Rolex Buys Rolex Watches To Prevent Price Drops

[diablojota]

Over at Luxist (http://www.luxist.com/2009/06/16/rol...price-drops/):
by Ariel Adams Jun 16th 2009 at 7:01AM

Watch sales are down, way down in some places, and the only option for many dealers is to provide deep discounts to move inventory. This creates price drops that many watch brands are less than thrilled with. Some brands are taking an active approach to protect brand pricing. Rolex is personally purchasing back inventory from dealers who are having trouble selling Rolex watches. Buying back the watches gives some money back to the retailers to help them during hard times, and allows Rolex to be confident that less deep discounting is occurring in the market. Rolex is of the most protective brands when it comes to pricing and image. They have an almost legendary reputation for not giving significant discounts. This is not a fact that they wish to change right now when keeping the integrity of a brand's pricing system solid is an important endeavor.

It is no secret that Rolex is a cash rich company. It is not likely a huge impact for them to be buying back inventory which will likely be warehoused until future times when things are better for the luxury watch market. I would go so far as to say that it is probably in Rolex's best interest to dismantle and recycle unsold watches than to release them at below market rates (that they set). Further, you might be wondering why dealers are all selling back to Rolex in the first place rather than discounting and potentially getting more money. This would likely conflict with their authorized dealer contracts with Rolex. Plus, Rolex likely has a redemption right - that allows it to buy back stock under certain circumstances. For you, this means less chance that your dream Rolex watch is going to be discounted any time soon. Pictured is a 2009 Rolex Datejust watch with Arabic numerals.

[ocwatching]

Interesting..thanks for the post...
This move makes sense IMHO..

[BigHat]

Good find Frank.

[Fabuloso]

It's all about maintaining high brand equity, that's what Rolex is all about! It also protects the value of our "previously loved" watches in the secondary market.

[B Square]

Would it not make sense for the AD to sell to the consumer at a deeply discounted price rather than to resell back to Rolex at cost?

[LocoNBroko]

Makes sense to me... But what is going to happen in 3 years when things improve and Z and W series watches start shipping back to the AD's? And are they going to be serviced again before being shipped back out?
Or are they going to take them apart, scrap the cases and use the movements, dials and bracelets in a new series?

[diablojota]

Originally Posted by LocoNBroko

Makes sense to me... But what is going to happen in 3 years when things improve and Z and W series watches start shipping back to the AD's? And are they going to be serviced again before being shipped back out?
Or are they going to take them apart, scrap the cases and use the movements, dials and bracelets in a new series?

Who knows. My AD has primarily all M-Series watches and the guy was trying to tell me that these were the latest. I nodded my head, bit my tongue, thanked him and left. I hate having only one AD in town.

[beshannon]

Interesting.

No actual source for the article, just speculation. I too would wonder about watches that might be out of warranty.

If this is true I have to say that I am somewhat taken aback at their business model and I am not sure about how I feel when it may come to purchasing another Rolex piece.

I understand defending the brand but intentionally manipulating prices like this smacks a bit unethical. Why don't they just reduce production? If they are so cash rich, that saves them money too instead of continuing to flood the market with product only to "possibly" buy it back. Reducing supply is certainly more palatable than removing comleted product from stores.

[Rolexroz]

Omega have been doing this for many a year, worse than that they have been buying most of ther own stock when sold at auction (allegedly). One only has to look at the OMEGAMANIA auction site to realise that they are trying to boost the value of their own stock. But this is not a new phenomenon as they have been doing the same with SWATCH watches for quite a few years.

One only has to read the financial papers to realise that they are trying to raise the value of OMEGA by relating the watches to various celebrities.

A good watch is one that we, the people want for it's own value, not the supposed value as described by a celebrity/company owner etc.

I hope I have use enough, allegedly, supposedly, I heard that.... etc etc etc too keep me out of court..........but do your own research, it is the truth(allegedly).

Rolexroz

[beshannon]

Originally Posted by Rolexroz

Omega have been doing this for many a year, worse than that they have been buying most of ther own stock when sold at auction (allegedly). One only has to look at the OMEGAMANIA auction site to realise that they are trying to boost the value of their own stock. But this is not a new phenomenon as they have been doing the same with SWATCH watches for quite a few years.


Rolexroz

True enough. Buying at auction is one thing to prop up the price of a singular collectible piece but buying back entire inventories is quite another thing.

Perhaps if they stopped shoving inventory down the throats of retailers they could slow the grey market and actually allow prices to increase naturally. After all they create the grey market with their production goals.

Originally Posted by Flaxmoore

Not a fan of this idea.

If sales are down, there is a reason. In this case, it's likely a lack of ready cash in the hands of potential buyers, a legacy of a garbage economy. The sensible answer is to bring prices down, not ensure they remain inflated.

Like Subs as I do, I still can't give a logical reason for a new SS Sub to run four to six grand, when the Omega Seamaster equivalent is half that, maybe a little less. When business is good, you can raise prices. Problem is, I think Rolex has priced themselves out of reach.

My first premium watch will be an Omega Speedmaster Pro. $2500 on the secondary market, compared to $10-15,000 for the Rolex Daytona.

Rolex's pricing makes no sense. If they don't watch it, this recession is going to hurt them very badly.

While I am not sure it will hurt Rolex I agree their their pricing makes no sense. Arguing that "someone" is buying them is not really the answer. They are trying very hard to price most interested buyers out of the new market and into the grey market. They still get to sell product but the sheer amount of product will keep prices down on the more plentiful models.

[BigHat]

[QUOTE=beshannon;1222812]
I understand defending the brand but intentionally manipulating prices like this smacks a bit unethical. Why don't they just reduce production? If they are so cash rich...QUOTE]

I don't have a well-thoughtout opinion on the buyback option as policy. Even if it is happening, to what extent?

I know dealers discount when they find it in their best interests, just like they sell to the grey market. This is just another tool (but welcomed by Rolex) to move stock.

I don't understand the question on why not just limit production. I suspect they are severely limiting production as it is, but how does that address cash flow problems at the AD level? That's like a auto dealership with a lot full of "floored planned" cars hearing the plant is reducing production. Great, but it means nothing to them. Rolexes don't flow through the dealer network like electricity, frictionlessly evening global supply and demand.

I'm also wary of statements like they're a "cash rich" business. Says who? Show me the balance sheet...that isn't disclosed to the public.

[beshannon]

Originally Posted by BigHat

I don't have a well-thoughtout opinion on the buyback option as policy. Even if it is happening, to what extent?

I guess that is my question.

This statement from the article has no independent verification from Rolex, a dealer or other source other than this writer. How does this writer know this?

Rolex is personally purchasing back inventory from dealers who are having trouble selling Rolex watches.

I question the statement without some type of confirmation as Rolex is well known to be very secretive.

[diablojota]

Originally Posted by beshannon

I guess that is my question.

This statement from the article has no independent verification from Rolex, a dealer or other source other than this writer. How does this writer know this?

I question the statement without some type of confirmation as Rolex is well known to be very secretive.

If you read french, I posted the link to the originating site that had additional references to information that Rolex is doing this. I don't, however, read French.

I would not be surprised if they did this, as this is not an uncommon practice in general. And you will never get confirmation from any business that they are doing this. I don't care if it's a public company or private. They do not have to disclose this information, all you would see on the balance sheets is some form of payment to suppliers without any specificity attached.

[STEELINOX]

Originally Posted by beshannon

Interesting.

Why don't they just reduce production? If they are so cash rich, that saves them money too instead of continuing to flood the market with product only to "possibly" buy it back. Reducing supply is certainly more palatable than removing comleted product from stores.

I think on this point the idea for ROLEX to have inventory returned from market is to have these pieces taken apart and destroyed, the casings at least; this keeps their staff "working" and not laying them off, canibalizing the remaining parts for future cases with new serials. It in fact keeps people working and removes inventory from market and keeps things in order, somewhat anyways...
Thanks,
Randy

[Z-Sub]

I would think this "buyback" maybe an option for AD's who are having problems. However, I still see watches that are several years old that are still sitting at AD's, the oldest is a W serial. I don't see Rolex buying those back and help the AD's out. Maybe they will only take back the more recent models?

[diablojota]

I don't read french, but this is the originating site, and they have links to other information on it as well. This had to come from somewhere (http://www.worldtempus.com/fr/actual...opres-montres/)

I don't like the idea either. I think Rolex priced themselves too high at this point and it's starting to catch up with them, especially in the economy as it currently stands.

[Gold Crown]

Originally Posted by diablojota

I don't read french, but this is the originating site, and they have links to other information on it as well. This had to come from somewhere (http://www.worldtempus.com/fr/actual...opres-montres/)

I don't like the idea either. I think Rolex priced themselves too high at this point and it's starting to catch up with them, especially in the economy as it currently stands.

Agreed. They got a little to greedy in the past 10 years.

[cmr]

Originally Posted by diablojota

I don't read french, but this is the originating site, and they have links to other information on it as well. This had to come from somewhere (http://www.worldtempus.com/fr/actual...opres-montres/)

I don't like the idea either. I think Rolex priced themselves too high at this point and it's starting to catch up with them, especially in the economy as it currently stands.

without a doubt.

[argee1977]

Quite a lot of companies do this, and depending on the product a lot of them manipulate the second hand market as well to keep the new price within a set parameter. The way they do this is to use some of the production run for employees and other personnel, then once they've used them for 3 months change over, then they stockpile the 'secondhand' items and put them onto the market depending on how the price is doing, if the price is too low they reduce the stock they put on the market, if it's too high they put more on.

With Rolex though they've gone too high, too quickly, the market allowed the prices to rise to this level due to the economy being on a high, credit being freely available and people moving their collateral around to free up money and buy that watch they always wanted. But now we're in a recession, the people who had equity or freedom to spend thousands aren't doing so, or can't, yet the Rolex prices stay the same. I think it may come to a head in the next couple of years, Rolex can't continue to buy back stock for an extended period of time, and that's going to mean they'll need to change something within their business plan.

[Starwalker]

Originally Posted by argee1977

Quite a lot of companies do this, and depending on the product a lot of them manipulate the second hand market as well to keep the new price within a set parameter. The way they do this is to use some of the production run for employees and other personnel, then once they've used them for 3 months change over, then they stockpile the 'secondhand' items and put them onto the market depending on how the price is doing, if the price is too low they reduce the stock they put on the market, if it's too high they put more on.

With Rolex though they've gone too high, too quickly, the market allowed the prices to rise to this level due to the economy being on a high, credit being freely available and people moving their collateral around to free up money and buy that watch they always wanted. But now we're in a recession, the people who had equity or freedom to spend thousands aren't doing so, or can't, yet the Rolex prices stay the same. I think it may come to a head in the next couple of years, Rolex can't continue to buy back stock for an extended period of time, and that's going to mean they'll need to change something within their business plan.

X2! Bring out new models to justify high prices...GMT-Cs (w/colored cereamics) / New Subs / Facelift the YM / New DJ II / New DD II / New Daytonas......Milgauss.....make a lotta funky watches, and maintain exlusivitivy....lets just hope the dont furthere increase there prices....and our wages....increase with the soon to be high rate of inflation

[buz-lh]

Interesting read and certainly feasable. IF Rolex monitors sales prices in AD's and has a stipulation in the AD's contract that gives them this right to repurchase I don't see why they wouldn't excercise it in this market to "protect" the brand. I've got all the new models I want right now so I sort of hope it's true as this will protect the value of the preowned watches somewhat.

[kcmo]

Interesting read....thanks for posting this!

[DSJ]

Originally Posted by kcmo

interesting read....thanks for posting this!

+1

[Flaxmoore]

Not a fan of this idea.

If sales are down, there is a reason. In this case, it's likely a lack of ready cash in the hands of potential buyers, a legacy of a garbage economy. The sensible answer is to bring prices down, not ensure they remain inflated.

Like Subs as I do, I still can't give a logical reason for a new SS Sub to run four to six grand, when the Omega Seamaster equivalent is half that, maybe a little less. When business is good, you can raise prices. Problem is, I think Rolex has priced themselves out of reach.

My first premium watch will be an Omega Speedmaster Pro. $2500 on the secondary market, compared to $10-15,000 for the Rolex Daytona.

Rolex's pricing makes no sense. If they don't watch it, this recession is going to hurt them very badly.

[Yume-sama]

Wouldn't it make more sense to make less?

[beshannon]

Originally Posted by Yume-sama

Wouldn't it make more sense to make less?

From an economic and business point of view, yes.

[pdmlynek]

Originally Posted by Yume-sama

Wouldn't it make more sense to make less?

Well, there is a happy medium that you'd like to be at.

A business normally would just set the price so that the marginal revenue equals the marginal cost. (dP/dq = 0, if I remember college correctly). You do not want to set the price too low (because although you'd be selling more units there will be too little profit per unit), nor would you set the price too high (because although you'd be making more profit per unit you'd be selling too few units).

[Singslinger]

Originally Posted by pdmlynek

Well, there is a happy medium that you'd like to be at.

A business normally would just set the price so that the marginal revenue equals the marginal cost. (dP/dq = 0, if I remember college correctly). You do not want to set the price too low (because although you'd be selling more units there will be too little profit per unit), nor would you set the price too high (because although you'd be making more profit per unit you'd be selling too few units).

Differential calculus in TRF - must be a first!

[kayaker21]

They are forcing ADS to take larger inventory,and collecting sooner no help for ADS in canada.

[Bebot]

Sounds good to me. This mean my Rollies are going to hold their values.