Rolex Authorised Dealer Collusion

[BigTasty]

So I shouldn't go grey and if the jumped up little fella in the cheap suit don't see me as his cup of tea, then I shouldn't be able to buy a Rolex?? What, so all the desirable clients can get their pieces at retail? Oh, okay, I'll go without so those more affluent can benefit from my going without.

[thereminjames]

Hi.

Longtime lurker here - so I’m taking a risk by courting controversy in my first post! But as a lover of business history I’ve been fascinated by the grey market dynamics in new Rolex watches and the opinion that this is all bad for Rolex’s brand, and I’ve given it some thought.

My thesis would be that Rolex has effectively created a stealth two-step distribution model for some products (Steel watches) whereby the ADs are effectively now wholesalers, and the greys are retailers. Setting aside questions of ethics relative to consumer expectations, I’d argue this is a highly rational strategy from a purely economic standpoint, to Rolex.

What are the benefits of turning AD’s into a stealth wholesaler channel?

1.) It reduces inventory risk to Rolex and their critical partners (AD/Wholesalers). Let’s say demand drops due to COVID-19. The greys will be stuck with the most excess inventory in these models, followed by AD’s. Rolex, the manufacturer now has two layers of buffer and a retail presence that protects their most important partners.

In supply chain terminology, this lengthens the bullwhip by adding a new party at the tail - one Rolex won’t mind throwing under the bus every once in a while, when necessary.

2.) A wholesale layer preserves Rolex’s pricing power. If Rolex wants to raise the price of SS Daytona on the AD (wholesaler) by 5% they can do that - how that gets absorbed is a function of dynamics between the consumer, the grey market, and the AD/wholesaler.

I’m not up on current retail pricing or retailer gross margins, but let’s say Rolex sells BLNR to AD for $5000 and list is $10,000. ADs, acting as wholesalers, sell to greys who sell for $15,000. People complain, but they also buy, keeping greys in business.

Now Rolex wants to put in a 10% price increase of $500 and tell ADs they can raise list to $10,500 to recoup that. Most likely greys see some gross margin degradation, but even if they pass through 100% of the increase the “consumer” ultimately sees a 3% price increase ($500 on $15,000).

Even better for Rolex, they get no bad press for a 10% price increase - instead the narrative is about greys in cahoots with AD’s fleecing the consumer.

What does all of this mean? If Rolex has less inventory risk and more pricing power they effectively have a lower cost of capital which means they can invest more in R&D, manufacturing, and marketing. Best of all as the price increase example shows, they can get all of this in a way where the complaints are directed at grey market dealers (who are effectively the “real” retailers when ADs are operating as wholesalers).

From a pure economic, profit-maximizing perspective allowing this to happen is very smart strategy. Making it happen through non-enforcement is very smart PR. If you look at things this way (from Rolex perspective), it leads to some unconventional conclusions that are not going to be popular in this group:

First, it would suggest that the grey market prices in SS models are in fact the “true” retail prices - the market seems to bear these prices. Second, while this sours some people on the brand, it allows more investment in the brand that may more than offset the negatives.

I believe this is all intentional because tracing the provenance of brand new watches has to be among the cheapest and easiest things to do. If Rolex was a public company it would have a higher multiple because of this, and the board would approve of it.

For these reasons, I fully expect this dynamic to continue.

[aw9nineteen]

I think it’s weird you never outed the AD. No offense but it makes it seem unbelievable.


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[jamesthejeweller]

Originally Posted by aw9nineteen

I think it’s weird you never outed the AD. No offense but it makes it seem unbelievable.


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As said, recent outings from HK and India inspired this post. Also this isn't about me, it's about how unacceptable it is to circumvent the consumer in a B2C business model, I used my experience as context.

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[John S]

Originally Posted by jamesthejeweller

I wanted to get a pulse on the general feeling from TRF members about Rolex ADs and whether or not anyone has had negative experiences over the last decade (or whatever frame of reference individuals have)

My thoughts around this subject have been piqued recently with news from India and China (Hong Kong) about AD collusion with gray market dealers, I have witnessed and experienced AD collusion with a gray market dealer (one of the biggest) in the UK and what they said to me when I called them out on this dodgy behavior in store has truly damaged my faith in ADs and their ability to resist the temptation to get greedy.

I left the UK in 2018 for a more favorable tax situation and better climate and my new local AD is about as honest and good as they come; no package deals, spending minimums, premiums or discretionary waiting lists, they do things by first come first serve basis which is really quite refreshing.

But is it time we outed these bent ADs?

Below is a summary of what my previous UK AD said to me in 2018 after being on a BLNR wait list since the launch of the MK1 BLNR.

1. (AD) "...We don't keep waiting lists any more..."
(ME) "...but I've been on a 'wait list' with you since 2015..."

2. You need to spend a minimum of £100k to be put onto a "favorable" wait list and you may get this piece within 12 months

3. (AD) "...You can have the next BLNR that comes in, but you need to pay 30% premium and we retain the guarantee card so you can't sell it..."
(ME) "... I might as well buy one at full premium with guarantee card from (insert major gray dealer name here) and not have to wait at all.."
(AD) "...yes you can do that, but we have a very close relationship with (gray dealer) and we'll tell them not to sell anything to you and we will blackball you.."

4. Our boutique owner (eponymous Rolex AD) makes the decisions on who gets what and when

I may have said something rude at this point and I left quite quickly, I really can't remember, but I have not been back to these guys since.

The point I want to convey is that, there are confirmed cases of AD collusion in India and China, but this issue as been going on in the UK and I can guess the US and Europe also since Rolex started booming.

Do we need to 'out' these ADs? Where does the community stand on this subject?

Best
J

Point 4 for me this year. As a consequence, I bought a Sub no date and a Batgirl directly from the owner.

[Rushhour]

Originally Posted by jamesthejeweller

I wanted to get a pulse on the general feeling from TRF members about Rolex ADs and whether or not anyone has had negative experiences over the last decade (or whatever frame of reference individuals have)

My thoughts around this subject have been piqued recently with news from India and China (Hong Kong) about AD collusion with gray market dealers, I have witnessed and experienced AD collusion with a gray market dealer (one of the biggest) in the UK and what they said to me when I called them out on this dodgy behavior in store has truly damaged my faith in ADs and their ability to resist the temptation to get greedy.

I left the UK in 2018 for a more favorable tax situation and better climate and my new local AD is about as honest and good as they come; no package deals, spending minimums, premiums or discretionary waiting lists, they do things by first come first serve basis which is really quite refreshing.

But is it time we outed these bent ADs?

Below is a summary of what my previous UK AD said to me in 2018 after being on a BLNR wait list since the launch of the MK1 BLNR.

1. (AD) "...We don't keep waiting lists any more..."
(ME) "...but I've been on a 'wait list' with you since 2015..."

2. You need to spend a minimum of £100k to be put onto a "favorable" wait list and you may get this piece within 12 months

3. (AD) "...You can have the next BLNR that comes in, but you need to pay 30% premium and we retain the guarantee card so you can't sell it..."
(ME) "... I might as well buy one at full premium with guarantee card from (insert major gray dealer name here) and not have to wait at all.."
(AD) "...yes you can do that, but we have a very close relationship with (gray dealer) and we'll tell them not to sell anything to you and we will blackball you.."

4. Our boutique owner (eponymous Rolex AD) makes the decisions on who gets what and when

I may have said something rude at this point and I left quite quickly, I really can't remember, but I have not been back to these guys since.

The point I want to convey is that, there are confirmed cases of AD collusion in India and China, but this issue as been going on in the UK and I can guess the US and Europe also since Rolex started booming.

Do we need to 'out' these ADs? Where does the community stand on this subject?

Best
J

Item # 3 is interesting.

Though not a lawyer - that could be a possible issue if you were denied a watch by a grey - depending on the country of course.

I will leave that to the lawyers on here.

And by the way - i am new to this game - but I have never paid above MSRP for anything I wanted. It won’t happen over a Rolex either and I am looking for a SS Skydweller. If I don’t get it - fine by me.

Steve


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[upsidedownbelt]

I have been on this forum since 2012, the market was opposite back then. Grays were the rockstars of this forum. Most members advocated saving some money and buying from them. Now those same grays have the watches the same people want and they are marked up from msrp. These people are saying boycott the grays, I would never pay over msrp, etc. when things go back to normal these same people will gladly for back to the grays and pay below msrp. How are they supposed to stay in business during a up market? They are necessary in a market like this is you want them to be around when things go back to normal. That also includes the AD’s doing business with them in times like this.

[Beauregard]

Tourneau bought my AD and ruined it in ways one might expect.

[ROlesorusLEX]

Originally Posted by thereminjames

Hi.

Longtime lurker here - so I’m taking a risk by courting controversy in my first post! But as a lover of business history I’ve been fascinated by the grey market dynamics in new Rolex watches and the opinion that this is all bad for Rolex’s brand, and I’ve given it some thought.

My thesis would be that Rolex has effectively created a stealth two-step distribution model for some products (Steel watches) whereby the ADs are effectively now wholesalers, and the greys are retailers. Setting aside questions of ethics relative to consumer expectations, I’d argue this is a highly rational strategy from a purely economic standpoint, to Rolex.

What are the benefits of turning AD’s into a stealth wholesaler channel?

1.) It reduces inventory risk to Rolex and their critical partners (AD/Wholesalers). Let’s say demand drops due to COVID-19. The greys will be stuck with the most excess inventory in these models, followed by AD’s. Rolex, the manufacturer now has two layers of buffer and a retail presence that protects their most important partners.

In supply chain terminology, this lengthens the bullwhip by adding a new party at the tail - one Rolex won’t mind throwing under the bus every once in a while, when necessary.

2.) A wholesale layer preserves Rolex’s pricing power. If Rolex wants to raise the price of SS Daytona on the AD (wholesaler) by 5% they can do that - how that gets absorbed is a function of dynamics between the consumer, the grey market, and the AD/wholesaler.

I’m not up on current retail pricing or retailer gross margins, but let’s say Rolex sells BLNR to AD for $5000 and list is $10,000. ADs, acting as wholesalers, sell to greys who sell for $15,000. People complain, but they also buy, keeping greys in business.

Now Rolex wants to put in a 10% price increase of $500 and tell ADs they can raise list to $10,500 to recoup that. Most likely greys see some gross margin degradation, but even if they pass through 100% of the increase the “consumer” ultimately sees a 3% price increase ($500 on $15,000).

Even better for Rolex, they get no bad press for a 10% price increase - instead the narrative is about greys in cahoots with AD’s fleecing the consumer.

What does all of this mean? If Rolex has less inventory risk and more pricing power they effectively have a lower cost of capital which means they can invest more in R&D, manufacturing, and marketing. Best of all as the price increase example shows, they can get all of this in a way where the complaints are directed at grey market dealers (who are effectively the “real” retailers when ADs are operating as wholesalers).

From a pure economic, profit-maximizing perspective allowing this to happen is very smart strategy. Making it happen through non-enforcement is very smart PR. If you look at things this way (from Rolex perspective), it leads to some unconventional conclusions that are not going to be popular in this group:

First, it would suggest that the grey market prices in SS models are in fact the “true” retail prices - the market seems to bear these prices. Second, while this sours some people on the brand, it allows more investment in the brand that may more than offset the negatives.

I believe this is all intentional because tracing the provenance of brand new watches has to be among the cheapest and easiest things to do. If Rolex was a public company it would have a higher multiple because of this, and the board would approve of it.

For these reasons, I fully expect this dynamic to continue.

It also allows for perceived scarcity, important for the positionality of a Veblen good

[exador]

Originally Posted by thereminjames

Hi.

Longtime lurker here - so I’m taking a risk by courting controversy in my first post! But as a lover of business history I’ve been fascinated by the grey market dynamics in new Rolex watches and the opinion that this is all bad for Rolex’s brand, and I’ve given it some thought.

Great first post

[jamesthejeweller]

I need to clarify my argument.

1. This is not about me or my dissatisfaction
2. This is not an attack on grays, they run a sought after business and I have no issue with what they do, I just don't give them my business
3. This argument is about the unethical practices of ADs who should operate a B2C business but instead engage in B2B activities.


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[chris242]

#3 is crazy!!


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[garyk]

Got "Pretty Womaned" (according to my son) at Mayors in Aventura Mall near Miami in 2015. Went further south to the boutique Rolex AD in the Design District and bought a JC DSSD and a Daytona Ceramic since. Guess my money wasn't good enough for Mayors

[Soondooboo]

Originally Posted by vintagewatch

I can't blame AD's for selling highly allocated pieces to well established clients with significant spending histories. This practice makes sense in any retail environment to keep the "big spenders" walking in the door. AD's excepting names for waiting lists (or worse deposits) with no real intention of delivering the product that's what I find unacceptable.

Yeah but you have certain AD's following strict rules and monitoring whether you flip a watch to cut you off, and others selling to "big spenders" aka greys in many scenarios and turning a blind eye

[Harry-57]

The AD/Grey relationship is a part of the watch trade. 99 times out of 100 the grey dealer is where you go to get the best price. My AD will usually match grey discounts.

Certain Rolex models are upside down at the moment and the whole Roles range has benefited from it.

Here's a question. If it is "unethical" for a grey to ask above MSRP for a Rolex supplied by an AD, does this still apply in the opposite direction? When the grey dealer offers an AD supplied Breitling, Omega, etc. at under MSRP will it be unethical to buy?

Any who answer yes and yes may well be on unimpeachable moral high ground and be of superb and upstanding character. However, running a successful retail business might prove challenging.

[ganiccus]

Originally Posted by Hollie_Rollie

I don’t think there’s any need to “out” anyone. Just take your business elsewhere

yeah well, some people don't have the luxury to be able to shop in 15+ different locations in a 100 mile radius. and beside that, ADs all play this game to a certain extent, whether it's bundling, VIP lists or scummy backroom deals for well above MSRP, etc.

I'm not really blaming them mind you, there are too many ADs in the first place and they all have a bunch of undesirable models sent by Rolex that they need to unload by using second hand dealers. And the greys obviously won't just take the crap, they will ask for the good stuff as well so everybody can make their margins. And Rolex couldn't care less because it feeds exactly in their business strategy to create desirability and keep their customers addicted to the brand.

[cj3209]

It's all about supply and demand.

There may be artificial supply (I'm pointing at you, DeBeers) but the bottom line is, if there are people willing to pay, there will be a Rolex for you, whether you have to buy a package or whatever. Nobody put a gun to your head and said you had to buy a Rolex and a Rolex certainly is not an essential item.

I just hate poor customer service and the ADs and Greys that treat potential customers that way will pay a price in the long run.

[jamesthejeweller]

Here's a question. If it is "unethical" for a grey to ask above MSRP for a Rolex supplied by an AD, does this still apply in the opposite direction? When the grey dealer offers an AD supplied Breitling, Omega, etc. at under MSRP will it be unethical to buy?

No I don't think this would be an issue to sell readily available models at under MSRP if they were truly second hand; Grays used to represent the essence of what the collector and enthusiast market was all about; rare, under-appreciated, vintage,oddball, niche pieces that you couldn't get from ADs, and the world was fine with that.

Grays are now some weird mutation of this concept that skim the cream off of the top of many Marques, add insane premium and ridiculous scarcity that makes every incoming notification on TRF a "grail" moment and it's just not right, and the fact this whole ludicrous situation is propped up by complicit ADs really, really annoys me, and as enthusiasts, it should upset you too.

I honestly don't have an issue with the gray market, I still own and operate a small vintage collection and engage in procurement for some private clients, so I'm technically a gray, but I'm not making deals with an AD for stainless sports models who should be B2C, and I'm certainly not advertising any of my pieces as "AD fresh, unmolested with stickers + blank guarantee", it's such a weird, mutated, aberration of what the gray market used to represent. I'd love to get the opinion on this whole subject from the dealers that operate on Rolex Passion Market, these guys are the true gray dealer heroes that we all need to recognise.

[Event Horizon]

You can always post a negative review on Google maps.

If the A.D. gets hammered on their reviews, they lose foot traffic into their store.

[MillyS]

Originally Posted by jamesthejeweller

I need to clarify my argument.

1. This is not about me or my dissatisfaction
2. This is not an attack on grays, they run a sought after business and I have no issue with what they do, I just don't give them my business
3. This argument is about the unethical practices of ADs who should operate a B2C business but instead engage in B2B activities.


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Came across a video today - little old but explains where greys get their supplies and an AD is most definitely a source.

https://youtu.be/mNEUN0biZgE

[vintagewatch]

Originally Posted by Soondooboo

Yeah but you have certain AD's following strict rules and monitoring whether you flip a watch to cut you off, and others selling to "big spenders" aka greys in many scenarios and turning a blind eye

True about some AD's having selective sight, to be 100% transparent: I used to buy some of the underproduced models (mostly Daytona's) back in the day for the purpose of selling or trading them for vintage sport models (my true passion at the time). I was cut off by a couple AD's around 2002 when the market started it's accelerated accent and they noticed I purchased multiple Daytona's in less than a year.

More recently (last year) I was called by an AD to come a get an Explorer 214270 I had expressed interest in buying. On my way to pick it up I received a call from the salesperson, her manager recognized my name and nixed the sale. Oh well, it was for me but they thought I'd flip it, so no sale.

Point: Some AD's do make an attempt to curb grey market dealer sales.

[Morrison0]

Originally Posted by kieselguhr

Their inventory, their property. Their business model is not my problem.

If I don’t like the way an AD conducts business, I’ll just go find one that do I like.

Agree


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[Ntoz]

I'm sorry but This is not true

[Greg 59]

Originally Posted by thereminjames

Hi.

Longtime lurker here - so I’m taking a risk by courting controversy in my first post! But as a lover of business history I’ve been fascinated by the grey market dynamics in new Rolex watches and the opinion that this is all bad for Rolex’s brand, and I’ve given it some thought.

My thesis would be that Rolex has effectively created a stealth two-step distribution model for some products (Steel watches) whereby the ADs are effectively now wholesalers, and the greys are retailers. Setting aside questions of ethics relative to consumer expectations, I’d argue this is a highly rational strategy from a purely economic standpoint, to Rolex.

What are the benefits of turning AD’s into a stealth wholesaler channel?

1.) It reduces inventory risk to Rolex and their critical partners (AD/Wholesalers). Let’s say demand drops due to COVID-19. The greys will be stuck with the most excess inventory in these models, followed by AD’s. Rolex, the manufacturer now has two layers of buffer and a retail presence that protects their most important partners.

In supply chain terminology, this lengthens the bullwhip by adding a new party at the tail - one Rolex won’t mind throwing under the bus every once in a while, when necessary.

2.) A wholesale layer preserves Rolex’s pricing power. If Rolex wants to raise the price of SS Daytona on the AD (wholesaler) by 5% they can do that - how that gets absorbed is a function of dynamics between the consumer, the grey market, and the AD/wholesaler.

I’m not up on current retail pricing or retailer gross margins, but let’s say Rolex sells BLNR to AD for $5000 and list is $10,000. ADs, acting as wholesalers, sell to greys who sell for $15,000. People complain, but they also buy, keeping greys in business.

Now Rolex wants to put in a 10% price increase of $500 and tell ADs they can raise list to $10,500 to recoup that. Most likely greys see some gross margin degradation, but even if they pass through 100% of the increase the “consumer” ultimately sees a 3% price increase ($500 on $15,000).

Even better for Rolex, they get no bad press for a 10% price increase - instead the narrative is about greys in cahoots with AD’s fleecing the consumer.

What does all of this mean? If Rolex has less inventory risk and more pricing power they effectively have a lower cost of capital which means they can invest more in R&D, manufacturing, and marketing. Best of all as the price increase example shows, they can get all of this in a way where the complaints are directed at grey market dealers (who are effectively the “real” retailers when ADs are operating as wholesalers).

From a pure economic, profit-maximizing perspective allowing this to happen is very smart strategy. Making it happen through non-enforcement is very smart PR. If you look at things this way (from Rolex perspective), it leads to some unconventional conclusions that are not going to be popular in this group:

First, it would suggest that the grey market prices in SS models are in fact the “true” retail prices - the market seems to bear these prices. Second, while this sours some people on the brand, it allows more investment in the brand that may more than offset the negatives.

I believe this is all intentional because tracing the provenance of brand new watches has to be among the cheapest and easiest things to do. If Rolex was a public company it would have a higher multiple because of this, and the board would approve of it.

For these reasons, I fully expect this dynamic to continue.

Fascinating insight. Thanks for the read.

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[Greg 59]

Don't you find it interesting that whilst this had been going on for quite some time now, Rolex are keeping very tight lipped about it. You won't find a single statement from them where they are criticising the selling of new watches to the grey market. They clearly see it as a necessary evil to keep their AD network onboard.

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[Montremoi]

Originally Posted by jamesthejeweller

Do we need to 'out' these ADs? Where does the community stand on this subject?

Absolutely. Dodgy merchants, who're full of themselves on top of that, should be reported to Rolex with as many details as possible

It's not a one way street. (Would be) customers can also pressure the market in their own way, albeit with modest effects on the grand scheme of things. If enough malpractices are reported, a certain number of dealers might start to feel the heat.

[fsprow]

Originally Posted by Greg 59

Don't you find it interesting that whilst this had been going on for quite some time now, Rolex are keeping very tight lipped about it. You won't find a single statement from them where they are criticising the selling of new watches to the grey market. They clearly see it as a necessary evil to keep their AD network onboard.

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I imagine if they have something to say they will say it to the trade, not the public (us).

[Montremoi]

Originally Posted by Harry-57

Here's a question. If it is "unethical" for a grey to ask above MSRP for a Rolex supplied by an AD, does this still apply in the opposite direction? When the grey dealer offers an AD supplied Breitling, Omega, etc. at under MSRP will it be unethical to buy?

No because the problem is that of supply, and there's little to none when it comes to Omega or Breitling models : one can choose to get one either from an official boutique at full price, or from a grey for a discounted price.

Whereas when an AD chooses to sell the models in short supply mostly to greys, consumers don't even have the luxury to buy from a boutique and pay the full price anymore.

[Soondooboo]

Originally Posted by Greg 59

Don't you find it interesting that whilst this had been going on for quite some time now, Rolex are keeping very tight lipped about it. You won't find a single statement from them where they are criticising the selling of new watches to the grey market. They clearly see it as a necessary evil to keep their AD network onboard.

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Um they especially criticize this. That's why certain ADs have hired people just to scour the webs for serial numbers and to cut people off that are reselling watches. Actually happened to one of my friends who tried to resell his new Pepsi - he was told by the AD that if he resells it at any point he can no longer be put on the list for any other watches. Rolex actively removes ADs for backdoor selling to greys/flippers.

[bay-dweller]

Originally Posted by Harry-57

The AD/Grey relationship is a part of the watch trade. 99 times out of 100 the grey dealer is where you go to get the best price. My AD will usually match grey discounts.

Certain Rolex models are upside down at the moment and the whole Roles range has benefited from it.

Here's a question. If it is "unethical" for a grey to ask above MSRP for a Rolex supplied by an AD, does this still apply in the opposite direction? When the grey dealer offers an AD supplied Breitling, Omega, etc. at under MSRP will it be unethical to buy?

Any who answer yes and yes may well be on unimpeachable moral high ground and be of superb and upstanding character. However, running a successful retail business might prove challenging.

Good point!