of us, or what we think of their business model. And frankly, I respect them for that

[79280_116520]

I'm starting to think that the "spoiled" tweens on social media might be one of the root causes for the ridiculously hyped up grey market prices. I was at a dealer's shop recently and there were some "tween" looking kids there talking about kids on social media with expensive collections.

When the dealer "paused" the conversation with them to finish a transaction with me, the tweens that were boasting about social media were about to sh*t their pants "crying" because the dealer wasn't giving them attention even though they weren't buying nor selling. During my transaction with the dealer, these kids were giving me a hard stare down, where complications usually come about in rougher neighborhoods.

If these "tweens" are that desperate for the "faux" social media image and are financed by "mommy and daddy's money", who are we to judge or complain when they happily pay 2-3x over MSRP just for instant gratification?

[penguinrolex]

Rolex has a limited production of ss units, and they are priced below what the market is willing to pay. This is where arbitrage and speculation can start.

Fun concepts from Economics, Strategy, and Channel Management happening here. If anyone at an AD or Rolex is going to business school, write a case about what is happening right now.
Aggregate supply and aggregate demand are concepts that...'willingness to buy' changes with price, and 'willingness to supply' changes with price. Ideal world with perfect communication, a manufacturer can understand the AD and AS functions and can determine exactly how many to make.

Right now it APPEARS that aggregate demand is outpacing their current supply at their current price. When this happens, 'arbitrage' becomes a risk. Resellers can make money because they have a product which you don't know how to acquire, so you pay them more than list. Some people would have paid more to Rolex, but they can't so they buy from a reseller; Rolex is giving up this profit to the resaler. SOme people will NOT pay more, so they are lost customer opportunities.

The profit-per-unit sold changes with increased production, because production costs can change drastically as you scale up. Maybe Rolex is happy to sell all these units and will make less profit if they increase production.
Because dealers have to buy their Rolex stock...and they only get SS units as reward for buying less desirable models...the AD is incented to sell lots of stock to a big customer. Walk into a Rolex dealer looking like a rock star, and offer to buy every datejust they have for your entourage...i'll bet they can find you the next several professional models they receive.
A rolex AD would like to move their inventory. A grey market is willing to hold inventory of a bulk purchase, if they got those 100 DJs at 35% discount and they are able to charge 50% markup on the SS professionals they got. SOOO the grey dealer walks in dressed like a rock star...
Because all the SS professionals are snatched up by the resellers, the appearance of scarcity is driving up the price customers are willing to pay. This makes grey dealers more interested in grabbing inventory. This makes speculators more interested in buying inventory and putting in their safe deposit box. This makes rich people more desperate to buy that "one missing rolex from the collection. All this means...new customers can't buy Rolex and might go away.
The fun part is how to get out of this mess. De Beers has seen this happen with diamonds, and developed their response.
Bad response: wait for the financial market to sour. Yes economics matter; the reason for the high demand is that in general people are making more money. When the next recession or downturn occurs, the price customers are willing to pay will drop and the resellers will lower their price on inventory. When this happens, Rolex will be pumping out new watches that no one is buying, because the resellers and speculators are selling all their stock at a lower price.
Good, sneaky evil response: punish the speculators and resellers. Raise your prices and at the same time raise your production. Let your ADs special order, and deliver. Increase the net payable time on less popular models, so distributors feel less pressure to sell their entire inventory in one bundle. It becomes more expensive for the reseller to buy all the SS models, because prices are higher. Because the grey market dealer knows production also increased and special orders are being taken, he is worried that he can't increase prices and that he might be stuck with these watches. This is more or less what DeBeers does to stop people from using diamonds as an investment commodity, because they don't want that to happen. They also lower prices when they increase production, but they can flood the market and Rolex can't.

Reducing the information disparity would probably calm the market. Rolex could tell dealers how many units to expect, and perhaps even offer to handle the waiting lists. Who here is NOT on four or more waiting lists? If Rolex communicated their plans for allocations, distributors could more accurately tell you when you might get something. If two dealers tell you they probably have your watch before Xmas, you're not going to pay premium at a grey. Which means fewer people offering money to the grey which means the price goes down at grey.

What if Rolex agreed to guarantee a prepayment, to put you on their official list? I won't give a prepayment to an AD for a watch that I might never get, but I would prepay if Rolex would tell me the expected wait AND guarantee my money.


Why doesn't Rolex do big moves? They aren't sure of the side effects of their moves.

Increasing production will cost more upfront and lower profitability per unit -- and the grey market might still capture all the available production. If the grey market dealers are doing a 'buy and hold' on all production it doesn't matter what the actual production is -- they can't make 20 million Hulks.

Changing credit terms on DJs and changing the requirement to purchase X models per SS professional you receive... maybe their dealers will borrow a ton of money from Rolex to fill their display cases with product that isn't going to sell for a year. Now the brand is less scarce and people want a discount because there are ten in the case.

Accepting prepayments gets us back to - the grey market has deep pockets and can corner the market. Look at how fast Omega sold fourteen MILLION dollars of watches with the Ultraman edition. Did ANY of those go to someone who plans to keep it??

Raising prices - They should have done this. The reason not to raise prices is a bad reason. I would pay 1k more right now for a hulk or batman, if i can take delivery within a few weeks or months from an AD. Clearly many people are willing to pay 10k more for a pepsi, so charge 2kmore. If they raise prices and fewer people are willing to pay, the ADs will hold inventory for longer then fifteen minutes. If this fails and the dealers accumulate inventory, Rolex can secretly offer a rebate incentive to dealers so they will discount prices and clear their cases.

Raising prices - the nefarious reason not to: If they raise prices, the grey market becomes less interested in playing their game. Which means grey market dealers buy less DJs and decide to liquidate their inventory. Which means ADs are stuck with even more DJs. Also, at the next recession or downturn, there will be fewer remaining grey market dealers. In the event of a recession, the grey market dealers will buy bundles of stock from the AD and at a bulk price and then sell it lower then Rolex will let the AD sell it. Back in 2008 and 2009, this helped dealers who were stuck with inventory no one wanted.

These moves only help if the grey market loses their information advantage. Right now, customers have no idea what the production is or how many are going to grey market. If the grey market responds to all these moves and continues to buy all inventory, it will still APPEAR that demand is high and supply is scarce. Information disparity is why people will pay double for a pepsi, today.

[lawrence1]

Originally Posted by ALF61

I respectfully disagree with the above theory. If people simply "moved on", the waiting lists would be temporary and eventually disappear. Instead they just linger and linger while those in line anxiously wait for their "call". Who knows what the limits are for Rolex in production of certain models--nothing is a simple as it seems especially those who don´t know the business. My understanding is Rolex has gone through great lengths to increase production and it is not as simple as baking cakes. They are also selling everything they produce at hug markups. Who are we to doubt their strategy ?

No worries, I don't expect everyone to agree. This is just my opinion. There are many on here that hold different views.

That said, i think you may be missing the main point of the argument ... there is a distinction between people moving on and waiting lists disappearing. Sure, the waiting lists will remain, but Rolex will have missed sales due to lack of production capacity. Those people that have moved on could have potentially bought a new Rolex as well, but since they couldn't get one, they probably won't.

Obviously if only 3 watches are made, allocated and delivered during the year to a particular AD, and that AD's waiting list has 30 people on it, and 20 of those people move on, Rolex will still sell all 3 watches. I was arguing that ideally, the goal should be to deliver say 20-25 watches in a reasonable amount of time so that people do not move on from the brand causing Rolex to lose sales. Growing the business and the brand should be the goal, but maybe it isn't. no one knows.

This is just an example to illustrate the concept.

Currently, when you walk into that AD, the sales drone tells you we have 30 people on the list for watch X and all of last year, we only received 5 of them. If you're a Rolex fanboy, you may consider that you have a chance, and you'll wait 3 years until your number comes up, sure. The average customer, or one that's new to the brand may not want to wait. They'll call a few other ADs, hear the same story, and move along to something else. No reason to beg anyone to take your money. Heck, they may go online and get scammed trying to buy one. you get the point.

[tyler1980]

Originally Posted by penguinrolex

Rolex has a limited production of ss units, and they are priced below what the market is willing to pay. This is where arbitrage and speculation can start.

Fun concepts from Economics, Strategy, and Channel Management happening here. If anyone at an AD or Rolex is going to business school, write a case about what is happening right now.
Aggregate supply and aggregate demand are concepts that...'willingness to buy' changes with price, and 'willingness to supply' changes with price. Ideal world with perfect communication, a manufacturer can understand the AD and AS functions and can determine exactly how many to make.

Right now it APPEARS that aggregate demand is outpacing their current supply at their current price. When this happens, 'arbitrage' becomes a risk. Resellers can make money because they have a product which you don't know how to acquire, so you pay them more than list. Some people would have paid more to Rolex, but they can't so they buy from a reseller; Rolex is giving up this profit to the resaler. SOme people will NOT pay more, so they are lost customer opportunities.

The profit-per-unit sold changes with increased production, because production costs can change drastically as you scale up. Maybe Rolex is happy to sell all these units and will make less profit if they increase production.
Because dealers have to buy their Rolex stock...and they only get SS units as reward for buying less desirable models...the AD is incented to sell lots of stock to a big customer. Walk into a Rolex dealer looking like a rock star, and offer to buy every datejust they have for your entourage...i'll bet they can find you the next several professional models they receive.
A rolex AD would like to move their inventory. A grey market is willing to hold inventory of a bulk purchase, if they got those 100 DJs at 35% discount and they are able to charge 50% markup on the SS professionals they got. SOOO the grey dealer walks in dressed like a rock star...
Because all the SS professionals are snatched up by the resellers, the appearance of scarcity is driving up the price customers are willing to pay. This makes grey dealers more interested in grabbing inventory. This makes speculators more interested in buying inventory and putting in their safe deposit box. This makes rich people more desperate to buy that "one missing rolex from the collection. All this means...new customers can't buy Rolex and might go away.
The fun part is how to get out of this mess. De Beers has seen this happen with diamonds, and developed their response.
Bad response: wait for the financial market to sour. Yes economics matter; the reason for the high demand is that in general people are making more money. When the next recession or downturn occurs, the price customers are willing to pay will drop and the resellers will lower their price on inventory. When this happens, Rolex will be pumping out new watches that no one is buying, because the resellers and speculators are selling all their stock at a lower price.
Good, sneaky evil response: punish the speculators and resellers. Raise your prices and at the same time raise your production. Let your ADs special order, and deliver. Increase the net payable time on less popular models, so distributors feel less pressure to sell their entire inventory in one bundle. It becomes more expensive for the reseller to buy all the SS models, because prices are higher. Because the grey market dealer knows production also increased and special orders are being taken, he is worried that he can't increase prices and that he might be stuck with these watches. This is more or less what DeBeers does to stop people from using diamonds as an investment commodity, because they don't want that to happen. They also lower prices when they increase production, but they can flood the market and Rolex can't.

Reducing the information disparity would probably calm the market. Rolex could tell dealers how many units to expect, and perhaps even offer to handle the waiting lists. Who here is NOT on four or more waiting lists? If Rolex communicated their plans for allocations, distributors could more accurately tell you when you might get something. If two dealers tell you they probably have your watch before Xmas, you're not going to pay premium at a grey. Which means fewer people offering money to the grey which means the price goes down at grey.

What if Rolex agreed to guarantee a prepayment, to put you on their official list? I won't give a prepayment to an AD for a watch that I might never get, but I would prepay if Rolex would tell me the expected wait AND guarantee my money.


Why doesn't Rolex do big moves? They aren't sure of the side effects of their moves.

Increasing production will cost more upfront and lower profitability per unit -- and the grey market might still capture all the available production. If the grey market dealers are doing a 'buy and hold' on all production it doesn't matter what the actual production is -- they can't make 20 million Hulks.

Changing credit terms on DJs and changing the requirement to purchase X models per SS professional you receive... maybe their dealers will borrow a ton of money from Rolex to fill their display cases with product that isn't going to sell for a year. Now the brand is less scarce and people want a discount because there are ten in the case.

Accepting prepayments gets us back to - the grey market has deep pockets and can corner the market. Look at how fast Omega sold fourteen MILLION dollars of watches with the Ultraman edition. Did ANY of those go to someone who plans to keep it??

Raising prices - They should have done this. The reason not to raise prices is a bad reason. I would pay 1k more right now for a hulk or batman, if i can take delivery today from an AD. Clearly many people are willing to pay 10k more for a pepsi, so charge 2kmore. If they raise prices and fewer people are willing to pay, the ADs will hold inventory for longer then fifteen minutes. If this fails and the dealers accumulate inventory, Rolex can secretly offer a rebate incentive to dealers so they will discount prices and clear their cases.

Raising prices - the nefarious reason not to: If they raise prices, the grey market becomes less interested in playing their game. Which means grey market dealers buy less DJs and decide to liquidate their inventory. Which means ADs are stuck with even more DJs. Also, at the next recession or downturn, there will be fewer remaining grey market dealers. In the event of a recession, the grey market dealers will buy bundles of stock from the AD and at a bulk price and then sell it lower then Rolex will let the AD sell it. Back in 2008 and 2009, this helped dealers who were stuck with inventory no one wanted.

These moves only help if the grey market loses their information advantage. Right now, customers have no idea what the production is or how many are going to grey market. If the grey market responds to all these moves and continues to buy all inventory, it will still APPEAR that demand is high and supply is scarce. Information disparity is why people will pay double for a pepsi, today.

... in summary, Post #2

I added a footnote here.

[lawrence1]

Originally Posted by tyler1980

people think too one dimensionally. If i have 10k for a watch and cant buy it then Rolex loses 10k... not how it works.

If you have 10K for a watch and cant get it, then 20 other people now also want it so instead of selling one watch to the guy with 10K and wants it on the shelf ready to buy they sell two because of the giant waitlist or push people to buying other watches instead.

How many threads here start buy saying "i wanted a (insert watch name here) but my AD offered me (insert other alternative watch name here) so i bought that since that is hard to get too. Im still on the WL for the other one though"

that is exactly how it works, in many cases. Not all. There are no absolutes.

If i want to buy a BLNR, and you don't have one to sell me, i may wait a month or two to get it. I'm surely not going to wait 2 years. I'll go buy one somewhere else, if i really want it bad, or I may not buy one at all. If I buy from somewhere else, Rolex is losing out on a new sale, so they are losing out on the $9K (including AD margin). Simple.

Also, what you're describing above is more of an exception to the rule, NOT the rule. Most people looking to spend 10k for a watch aren't going to suddenly buy $30k-40k worth of watches ($30K of which they don't really want) to get that one they actually want, or to get on the waitlist. This forum may give you tunnel vision if you really think this is what the average customer does.

great discussion.

[lawrence1]

Originally Posted by penguinrolex

Rolex has a limited production of ss units, and they are priced below what the market is willing to pay. This is where arbitrage and speculation can start.

Fun concepts from Economics, Strategy, and Channel Management happening here. If anyone at an AD or Rolex is going to business school, write a case about what is happening right now.
Aggregate supply and aggregate demand are concepts that...'willingness to buy' changes with price, and 'willingness to supply' changes with price. Ideal world with perfect communication, a manufacturer can understand the AD and AS functions and can determine exactly how many to make.

Right now it APPEARS that aggregate demand is outpacing their current supply at their current price. When this happens, 'arbitrage' becomes a risk. Resellers can make money because they have a product which you don't know how to acquire, so you pay them more than list. Some people would have paid more to Rolex, but they can't so they buy from a reseller; Rolex is giving up this profit to the resaler. SOme people will NOT pay more, so they are lost customer opportunities.

The profit-per-unit sold changes with increased production, because production costs can change drastically as you scale up. Maybe Rolex is happy to sell all these units and will make less profit if they increase production.
Because dealers have to buy their Rolex stock...and they only get SS units as reward for buying less desirable models...the AD is incented to sell lots of stock to a big customer. Walk into a Rolex dealer looking like a rock star, and offer to buy every datejust they have for your entourage...i'll bet they can find you the next several professional models they receive.
A rolex AD would like to move their inventory. A grey market is willing to hold inventory of a bulk purchase, if they got those 100 DJs at 35% discount and they are able to charge 50% markup on the SS professionals they got. SOOO the grey dealer walks in dressed like a rock star...
Because all the SS professionals are snatched up by the resellers, the appearance of scarcity is driving up the price customers are willing to pay. This makes grey dealers more interested in grabbing inventory. This makes speculators more interested in buying inventory and putting in their safe deposit box. This makes rich people more desperate to buy that "one missing rolex from the collection. All this means...new customers can't buy Rolex and might go away.
The fun part is how to get out of this mess. De Beers has seen this happen with diamonds, and developed their response.
Bad response: wait for the financial market to sour. Yes economics matter; the reason for the high demand is that in general people are making more money. When the next recession or downturn occurs, the price customers are willing to pay will drop and the resellers will lower their price on inventory. When this happens, Rolex will be pumping out new watches that no one is buying, because the resellers and speculators are selling all their stock at a lower price.
Good, sneaky evil response: punish the speculators and resellers. Raise your prices and at the same time raise your production. Let your ADs special order, and deliver. Increase the net payable time on less popular models, so distributors feel less pressure to sell their entire inventory in one bundle. It becomes more expensive for the reseller to buy all the SS models, because prices are higher. Because the grey market dealer knows production also increased and special orders are being taken, he is worried that he can't increase prices and that he might be stuck with these watches. This is more or less what DeBeers does to stop people from using diamonds as an investment commodity, because they don't want that to happen. They also lower prices when they increase production, but they can flood the market and Rolex can't.

Reducing the information disparity would probably calm the market. Rolex could tell dealers how many units to expect, and perhaps even offer to handle the waiting lists. Who here is NOT on four or more waiting lists? If Rolex communicated their plans for allocations, distributors could more accurately tell you when you might get something. If two dealers tell you they probably have your watch before Xmas, you're not going to pay premium at a grey. Which means fewer people offering money to the grey which means the price goes down at grey.

What if Rolex agreed to guarantee a prepayment, to put you on their official list? I won't give a prepayment to an AD for a watch that I might never get, but I would prepay if Rolex would tell me the expected wait AND guarantee my money.


Why doesn't Rolex do big moves? They aren't sure of the side effects of their moves.

Increasing production will cost more upfront and lower profitability per unit -- and the grey market might still capture all the available production. If the grey market dealers are doing a 'buy and hold' on all production it doesn't matter what the actual production is -- they can't make 20 million Hulks.

Changing credit terms on DJs and changing the requirement to purchase X models per SS professional you receive... maybe their dealers will borrow a ton of money from Rolex to fill their display cases with product that isn't going to sell for a year. Now the brand is less scarce and people want a discount because there are ten in the case.

Accepting prepayments gets us back to - the grey market has deep pockets and can corner the market. Look at how fast Omega sold fourteen MILLION dollars of watches with the Ultraman edition. Did ANY of those go to someone who plans to keep it??

Raising prices - They should have done this. The reason not to raise prices is a bad reason. I would pay 1k more right now for a hulk or batman, if i can take delivery within a few weeks or months from an AD. Clearly many people are willing to pay 10k more for a pepsi, so charge 2kmore. If they raise prices and fewer people are willing to pay, the ADs will hold inventory for longer then fifteen minutes. If this fails and the dealers accumulate inventory, Rolex can secretly offer a rebate incentive to dealers so they will discount prices and clear their cases.

Raising prices - the nefarious reason not to: If they raise prices, the grey market becomes less interested in playing their game. Which means grey market dealers buy less DJs and decide to liquidate their inventory. Which means ADs are stuck with even more DJs. Also, at the next recession or downturn, there will be fewer remaining grey market dealers. In the event of a recession, the grey market dealers will buy bundles of stock from the AD and at a bulk price and then sell it lower then Rolex will let the AD sell it. Back in 2008 and 2009, this helped dealers who were stuck with inventory no one wanted.

These moves only help if the grey market loses their information advantage. Right now, customers have no idea what the production is or how many are going to grey market. If the grey market responds to all these moves and continues to buy all inventory, it will still APPEAR that demand is high and supply is scarce. Information disparity is why people will pay double for a pepsi, today.

very good post. thank you.

[ian.thomas]

I like to think Rolex has an end-of-Indiana Jones size warehouse full of SS watches ... all boxed up and sitting right next to the Ark of the Covenant.

[tyler1980]

Originally Posted by ian.thomas

I like to think Rolex has an end-of-Indiana Jones size warehouse full of SS watches ... all boxed up and sitting right next to the Ark of the Covenant.

uh oh... and judging by another thread going on, some guys wearing Vacheron Constantin overseas are trying to steal them