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I don't understand the recent Rolex SS craze/shortage. What am I missing?

TechFounder
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Right, and 2020 would have been the perfect time for them to try to catch up with demand but they did the reverse. That should tell you all that you needed to know about how management is thinking about their customers.

If you look at the trend of the mechanical watch unit exports, you see that it's not moving up.
https://k8q7r7a2.stackpathcdn.com/wp-content/uploads/2021/03/swiss-watch-exports-2020-volumes.jpg

You can also see this directly on the swiss federation's site. The numbers (CHF > 3,000) plateaued back in 2015 when Rolex watches were still prevalent in the wild.
https://www.fhs.swiss/scripts/getstat.php?file=histo_gp_210101_a.pdf
 
cvalue13
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Right, and 2020 would have been the perfect time for them to try to catch up with demand but they did the reverse. That should tell you all that you needed to know about how management is thinking about their customers.

TechFounder TechFounder
If you look at the trend of the mechanical watch unit exports, you see that it's not moving up.
https://k8q7r7a2.stackpathcdn.com/wp-content/uploads/2021/03/swiss-watch-exports-2020-volumes.jpg
https://k8q7r7a2.stackpathcdn.com/wp-content/uploads/2021/03/swiss-watch-exports-2020-volumes.jpg

the data you’re looking at is Swiss exports, which includes both mechanical and quartz watches. that should be all I have to say to clarify the problem with your point.

TechFounder TechFounder
You can also see this directly on the swiss federation's site. The numbers (CHF > 3,000) plateaued back in 2015 when Rolex watches were still prevalent in the wild.
https://www.fhs.swiss/scripts/getstat.php?file=histo_gp_210101_a.pdf

and YOU can go find Morgan Stanley’s reports for the prior few years, to see that Rolex had been expanding production prior to 2020’s slow down (again, less slow down than other manufacturers including Omega).

nonetheless, stop for a moment and think what you’re avoiding in the very materials you cited: according to it, Rolex is the largest luxury watch manufacturer on the planet by a factor 1.6/1, selling far more units than Omega, and you seem to be still holding on to some fantasy that the watches are “rare”

There’s a lot to wonder about here, but you’re “read ‘em and weep” moment is not one of them.
 
TechFounder
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cvalue13 cvalue13
the data you’re looking at is Swiss exports, which includes both mechanical and quartz watches. that should be all I have to say to clarify the problem with your point.
Was there some reason that you're not looking at just the light blue section? That's just mechanical watches. It plateaued. From 2000 to 2015 it grew 3 fold. Then, from 2015 to now, it hasn't grown at all.

cvalue13 cvalue13
and YOU can go find Morgan Stanley’s reports for the prior few years, to see that Rolex had been expanding production prior to 2020’s slow down (again, less slow down than other manufacturers including Omega).

nonetheless, stop for a moment and think what you’re avoiding in the very materials you cited: according to it, Rolex is the largest luxury watch manufacturer on the planet by a factor 1.6/1, selling far more units than Omega, and you seem to be still holding on to some fantasy that the watches are “rare”

There’s a lot to wonder about here, but you’re “read ‘em and weep” moment is not one of them.
Right and the title of this thread is? Since overall demand for mechanical watches hasn't grown for the past 5 years, as you can infer from the export plateau, It doesn't take very much to deduce that Rolex is holding back production in order to perpetuate the shortage. Furthermore, if you look at how much Omega's unit production declined last year, you can see the magnitude of the drop in demand as Omega Boutiques are still jam full of watches even though production was cut in dramatic fashion. So, something doesn't pass the smell test in the estimated Rolex's numbers. Rolex watches of all kinds are still nearly impossible to find as display cases everywhere are still relatively bare. You would have to believe that even though demand for every other brand has dropped by large percentages during the pandemic, it didn't affect Rolex? Sure, and I have some land in the Atlantic to sell you.
 
cvalue13
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Was there some reason that you're not looking at just the light blue section? That's just mechanical watches. It plateaued. From 2000 to 2015 it grew 3 fold. Then, from 2015 to now, it hasn't grown at all.

Hmm, I wonder what in the *world* could have gone on from 2015 sales year to present to cool demand for units across all price points of mechanical watches?

Unrelatedly (*sarcasm*), did you notice in the MS report that in 2020 there were 75MM smart watches sold compared to 14MM Swiss watches?

This is not to suggest that a single element of real world information explains away the “plateau,” but instead just one of a hundred possible examples making it totally bizarre for you to jump from “there was a plateau in demand for mechanical wristwatches in all price segments” to “therefore Rolex is cutting production.”

Point being: Rolex may or may not be throttling production in order to minimize stranded inventory risk, etc., but if the MS report is to be believed the main reason display cases are empty is because people are buying Rolex like wildfire even with Rolex producing more watches than any other watch manufacturer.

TechFounder TechFounder
Since overall demand for mechanical watches hasn't grown for the past 5 years, as you can infer from the export plateau,

Again, that overall demand for mechanical in all price segments hasn’t grown is not addressing the fact that Rolex’s market share HAS grown and Rolex IS (according to MS) producing more luxury Swiss mechanicals than any other manufacturer by several orders of magnitude.

If so, then it is no longer reasonable to hold onto this complaint that the only reason you can’t buy a Rolex is that there are none available to buy - there are MORE Rolex available to buy than Omega by a factor of 1.6 to 1.

Lots of mysterious and questionable things to wonder over still, but they appear to be more interesting on the demand side than the supply side.

TechFounder TechFounder
You would have to believe that even though demand for every other brand has dropped by large percentages during the pandemic, it didn't affect Rolex? Sure, and I have some land in the Atlantic to sell you.

it did affect Rolex, by ~-19% ... which is how you started this whole damn diatribe as PROOF of Rolex throttling production

Because otherwise, yes, the entire thrust of the MS 2020 report is essentially an ode to the incredible feat Rolex has accomplished in the past few years while other brands have struggled. I’ve read the prior years’ MS reports and they do not, like this one, contain 5+ concerted pages devoted to understanding Rolex’s successes in this otherwise challenging market.
 
Archer
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Right, and 2020 would have been the perfect time for them to try to catch up with demand but they did the reverse. That should tell you all that you needed to know about how management is thinking about their customers.

To a point, I see what you are saying here. With overall demand down, they could have just maintained production from recent years to make up for at least a portion of that shortfall. As to why they didn't, I think it would be difficult to ascribe motives.

Is some of it risk avoidance? Yes, likely so and I'll further speculate that a part of that risk calculation would be that they didn't want to dampen the current demand for the "hard to get" pieces in any way, because those help sell the less hard to get pieces.
 
cvalue13
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Archer Archer
Is some of it risk avoidance? Yes, likely so

Totally. when the second quarter of 2020 sees the largest market in the world being welded into their homes, one might think risk adjusting prudent.

also, when viewing the reduction in production in 2020 it’s hard to say how much hands were forced by externalities such as lockdowns at HQ, disruptions to supply chains out of Asia, disruptions of distribution chains out to ... everywhere, etc.

To look at the slow down of production at any watch manufacturer in 2020 and treat it as though it’s purely the result of a precise board room decision to throttle seems a bit ... off base.

Really, that it’s down by only ~18% is astounding: that’s only ~2 months lost production (assuming flat production over the year)
 
TechFounder
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cvalue13 cvalue13
Hmm, I wonder what in the *world* could have gone on from 2015 sales year to present to cool demand for units across all price points of mechanical watches?

Unrelatedly (*sarcasm*), did you notice in the MS report that in 2020 there were 75MM smart watches sold compared to 14MM Swiss watches?

This is not to suggest that a single element of real world information explains away the “plateau,” but instead just one of a hundred possible examples making it totally bizarre for you to jump from “there was a plateau in demand for mechanical wristwatches in all price segments” to “therefore Rolex is cutting production.”

Point being: Rolex may or may not be throttling production in order to minimize stranded inventory risk, etc., but if the MS report is to be believed the main reason display cases are empty is because people are buying Rolex like wildfire even with Rolex producing more watches than any other watch manufacturer.



Again, that overall demand for mechanical in all price segments hasn’t grown is not addressing the fact that Rolex’s market share HAS grown and Rolex IS (according to MS) producing more luxury Swiss mechanicals than any other manufacturer by several orders of magnitude.

If so, then it is no longer reasonable to hold onto this complaint that the only reason you can’t buy a Rolex is that there are none available to buy - there are MORE Rolex available to buy than Omega by a factor of 1.6 to 1.

Lots of mysterious and questionable things to wonder over still, but they appear to be more interesting on the demand side than the supply side.



it did affect Rolex, by ~-19% ... which is how you started this whole damn diatribe as PROOF of Rolex throttling production

Because otherwise, yes, the entire thrust of the MS 2020 report is essentially an ode to the incredible feat Rolex has accomplished in the past few years while other brands have struggled. I’ve read the prior years’ MS reports and they do not, like this one, contain 5+ concerted pages devoted to understanding Rolex’s successes in this otherwise challenging market.

I feel like we're going around in circles as perhaps you don't really understand my point. The original point of the thread was to try to figure out why Rolex watches are so difficult to come by. Is it by design or is it due to overwhelming demand as Rolex suggests? I've shown you stats from the Swiss Federation that clearly show you that overall demand has not increased since 2015. We also know that prior to 2015, other than a few models, you can walk into any AD and find just about any SS watch you want. So what happened? Do you really believe Rolex's narrative that they're seeing overwhelming demand? Or, do you believe, like me and some others, that Rolex is purposely holding back and perhaps even reducing production in order to feed into this false narrative? Remember, they had no issues from 2000 all the way up to 2015 when overall demand increased by threefold when you could have walked into any AD and bought any number of SS watches you wanted. They will gladly sell you 10 Subs if you wanted back then.

If you put together the pieces, it's very clear that Rolex pursued a very different strategy after 2015. First, Rolex employed a new CEO in 2014, then Apple introduced their Apple watch in 2015. Both would have an enormous impact on how Rolex thinks about production going forward. This strategy is very apparent to anyone paying attention. The first order of business is to become less transparent by hiding your production numbers. How do you do that you say? By eliminating the COSC breakdown of certification numbers. As you can see from CSCO, 2015 was the last year they broke down their numbers.
https://www.cosc.swiss/en/cosc/key-figures
https://www.cosc.swiss/sites/default/files/annual_report/RANN2015.pdf
Since Rolex is by far, their largest customer, who do you think pressured them to do it?
https://www.hodinkee.com/articles/why-i-miss-the-cosc-chronometer-data-editorial
Now, think about why it was perfectly ok for them to publish those numbers up to then? Then think about when this shortage started? You may think that it's just a coincidence that the shortage started around 2015 at precisely the same time they chose to not let people figure out what their production numbers are, but I don't. They did it because of the new CEO's strategy of squeezing production. They can't very well tell people that the shortage is due to overwhelming demand when people can see that they're not producing as many as before without getting a lot of backlash from gullible consumers.

Omega produces almost as many watches as Rolex per year, close to a million. And yet, they had to cut their production back by over double that of Rolex in 2020. Even after such drastic cutbacks, ADs are still full of watches around the world. Does that not strike you as strange that Rolex ADs are still empty of stock while purportedly cutting units produced back by 19%? Do you realize the kind of demand that would be required to dry up AD supplies for the entire world from that of a Maison like Omega to that of Rolex? Keep in mind that Rolex price point is almost double that of Omega so there should be a smaller addressable market. Basically, Rolex is asking us to believe the improbable.

Let's get back to the Apple Watch. There's no doubt that it's had a huge impact. In fact, Richemont was even forced to buy back a whole lot of watches. And this is with the backdrop of supposed increase demand after 2015 that Rolex likes to perpetuate.
https://www.theguardian.com/busines...m-of-watches-in-two-years-amid-buyback-policy
There's even talk of Stern perhaps unloading Patek.
https://www.bloomberg.com/news/arti...e-may-come-up-for-sale-berenberg-analysts-say
So, I think it's very clear that Apple will continue to eat away at the Swiss watch market. It's the classic innovator's dilemma. A lot of people don't seem to realize that this is not a repeat of the quartz craze of the '80s. Smart Watches, like the Apple watch, are not a complementary product to mechanical watches like the quartz, they're a substitute. The damage will be everlasting and permanent. Just as the smartphones killed the camera market. First, it goes after the low-end p&s, and now it goes after the mid-market. You can see a lot of manufacturers trying to move upmarket but there's only so much room at the top. There are only so many customers willing to pay $10k for a Leica camera (not to mention how foolish one looks owning one, but that's off-topic). There are a lot of corollaries you find from that industry.

So, the short of is that, no, demand for mechanical watches is not going to trend up. On the contrary, we've hit peak demand. So, do you still believe Rolex's false narrative that their shortage is driven by overwhelming demand? This is like when a used car salesman tries to cheat us with a smile on his face. I have a very different reaction than the one you seem to exhibit.
Edited:
 
cvalue13
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TechFounder TechFounder
So, the short of is that, no, demand for mechanical watches is not going to trend up. On the contrary, we've hit peak demand. So, do you still believe Rolex's false narrative that their shortage is driven by overwhelming demand?

tl:dr

I do understand your “point,” I just don’t think it’s very interesting for reasons summarized below:

If you read the entirety of the MS luxury watch report for this as well as the past few years, you will see them repeatedly demonstrate that two things in particular kill luxury watch manufacturers: (1) over-manufacturing, and (2) below-MSRP watches on the 2nd-ary market. The inverse is also touted by MS as the key to luxury watch manufacturer success: never over-produce, and have secondary market trading higher. MA goes in to consistently describe why these seemingly simple things are in practice very hard to achieve - and point to Rolex as a model for having executed.

and always keep secondary prices above MSRP.

This supply side prerogative seems uncontroversial, and at this point uninteresting - I’ve long sided with the notion that Rolex errors toward under production, and along with folks like @Archer recognized the potential brilliance in Rolex’s market position to be able to even parlay the desirability of some watches into their other less “desirable” offerings.

But what you’ve been raving about for a year on this thread is something different, about the demand side: it amounts to repeatedly screaming “the only reason Rolex can’t be found in display cases is because they hardly produce any watches and don’t care about their customers.” Eg:

TechFounder TechFounder
Do you really believe Rolex's narrative that they're seeing overwhelming demand?...

This is like when a used carsalesman tries to cheat me with a smile on his face. Ihave a very different reaction than the one you seem to exhibit.

You even go so far as to cite the MS report as “proof” of this demand side infatuation of yours - even though if we’re agreeing to believe the MS report it arrives at exactly the opposite conclusion: there are more Rolex watches being produced than any other brand by a factor of 1.6-1 compared to the next highest competitor - AND their watches are still trading on the secondary market at an blended average of ~30% higher than MSRP

When you then cite the above MS conclusion (with a “read ‘em and weep”) to support the idea that Rolex instead isn’t making watches and there’s not overwhelming demand, you sound... crazy? Myopic? I don’t know.

So yes, I do at this point believe Rolex is experiencing overwhelming demand - and no I do not believe it is because they are failing to produce a LOT of watches.

This is not inconsistent with also believing that the proper supply side business model is to error toward underproduction, tightly control supply chain, and support whatever antics keep 2ndary markets above MSRP
 
cgaites
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cvalue13 cvalue13
So, if this data is to be believed, Rolex is indisputably selling a lot of units on a value basis (if not a pure unit basis).

This is an extremely insightful post. It very neatly answers the question, "If Rolex's goal is to sell more watches, why doesn't it simply sell more of the watches people want to buy instead of using the roundabout tactic of leveraging the desirable models to force people to buy watches they don't want to buy?" The answer is they make much more money per unit on the less desirable models than the hot models.
 
cvalue13
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Jockywilson1 Jockywilson1
where is this info from?

https://drive.google.com/file/d/1OWFrI0kmvguTMFpaeNWy8wWmTYkltpn9/view

The MS findings for 2020 are consistent with the prior years that I’ve read. The report itself gives some 40k view of MS’s methodology in arriving at what they believe is investment-grade information about the performance of differing brands. This year’s report appears to go to greater lengths to describe its methodology wrt Rolex, govern the resulting challenges of it being non-public: but they offer some fairly interesting insights (such as many countries having laws that still require Rolex to publically report unit and value numbers for in-country sales/imports, etc.) from which MS backs into their estimates.

While I am sure various caveats and instances of scrutiny can be applied to these investment consultants published investment advice, I personally consider it far better (even if imperfect) information compared to one person’s anecdotal observations regarding empty display cases.

here are just a few summaries relevant to the assertion that Rolex sells more units at a higher price point than any other manufacturer:


upload_2021-3-11_14-2-33.png 8A30F232-19F1-4A98-BC83-77E6129755AD.jpeg DA57FF8C-F5AB-4FF1-B4CA-058B66C070FD.jpeg


And this is not something new to 2020:

DB6C278B-FE32-4DB7-AB41-E68E9013463D.jpeg
 
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cgaites cgaites
The answer is they make much more money per unit on the less desirable models than the hot models.

sorry what is the evidence for this?
 
cvalue13
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Jockywilson1 Jockywilson1
sorry what is the evidence for this?

For one thing, there’s a hell of a lot more value in precious metal (or bi-metallic) watches on a unit basis:

FE749F5A-5BFE-4F61-8C9B-75B318FF3D37.png


That said, don’t sleep on the fact that Rolex is ALSO selling far more units:

23B6994F-282E-4385-8649-C0B6B0E573CF.jpeg


So, Rolex manages to have almost 3 times the market share of Omega by BOTH selling more units and at higher values
 
cvalue13
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Given the exchanges above, I find it a bit funny nobody (ahem) has cited MS’s #5 of #5 reasons Rolex has performed well in recent years:

9B75B01A-A2E2-47E0-93E5-81212C0BEA53.jpeg



As I’ve mentioned earlier, I find this #5 reason uncontroversial and to not be any indictment of the company’s “character” - while at the same time finding reasons #1-#4 just as important.
 
TechFounder
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cvalue13 cvalue13
tl:dr

I do understand your “point,” I just don’t think it’s very interesting for reasons summarized below:

If you read the entirety of the MS luxury watch report for this as well as the past few years, you will see them repeatedly demonstrate that two things in particular kill luxury watch manufacturers: (1) over-manufacturing, and (2) below-MSRP watches on the 2nd-ary market. The inverse is also touted by MS as the key to luxury watch manufacturer success: never over-produce, and have secondary market trading higher. MA goes in to consistently describe why these seemingly simple things are in practice very hard to achieve - and point to Rolex as a model for having executed.
Not very hard at all, just do as Rolex does, cut production, and blame it on overwhelming demand. In fact, you can already see Omega starting to deploy the strategy with the 321 and Snoopy.
cvalue13 cvalue13
and always keep secondary prices above MSRP.
Mission accomplished with the 321 and Snoopy, see how easy that was?
cvalue13 cvalue13
This supply side prerogative seems uncontroversial, and at this point uninteresting - I’ve long sided with the notion that Rolex errors toward under production, and along with folks like @Archer recognized the potential brilliance in Rolex’s market position to be able to even parlay the desirability of some watches into their other less “desirable” offerings.

But what you’ve been raving about for a year on this thread is something different, about the demand side: it amounts to repeatedly screaming “the only reason Rolex can’t be found in display cases is because they hardly produce any watches and don’t care about their customers.” Eg:

You even go so far as to cite the MS report as “proof” of this demand side infatuation of yours - even though if we’re agreeing to believe the MS report it arrives at exactly the opposite conclusion: there are more Rolex watches being produced than any other brand by a factor of 1.6-1 compared to the next highest competitor - AND their watches are still trading on the secondary market at an blended average of ~30% higher than MSRP

When you then cite the above MS conclusion (with a “read ‘em and weep”) to support the idea that Rolex instead isn’t making watches and there’s not overwhelming demand, you sound... crazy? Myopic? I don’t know.

So yes, I do at this point believe Rolex is experiencing overwhelming demand - and no I do not believe it is because they are failing to produce a LOT of watches.

This is not inconsistent with also believing that the proper supply side business model is to error toward underproduction, tightly control supply chain, and support whatever antics keep 2ndary markets above MSRP
The reason I focus on the demand side is that that's what Rolex and people like you like to cite as the main reason for the shortage, even though it has nothing to do with the shortage. Also, Rolex has always produced a lot of watches, so has Omega. Omega has always been within 100k/year of Rolex in terms of production. Those numbers in isolation mean nothing. It's the overall demand and how they're planning, or not planning to meet it that's in question. If your plan is to lie to your customers while making them dance like idiots, I will call it out. At least you've now admitted that Rolex alone is responsible for this engineered shortage which we've finally seemed to have agreed on. So, from now on please blame Rolex and Rolex alone for the shortage going forward and don't bring in any of the demand nonsense as the reason.
 
TechFounder
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cgaites cgaites
This is an extremely insightful post. It very neatly answers the question, "If Rolex's goal is to sell more watches, why doesn't it simply sell more of the watches people want to buy instead of using the roundabout tactic of leveraging the desirable models to force people to buy watches they don't want to buy?" The answer is they make much more money per unit on the less desirable models than the hot models.
No, the correct way is to raise prices on your sought-after models and produce more. That's a win/win strategy.
 
TechFounder
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cvalue13 cvalue13
While I am sure various caveats and instances of scrutiny can be applied to these investment consultants published investment advice, I personally consider it far better (even if imperfect) information compared to one person’s anecdotal observations regarding empty display cases.

here are just a few summaries relevant to the assertion that Rolex sells more units at a higher price point than any other manufacturer:
By the way, checking ADs, or what you called personal anecdotal observations is otherwise called channel checks. A perfectly acceptable method of analysis and used by retail analysts around the world.
 
cvalue13
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cgaites cgaites
The answer is they make much more money per unit on the less desirable models than the hot models.

I think I’d modify this, though: if by “desirable” to the average Omegaforums watch collector, maybe. But if instead we mean “desirable” to the average Rolex consumer, I’m not as sure either way.

I mean, what’s more “desirable”: one $60k watch sold, or three $20k watches sold?

Meanwhile, generally accepted lore (even by those most critical of Rolex) so that their highest selling model is the TT DJ. That may feel surprising to the Omegaforum crowd, but probably doesn’t feel surprising to the Aunt Cheryls and Uncle Larry’s of the world.
 
cgaites
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Rolex's strategy at the moment appears to be spot on. However, if a significant portion of current demand is driven by people buying Rolex's entirely (or even mostly) because they believe they will increase in value, then demand will drop precipitously as soon as Rolexes fail to increase in value for any sustained period of time (likely no more a year or two). If demand is in fact substantially built upon buyers relying on the "greater fool" theory of asset appreciation to justify their purchases, then this looks a lot like a financial bubble (see the dutch tulip bubble).

Good thing I prefer Omega 😀
 
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