My thoughts on Rolex Supply Issues...

[busytimmy]

Not having read each of the responses to the this thread, I will say that since high quality mechanical time pieces like Rolex watches don’t tend to break and remain serviceable for many generations, one must not forget about the ever expanding secondary market. The Swiss watch industry makes millions of new watches every year, and 99% keep ticking indefinitely.. Perhaps this recent ramp down in production from Rolex might have something to do with that? Just thinking aloud.


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[HL65]

Great post and agree!

[Nav01L]

Originally Posted by thomaswentworth

In macroeconomics in college, they teach about supply and demand.

[...]

The above is only my opinion and is food for thought regarding the state of the Swiss Watch Industry and specifically Rolex. I have no inside knowledge that any of my opinions are accurate. My opinions are only based on my perception based on my observations.

Excellent post my friend - Veblen goods are extremely dependent on having high prices. High prices can only be asked in exchange for high perceived value. Scarcity is a key driver of high perceived value.

Now whether or not they are building up stock for the future (I don’t think so - they’re in a position where they can reduce supply by simply not expanding their production as quickly as demand is growing - they don’t need to lock parts into storage), the simple fact is they are doing a great job of protecting the brand in the long term, which is exactly what the foundation they belong to needs and wants them to do.

[Nav01L]

Originally Posted by busytimmy

Not having read each of the responses to the this thread, I will say that since high quality mechanical time pieces like Rolex watches don’t tend to break and remain serviceable for many generations, one must not forget about the ever expanding secondary market. The Swiss watch industry makes millions of new watches every year, and 99% keep ticking indefinitely.. Perhaps this recent ramp down in production from Rolex might have something to do with that? Just thinking aloud.


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That’s actually a really smart point I hadn’t thought about before, with the internet making a ‘return to market’ ever easier for used pieces, that only a few years ago would have forever disappeared in a sock drawer somewhere, competition has increased significantly.

[RazorD]

Originally Posted by DoctorA

Makes sense!
I know of many people who got a daytona or a hulk simply because of the hype!! And if the ADs were fill d with Daytonas and hulks they wouldn’t have bought them!! So it looks like it’s working for Rolex so far!!

I’ve always wanted the Daytona, but I’m definitely in the camp with the Hulk. It’s very nice, but I passed on it many times over and now I feel I’d be forced to buy one on the spot if I had the chance at my AD.

[thomaswentworth]

Thanks for the comments... To those who have asserted that Rolex achieved their sales goals through 3 quarters in 2017 and then chose to hinder sales in Q4 and possibly Q1 of 2018, I would suggest the following... The market place for Swiss Watches has trended downward. Rolex likely has amazing analysts who are vey in-tune with market conditions. In a downward trending market, it is the duty of the company to capitalize as much as possible to ensure cash reserves are as strong as possible to be able to withstand a potential coming financial crisis.

Human nature is such that if an organization did $9 million in profit for 3 quarters, the leaders of the organization would hope to achieve $12 million or more (holiday shopping season). It wouldn't be very likely that they would choose to not bring in that additional money. Especially in the retail world, sales should not be curtailed during holiday shopping season. As everyone knows, Black Friday (which is during Q4) is the point at which retailers are finally able to see their books climb from red figures into black figures for the year... The losses in the weak months are then absorbed and the business can finally breathe a sigh of relief. Cutting supply during the holiday shopping season, in my opinion, isn't likely to happen.

To the person who posted that Q1 of 2018 will be limited for the same reason... If we use the arbitrary example of a business who made $9 million through 3 quarters in 2017, that business would be passing up something like $6 million over a 5 quarter period -- that's 67% or 2/3 of profit over that 5 quarter period (or probably more since Q4 is the holiday shopping season and Q1 includes Valentine's day and after Christmas shopping for those who received cash gifts from relatives and year end bonuses as well as those who receive their tax refunds early). Q4 and Q1 are probably the worst two choices insofar as cutting supply, because they are probably the best two quarters for selling watches. Q2 and Q3 should be the slowest of the sales quarters. If sales were going to be cut, I would think it should be during Q2 and Q3.

To the person who suggested that production may be curtailed in preparation of the introduction of watches bearing the 32xx series movements, I think that is a valid thought. However, it still goes against human nature to cut sales, and if you can sell a Sub with a 3135 in 2017, then that same client may want to also pony up and buy a new 2018 Sub with the 3235 movement... if the new Sub ends up having the 3235 (I think it will).

To the person who suggested that there may be supply issues with regards to ceramic bezels or other materials, I don't think there is any shortage of the ingredients necessary to make cerachrome bezel inserts. There seems to be a large market for aftermarket ceramic bezel inserts, plenty of fakes with ceramic bezel inserts, and there are many products including entire watches made out of ceramic. I find it relatively implausible that Rolex is having a difficult time procuring the necessary elements to manufacture cerachrome bezel inserts.

The price of gold and platinum are lower than in recent years, so that should encourage the acquisition of gold and platinum to make gold and platinum cases, bracelets, crowns, etc.

To the person who suggested that there was a major backlog of customized Rolex watches that needed to be addressed... the watches are basically the same. The fixtures and machinery are basically the same, but possibly made from different materials. The movements are the same. I don't see how making a Day-Date in Everose with an Everose Oyster bracelet and hidden presidential clasp would cause any major delay in production. Rolex has very effective, established systems and processes in place. I just don't see how Rolex could allow customization to slow production in what has been deemed a downward trending marketplace if their sales were as strong as some have suggested.

Rolex owes it to their ownership and employees to capitalize on Q4 and Q1 upticks in consumer spending... Unless, of course, their strategists see the downward trend in the marketplace and have chosen to artificially control supply for the purpose of attempting to create a frenzy of people waiting to be able to have the honor of giving their money to Rolex. They also owe it to themselves to do what they can to ensure there are no fire sales of inventory which would diminish values in both the primary (AD) and secondary marketplaces (pre-owned and grey). They simply cannot allow the value of their watches to go down. They must do what is necessary to ensure that their watches are considered the gold standard in practically liquid cash on one's wrist. They want to ensure that their watches will have a stable value and will even begin to appreciate after a certain period of time... when they qualify to be called vintage.

I feel as if some of the comments made that were gotten via conversations with ADs were probably ADs spinning what is going on in a manner that would increase consumer confidence or that ADs were repeating what they were told by Rolex who may have been spinning what may be occurring into a positive light. I think Rolex has a solid strategy moving forward that will benefit all of us who love and respect Rolex. I really believe we are in good hands with Rolex and their strategists. I think we have no worries at all... other than being able to acquire the watch we want... when we want.

Again, it is only my opinion, but I think Rolex may have implemented the strategy I have suggested and that it seems to be working quite well for them and could help them survive long after many of their competition are nothing but footnotes in weblogs about the formally formidable Swiss Watch Industry.

All of this is only my opinion based on my observations, and I have no inside knowledge about any of this.

Thanks, again, for the comments. I have spent hours considering each commenter's remarks/rebuttals in order to carefully weigh the feasibility/validity of the comments. I think for now, unless something else is brought up, I am standing firm in my assertions (opinions) about the direction in which Rolex is headed in their business strategy.

[dennywags]

Rolex can cut production without layoffs simply by not hiring as people retire.

[thomaswentworth]

Originally Posted by dennywags

Rolex can cut production without layoffs simply by not hiring as people retire.

Good point. Staff reduction by attrition due to age or possibly by someone deciding on a different career path and leaving for what they perceive to be greener pastures. Staff is cut, but it's not layoffs, so there's nothing to report. Really a great point.

[1William]

A very detailed and interesting thread analyzing and piecing together the speculation we have on hand. Depending on which way Rolex goes we have covered most bases that appear reasonable. One part that has not been mentioned is the customers reaction to the supply issues. Rolex is manipulating availability on a mass produced product to whatever ends it has chosen not to reveal. This does not sit well with me or some others and in the end could end up causing customers to look else where. I have been down this road with Panerai and its marketing and release of models and over time I became tired of it and moved away from the brand. At one time I owned multiple watch from them, now only one. For the Rolex person this is just a bump in the road and we pay attention and wait to see what happens. But for others who are not into the brand the way most of us are they move on to another brand. Hopefully Basel 18 will give us some insight.

[Rashid.bk]

There are some very smart folks on this forum. Thank you for sharing your insights.
Posts #1, 31, 36 are particularly enlightening.

[AK797]

This is a demand led situation not supply, ever since Brexit in 2016, but now Rolex seem to be meeting this new environment with supply side policies, and probably new pricing ones too.

[dr35mm]

Great post, although I agree with you I see this in a very simple way:

The demand has outgrown Rolex's projection in the past few years, thanks to new markets and economic growth. Rolex will never meet demand, the "issue" here is that the gap between Demand and Supply is wider than expected, but I believe, as yourself, that Rolex has made the right decisions for customers on the long road and their business. Omega on the other hand they've wanted to keep up with demand and even create some with all the LE models, this strategy imo has failed. There's a reason why you can walk into any Omega AD and find any watch you want.

Thanks for the post.

[EDL7]

Imo..Rolex doesn't need the $$..so it just takes its time and makes it's sales figures for the year..and when that is reached..it's not worth it to sell more..
A solid business strategy I would think..
and..
The holiday season is not what it used to be anymore in retail..people buy cheep stuff online for others during the holidays..not Rolexes and Pateks under the tree for uncle Joe..those expensive purchases are on the whole are usually self centered purchases for themselves..as in..G-shock for the relative..Rolex for me..lol..

[thomaswentworth]

Originally Posted by dr35mm

Great post, although I agree with you I see this in a very simple way:

The demand has outgrown Rolex's projection in the past few years, thanks to new markets and economic growth. Rolex will never meet demand, the "issue" here is that the gap between Demand and Supply is wider than expected, but I believe, as yourself, that Rolex has made the right decisions for customers on the long road and their business. Omega on the other hand they've wanted to keep up with demand and even create some with all the LE models, this strategy imo has failed. There's a reason why you can walk into any Omega AD and find any watch you want.

Thanks for the post.

I appreciate your comment, however, (in my opinion) when you refer to demand having outgrown Rolex's projection, my assertion is that Rolex has created the appearance of demand having outgrown their projections by artificial means... Making it difficult to get numerous models and knowing that information will be spread far and wide via the world wide web (forums such as this one). If the overall trend in the industry is downward, then Rolex is most likely (not definitely, though) riding the same downward trend to a degree... likely a lesser degree than lesser known and lesser respected brands... which basically includes 99.9% of all other watch brands.

Only Rolex really knows, but we will see in the coming decades what the market will become. It will be an interesting journey. I will guarantee this... no brand will overtake Rolex's crown as the best brand in the world. Finishing and gimmicky multi-axis complications aside, Rolex's overall business model and savvy are second to none. All the others are in Rolex's dust and will never catch up.

[HogwldFLTR]

Does make sense; I think about Harleys which in the 90s were under supplied. They brought on a lot of capacity and their value dropped to the point that the company is now looking unhealthy. In the 90s used bikes were selling for as much as new ones. There were wait lists and speculators.