Why Rolex will emerge unscathed from this downturn

[inadeje]

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

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

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

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

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

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

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