Is Rolex honest about their production volume?

TechFounder · Mar 5, 2020

cvalue13
People on this forum understand the (obvious) fact that not everyone is into mechanical Swiss watches, much less expensive ones. But a market does exist. That’s what caused you to post here in the first place.

Here is where you veer away from obvious and into the incorrect. For the past 10+ years Swiss mechanical watch exports have increased, not only by unit, but also value per unit. And, those increases have come from across all major markets. China and HK have increased more than others, but they’ve all increased.

Now you’ve journeyed past both obvious and incorrect, into what I can only assume is pure armchair: based on what insider industry information do you know (A) export schedules since December, (B) supply adjustments by manufacturers (up or down) since January, (C) the status of stranded inventory in or arriving to China/HK since January, and (D) supply chain dynamics and resulting timing required for both (1) manufacturers to divert Swiss Swiss inventory to new markets, and (2) that inventory to arrive to market in those locations? I’m suspicious that you have any such insider industry insights, given that in your immediately prior point you didn’t know even the public information regarding Swiss mechanical export unit/value trends.

You can catch up to the gang starting here, here, here, here, here, and last but not least here.

Hmm, first of all, I think they have increased revenues/sales in the form of price increases but unit sales have been in decline. You can even see that in the first link that you provided. So long as you increase prices faster than your decline in unit sales, you can continue to make it look like you have a healthy business. It's a simple trick to maintain the illusion that everything's fine. When you have pricing power, it allows you to increase prices while reducing production which feeds into shortages, which feeds into more pricing power. It's a game that a lot of luxury brands play. Leica and Montblanc are two others that come to mind. Unit sales are in decline so what do they do? Jack up prices.

So, you keep saying that you understand that Rolex is a luxury brand with very expensive goods that not many people can afford but you're arguing the opposite. You know what a 1 million/year luxury watch maker's inventory looks like? Walk into any Omega ADs. That's what it looks like. You can get pretty much any watch you want. The Omega boutique on 5th Ave has multiple watches of every model waiting for someone to buy it. Furthermore, they have so much stock that gray markets are not inverted. They sell at a discount because there are so many watches.

The last data point, which was posted on this forum somewhere, said that COSC showed in 2015 that they had 900K+ of Rolex movements tested. If you think back to 2015, inventory at Rolex ADs looked pretty much like Omega's. That is, you can walk into ADs and get pretty much any watch you wanted (with the exception of the Daytona as that was always produced in limited quantities). So, which of these two scenarios you think happened in just 3 short years. 1. People who can afford and want a Rolex somehow increased 3-5 fold or 2. Rolex is manipulating supply by decreasing production drastically?

The way Rolex inventory is behaving lately with empty shelves at ADs is like what you would see in brands like Patek where production is far smaller. Granted, demand for Rolex is far greater but it's too far fetched to believe that it's 18 - 20X that of Patek. Again, I would take a close look at Omega if you want to see a company being truthful about their production and not manipulating their market.

mayankyadav · Mar 5, 2020

I called a local Rolex AD today and he told me he still gets upto 12 subs an year and I can get on the coveted list by buying something else from him, he can get me a Sub within this year.

gbesq · Mar 5, 2020

I have yet to figure out why anyone is willing to get on a waiting list, willing to buy a model that they don’t want to get a model that they do want, and pay a premium well over retail price for a mass produced middle tier luxury watch. But that’s Rolex, ridiculous though that may be.

MCC · Mar 5, 2020

Personally I don't buy the explanation that Rolex have strangled demand; because there is no benefit or value in doing so. Rolex may not be a public company with the usual profit motives and investors, but they are run as a private trust that places certain fiduciary duties on the trustees which would presumably include ensuring that the trusts assets gain a good return.

Then again I come from England. Here we are used to queueing and waiting, in fact we are masters at it. We queue for buses, tube trains, and the January sales. Waiting increases our pleasure, as well as Rolexes we wait for opening time and good weather and just try buying a new car, the wait for that could make the Rolex waiting list look like a minor delay 😀

Foo2rama · Mar 5, 2020

MCC
Personally I don't buy the explanation that Rolex have strangled demand; because there is no benefit or value in doing so. Rolex may not be a public company with the usual profit motives and investors, but they are run as a private trust that places certain fiduciary duties on the trustees which would presumably include ensuring that the trusts assets gain a good return.

Then again I come from England. Here we are used to queueing and waiting, in fact we are masters at it. We queue for buses, tube trains, and the January sales. Waiting increases our pleasure, as well as Rolexes we wait for opening time and good weather and just try buying a new car, the wait for that could make the Rolex waiting list look like a minor delay 😀

actually there is a very good reason. They had too many watches at AD’s going to grey market and being sold under MSRP, which made it even harder for dealers to sell watches. Remember dealers are receive an allotment they do not choose what they get nor can they send them back unsold.

so to stop this grey market issue dropping prices across the board they constrained production. To drive up demand and stop this cycle. Now that this has reversed and flipper price is almost back to MSRP you will see volume come back up.

wsfarrell · Mar 5, 2020

Rolex doesn't really care about the grey market. Rolex has been making (roughly) the same number of watches every year for more than 70 years. Rolex cares about selling watches to dealers. Once the watches are sold to a dealer, Rolex is happy. If a dealer sells 20 watches, Rolex doesn't care if they went to 20 different people or one grey market dealer. Rolex doesn't care how much the dealer sells the watches for--the dealer has already paid Rolex. Dealers can't choose which watches will be in the next allotment directly, but they can tell Rolex how many they have sold in a time period. Dealers who sell more watches get more watches from Rolex.

The apparent shortage of some Rolex models is due to a market bubble caused by speculation among flippers and grey dealers, not constrained production by Rolex. It will pass. 15-20 years ago, condos were selling in Miami three or four times times before ground had been broken. This was a market bubble--there was no shortage of condos in Miami--and it passed. 3-packs of Oreo Supreme cookies are currently selling on eBay for $300--$500. This is another market bubble. It too will pass.

Foo2rama · Mar 5, 2020

wsfarrell
Rolex doesn't really care about the grey market. Rolex has been making (roughly) the same number of watches every year for more than 70 years. Rolex cares about selling watches to dealers. Once the watches are sold to a dealer, Rolex is happy. If a dealer sells 20 watches, Rolex doesn't care if they went to 20 different people or one grey market dealer. Rolex doesn't care how much the dealer sells the watches for--the dealer has already paid Rolex. Dealers can't choose which watches will be in the next allotment directly, but they can tell Rolex how many they have sold in a time period. Dealers who sell more watches get more watches from Rolex.

The apparent shortage of some Rolex models is due to a market bubble caused by speculation among flippers and grey dealers, not constrained production by Rolex. It will pass. 15-20 years ago, condos were selling in Miami three or four times times before ground had been broken. This was a market bubble--there was no shortage of condos in Miami--and it passed. 3-packs of Oreo Supreme cookies are currently selling on eBay for $300--$500. This is another market bubble. It too will pass.

right but the grey market issue lowered the profit for the dealers, who made less money per sq ft devoted to Rolex...

TechFounder · Mar 5, 2020

wsfarrell
Rolex doesn't really care about the grey market. Rolex has been making (roughly) the same number of watches every year for more than 70 years. Rolex cares about selling watches to dealers. Once the watches are sold to a dealer, Rolex is happy. If a dealer sells 20 watches, Rolex doesn't care if they went to 20 different people or one grey market dealer. Rolex doesn't care how much the dealer sells the watches for--the dealer has already paid Rolex. Dealers can't choose which watches will be in the next allotment directly, but they can tell Rolex how many they have sold in a time period. Dealers who sell more watches get more watches from Rolex.

The apparent shortage of some Rolex models is due to a market bubble caused by speculation among flippers and grey dealers, not constrained production by Rolex. It will pass. 15-20 years ago, condos were selling in Miami three or four times times before ground had been broken. This was a market bubble--there was no shortage of condos in Miami--and it passed. 3-packs of Oreo Supreme cookies are currently selling on eBay for $300--$500. This is another market bubble. It too will pass.

Have you not read anything I've written thus far? Rolex shortage is very different from Miami condos. First of all, the supply is controlled by one entity, Rolex. Second, they can continue this shortage indefinitely as they can continue to reduce supply and raise prices until we all turn blue in the face and die. Remember, the demand for mechanical watches is in long term decline. The entire industry knows this. Apple knows this. The Stern family knows this which is why there was a news article on Bloomberg last year about Patek potentially looking for a buyer. So, if you were Rolex, would you start to prepare for that now while the market is in your favor or would you wait until things turn?

Basically, your contention is that there's a huge circle jerk of flippers and grey dealers who are selling watches to each other and driving prices up? That's nuts. What's more likely is that Rolex is reducing production intentionally while pushing the narrative that they're producing more but there's so much demand that they can't keep up. This is the best of all worlds. They get to reduce costs, increase revenues by increasing prices, and perpetuate the myth that there's more demand than they can keep up. People should prepare for Rolex to increase prices more aggressively in the coming years.

Radiozoop · Mar 5, 2020

funkright
I'd trust her over the MAGA-lomaniac 🤦 or his minions 🤨 any day 😉

Really, man? This isn't any better of a comment than the guy who said something about Maddow. Hypocritical at best.

cvalue13 · Mar 5, 2020

TechFounder
Hmm, first of all, I think they have increased revenues/sales in the form of price increases but unit sales have been in decline. You can even see that in the first link that you provided. So long as you increase prices faster than your decline in unit sales, you can continue to make it look like you have a healthy business. It's a simple trick to maintain the illusion that everything's fine. When you have pricing power, it allows you to increase prices while reducing production which feeds into shortages, which feeds into more pricing power. It's a game that a lot of luxury brands play. Leica and Montblanc are two others that come to mind. Unit sales are in decline so what do they do? Jack up prices.

Mate, you need to sharpen your pencils and re-read those basic data charts.

I’ll give you a head start: Swiss companies make both mechanical watches and also electronic watches (movements, too!); you’re looking at gross units; if you take a look instead at the relevant data for mechanicals, you’ll see that electronic units have declined precipitously while mechanical units have increased, causing a net decline.

TechFounder
So, you keep saying that you understand that Rolex is a luxury brand with very expensive goods that not many people can afford but you're arguing the opposite. You know what a 1 million/year watch luxury watch maker's inventory looks like? Walk into any Omega ADs. That's what it looks like. You can get pretty much any watch you want. The Omega boutique on 5th Ave has multiple watches of every model waiting for someone to buy it. Furthermore, they have so much stock that gray markets are not inverted. They sell at a discount because there are so many watches.

Throw us your datasets on Omega and Rolex annual production numbers, then also your datasets on annual demand, and with data on both supply and demand side you’ll have started down a path toward a point. But you’ve not started now.

Also, I assume that you realize that the supposedly 1MM watches/year are not all SS sports models, but don’t care to parse for that.

TechFounder
The last data point, which was posted on this forum somewhere, said that COSC showed in 2015 that they had 900K+ of Rolex movements tested. If you think back to 2015, inventory at Rolex ADs looked pretty much like Omega's. That is, you can walk into ADs and get pretty much any watch you wanted (with the exception of the Daytona as that was always produced in limited quantities). So, which of these two scenarios you think happened in just 3 short years. 1. People who can afford and want a Rolex somehow increased 3-5 fold or 2. Rolex is manipulating supply by decreasing production drastically?

Prior comments above apply here, equally.

Meanwhile and moving on, let’s remember what your original point was (Rolex was simultaneously making but also not making inventory), and that it is not rationally supported by any of the separate points you’re now trying to make.

It’s cool, man; welcome to the forum. Always good to have a Silicon Valley Mogul around.

cvalue13 · Mar 5, 2020

Foo2rama
actually there is a very good reason. They had too many watches at AD’s going to grey market and being sold under MSRP, which made it even harder for dealers to sell watches. Remember dealers are receive an allotment they do not choose what they get nor can they send them back unsold.

so to stop this grey market issue dropping prices across the board they constrained production. To drive up demand and stop this cycle. Now that this has reversed and flipper price is almost back to MSRP you will see volume come back up.

From where does the grey derive value, then? If previously grey was selling below MSRP, weren’t grey necessarily purchasing from ADs at even further below MSRP?

cvalue13 · Mar 5, 2020

TechFounder
Have you not read anything I've written thus far?

To be fair, it’s getting increasingly hard to.

TechFounder
Second, they can continue this shortage indefinitely as they can continue to reduce supply and raise prices until we all turn blue in the face and die.

If a watch costs $[X], then to achieve your asserted tactic and achieve an increase in profit: for every unit taken out of inventory a remaining inventory unit must be sold at >2$[X]. And to make significantly more profit, the remaining unit must be sold at >>2$[X].

Before and during the current bubble Rolex predictably (like other brands) increased unit costs every 2 years or so, by a matter of percentage points. They did not, however, in the last few years (this bubble) increase the per unit price by >2[X].

Basic maths, man.

TechFounder
Remember, the demand for mechanical watches is in long term decline. The entire industry knows this. Apple knows this.

Have the decency to check even basic data:

So, over the past twenty years:

> fewer electronic watches have sold (but the ones that have, are more expensive per unit)
> mechanical watch sales have increased ~150%
> mechanical watch value by unit have increased 300%
> overall Swiss watch exports have decreased ~50% by unit (because of electronic unit declines), but increased by value ~100%

More people are wearing more watches that are more expensive; and the winners are both mechanicals and smart watches (which are replacing basic electronic/quartz market, not mechanical).

In all: no.

Foo2rama · Mar 6, 2020

cvalue13
From where does the grey derive value, then? If previously grey was selling below MSRP, weren’t grey necessarily purchasing from ADs at even further below MSRP?

The AD’s cannot sell on the internet. So if your an AD in an over served market or small market you have unsold pieces at the end of the year and you get your new allotment. You have 3 unsold subs from the year before. You cannot sell them through your store either through lack of demand or unwillingness to market 3 at below MSRP which ranks your value. You sell to a grey at 10% under MSRP and they sell at 5% under msrp. This works as you paid 20% under msrp for them in your allotment. And now your ready for your next inventory.

This can start to snow ball and inRolex’s case people shunned the AD’s to buy via grey markets that internet advertised. Which lowered profits for the AD’s.

the same thing currently goes on with other brands. This is not a mystery or theory. It’s fact.

watch3s · Mar 6, 2020

TechFounder
Hmm, first of all, I think they have increased revenues/sales in the form of price increases but unit sales have been in decline. You can even see that in the first link that you provided. So long as you increase prices faster than your decline in unit sales, you can continue to make it look like you have a healthy business. It's a simple trick to maintain the illusion that everything's fine. When you have pricing power, it allows you to increase prices while reducing production which feeds into shortages, which feeds into more pricing power. It's a game that a lot of luxury brands play. Leica and Montblanc are two others that come to mind. Unit sales are in decline so what do they do? Jack up prices.

So, you keep saying that you understand that Rolex is a luxury brand with very expensive goods that not many people can afford but you're arguing the opposite. You know what a 1 million/year luxury watch maker's inventory looks like? Walk into any Omega ADs. That's what it looks like. You can get pretty much any watch you want. The Omega boutique on 5th Ave has multiple watches of every model waiting for someone to buy it. Furthermore, they have so much stock that gray markets are not inverted. They sell at a discount because there are so many watches.

The last data point, which was posted on this forum somewhere, said that COSC showed in 2015 that they had 900K+ of Rolex movements tested. If you think back to 2015, inventory at Rolex ADs looked pretty much like Omega's. That is, you can walk into ADs and get pretty much any watch you wanted (with the exception of the Daytona as that was always produced in limited quantities). So, which of these two scenarios you think happened in just 3 short years. 1. People who can afford and want a Rolex somehow increased 3-5 fold or 2. Rolex is manipulating supply by decreasing production drastically?

The way Rolex inventory is behaving lately with empty shelves at ADs is like what you would see in brands like Patek where production is far smaller. Granted, demand for Rolex is far greater but it's too far fetched to believe that it's 18 - 20X that of Patek. Again, I would take a close look at Omega if you want to see a company being truthful about their production and not manipulating their market.

If you have ever been inside the Omega boutique and inquired about a watch, you will know they do not discount at the boutique on 5th ave. They offer little goodies but no discount.

cvalue13 · Mar 6, 2020

Foo2rama
The AD’s cannot sell on the internet. So if your an AD in an over served market or small market you have unsold pieces at the end of the year and you get your new allotment. You have 3 unsold subs from the year before. You cannot sell them through your store either through lack of demand or unwillingness to market 3 at below MSRP which ranks your value. You sell to a grey at 10% under MSRP and they sell at 5% under msrp. This works as you paid 20% under msrp for them in your allotment. And now your ready for your next inventory.

This can start to snow ball and inRolex’s case people shunned the AD’s to buy via grey markets that internet advertised. Which lowered profits for the AD’s.the same thing currently goes on with other brands. This is not a mystery or theory. It’s fact.

The above explanation makes some sense internally, but I still do not understand how it relates to your point originally.

You said that Rolex throttled production of watches so that grey market buyers would stop selling below MSRP and hurting AD's sales.

But here you've agreed grey market buyers could only sell below MSRP if ADs were first selling to them even further below MSRP, because ADs couldn't sell them to customers even at a discount in the first place?

Together, none of the above results in me understanding the assertion that Rolex throttled production so that grey market buyers would stop selling below MSRP, undercutting ADs ability to sell at MSRP.

Here for the learn.

Foo2rama · Mar 6, 2020

cvalue13
The above explanation makes some sense internally, but I still do not understand how it relates to your point originally.

You said that Rolex throttled production of watches so that grey market buyers would stop selling below MSRP and hurting AD's sales.

But here you've agreed grey market buyers could only sell below MSRP if ADs were first selling to them even further below MSRP, because ADs couldn't sell them to customers even at a discount in the first place?

Together, none of the above results in me understanding the assertion that Rolex throttled production so that grey market buyers would stop selling below MSRP, undercutting ADs ability to sell at MSRP.

Here for the learn.

Yes dealers could not sell out in the open for the prices they dumped them to grey market.

funkright · Mar 6, 2020

Radiozoop
Really, man? This isn't any better of a comment than the guy who said something about Maddow. Hypocritical at best.

Slippery slopes are the BEST fallacies to slide down on... Anyways, it was a joke, take it in jest 😝 unless you're offended. If that's the case, well, you'll figure a way to manage 👍

Radiozoop · Mar 6, 2020

funkright
Slippery slopes are the BEST fallacies to slide down on... Anyways, it was a joke, take it in jest 😝 unless you're offended. If that's the case, well, you'll figure a way to manage 👍

You’ll be happy to know that strangers on the internet don’t offend me but I’ll never turn down the opportunity to call someone out on their hypocrisy. That being said, it’s always easy to say “it was a joke.” Gaslight much?

funkright · Mar 6, 2020

Radiozoop
You’ll be happy to know that strangers on the internet don’t offend me but I’ll never turn down the opportunity to call someone out on their hypocrisy. That being said, it’s always easy to say “it was a joke.” Gaslight much?

Chill out big-guy, all in jest, I promise... Just playin' round with the rhetoric like your POTUS 👍

cvalue13 · Mar 7, 2020

Foo2rama
Yes dealers could not sell out in the open for the prices they dumped them to grey market.

Maybe asking a different way gets me there:

Your theory seems to be that (1) some ADs (in saturated markets) couldn’t sell at MSRP, so they sold to grey at well below MSRP (because ADs couldn’t sell online); (2) those grey watches then sold below MSRP online, meaning the remaining ADs (outside of saturated markets) now also couldn’t sell at MSRP; so (3) Rolex made fewer watches in order that ADs in saturated markets had fewer to sell, bringing those ADs back to MSRP, and so choking off the grey buyers.

Is that about right?

Still seems a very round-about way to do things. Also doesn’t explain why (A) there now aren’t nearly enough watches available at MSRP (did Rolex overshoot the goal?), and (B) the grey still seems to be thriving (did Rolex’s plan fail?).

Is Rolex honest about their production volume?

TechFounder

mayankyadav

gbesq

MCC

Foo2rama

wsfarrell

Foo2rama

TechFounder

Radiozoop

cvalue13

cvalue13

cvalue13

Foo2rama

watch3s

cvalue13

Foo2rama

funkright

Radiozoop

funkright

cvalue13

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