Interesting conversation with an AD today.

[Pinchy]

I asked my SA about Daytonas. He gets 3 steel a year and 2 gold a year. I asked about relative demand, and said perhaps demand for gold is even higher than steel.

[ganiccus]

Originally Posted by JRique

Let's assume that a SS and PM model costs 3000 USD to be made, work force, movement, marketing, considering all the costs except the material.

So SS version 3000 and they sell for 9000, 200% markup.
PM 3000 + 9000 in gold we have 12000 and they sell for 39000, 225% markup.

The margins % are still better and the absolute $$$ is way better, it

The thing that people tend to forget is that Rolex doesn't sell directly to the end user, but to their AD network, who takes a 37.5% profit margin on the MSRP of their watch.

So the real profit margin difference between gold and steel for the manufacturer is not as ludicrous as some people on this thread would lead you to believe.

Let's say for arguement sake that your cost numbers are somewhat accurate, the real margin Rolex makes on their watches would be:

SS
9000$ * 0.625 = 5625$
Cost: 3000$
Margin %: 87.5%

Gold
39000$ * 0.625 = 24375$
Cost: 12000$
Margin %: 103%

[dannyp]

Originally Posted by liberalclown

Rolex is a manufacturer not a commodity trader. I would assume they hedge their risk with gold futures to fix the prices for a certain period of time and accommodate the increase in prices if that time period extends. It is not possible for a watch manufacturer to produce less watch due to increase in material costs when the profit margin is one of the bests in all manufacturing businesses except pharma and microchip. It is also not possible for Rolex to sell their gold position for profit when they can make more profit by producing and selling that material in end product.

This is more likely a planned scarcity to drive the demand from SS to more profitable PM in the long run, while targeting young adults for SS and high hitters for PM because SS market is crowded. It is a smart move on their end to satisfy the market by not flooding the market but segregating the targeted demographics.

You're telling me that if Rolex had, say, two years' worth of gold reserves (either physical bullion, certificates or futures) and it saw what it predicted to be a momentary spike in the gold market, it wouldn't sell some?

I have no idea how Rolex finance and/or gold acquisition works. All I'm saying is that the price of gold fluctuates and the prices of watches don't. Therefore, the price of gold must have some impact on Rolex's business decisions. What that impact is, I can only speculate (as I've been doing on this thread :) ).

[liberalclown]

Originally Posted by dannyp

You're telling me that if Rolex had, say, two years' worth of gold reserves (either physical bullion, certificates or futures) and it saw what it predicted to be a momentary spike in the gold market, it wouldn't sell some?

I have no idea how Rolex finance and/or gold acquisition works. All I'm saying is that the price of gold fluctuates and the prices of watches don't. Therefore, the price of gold must have some impact on Rolex's business decisions. What that impact is, I can only speculate (as I've been doing on this thread :) ).

Risk Management and Asset Management are different things. That is why I said Rolex is not a commodity trader. Rolex manufactures products that use steel and gold. If gold price spikes, then Rolex should roll the contract to extend the period, and definitely not sell the contract to market (what if the price doubles, would they charge $80k for a plain DD?). As I said, the margin on selling the product is much higher than selling the contract anyways.

[SpiritSoul]

Originally Posted by Frank McKay

Interesting conversation I had earlier today with an AD I’ve known for many years on the west coast. I asked him how the inventory has been as of late compared to demand and has the situation changed at all for steel sports watches?

He said steel watch’s while still difficult to supply all of his clients with are no where near as bad as PM watches. He’s got clients breathing down his neck for PM Subs, DD’s and Daytona’s (bracelet and OF). There just isn’t enough PM watches at the moment. No PM watches in the cases, empty.

Regarding steel sports watches -
“Believe it or not, I think we’ve scared away the common Rolex buyer, we used to get a lot more walk-ins requesting steel Subs/GMTs and inquiring about steel Daytona’s. Not anymore”.

A Certain "Gentleman" dealing in "Timepieces" may be a factor here.....

[Cambo]

Originally Posted by Spartan1

Acquiring a Rolex has begun to fringe upon similar conditional prerequisites as attaining 20-Year Pappy Van Winkle or a rare Ferrari....you have to establish your loyalty to the AD or the brand! This is right where both want want you, as a consumer. I would say the strategy is working pretty well, despite the frustration from many to most.

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