Interesting conversation with an AD today.

[Roll the Lex]

I always ask an AD I stroll into if they have a steel Daytona in a naive manner. They look at me and say in their best manner “Sir, those are very difficult to source” and I laugh and say I know. I then ask if they have any professional model. They laugh and I laugh and say, “Hey I gotta ask”.

You never know.


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[dannyp]

Originally Posted by MorningTundra

I'm suspect RLX buys their bullion from the Swiss government reserves and don't pay spot price at the time of manufacture. You're probably right about using gold futures, but I'd also expect RLX to have significant bullion reserves to hedge market swings. In a similar way, oil companies hold large reserves to fulfill futures contracts.

I could be totally wrong but a company this sophisticated, wealthy, and old, is usually one step ahead of the economic cycle and market movements...

I would imagine you are correct on all fronts. However, the price of gold at any given time will almost certainly affect a large consumer of gold (like Rolex) at some other point in time. It won't impact Rolex at the same point in time it impacts spot buyers, but it has to hit eventually, assuming Rolex is constantly buying gold (unless of course its reserves are so large it could continue producing at current capacity while going a certain period without buying any replenishments).

Perhaps when gold spiked Rolex decided to hold off on buying more, to avoid cutting its margin per watch, and instead elected to release inventory made from its current reserves more slowly to accommodate.

On the other hand, perhaps Rolex saw an opportunity to sell some of its gold reserves/futures contracts during the spike. That is exactly the sort of move I'd expect from an extremely large, sophisticated consumer of gold. It made good financial sense, though at the end of the day, it left a lower quantity of gold to actually make watches out of.

Either way, my hypothesis remains: the price of gold has an impact on the PM models available to the market at any given time.

[Omarion07]

They really don't have to try that hard to stay on top.[/QUOTE]

Is this because of lack of competition? I mean their direct competitor Omega is 16% behind Rolex in terms of market share.

[JRique]

Originally Posted by sgwatchguy

I remember a thread some months ago where some members with background in metals had done the math and concluded that Rolex has better margins on SS vs AU. Can’t find it.... this is an interesting topic and makes me think every time. I suspect they have better margins on SS.

Impossible.

All Gold Sub 39k USD
SS Sub 9k USD

Thats 30k for the gold, a Rolex PM has less then 200g of 18k Gold, which is 75% pure, thats 150g of 24k Gold.

Each g of gold is 60 usd, so we have 9k for the Gold, in market prices, Rolex for sure get it for less, so where is the rest of the 30k USD diference?

In Rolex pockets, I refuse to pay Rolex PM prices, 21k of profits just for making it in Gold? LOL

[Master_Grogu]

Originally Posted by JRique

Impossible.

215g for a full gold sub. Remove 40 for sapphire, caliber and ceramic.

We are left with 175g of 18k gold, so 132g of gold, and the rest is precious metal such as platinum, palladium and others.
Let’s still calculate the total price as 175g of 24k gold, for generous estimation.

175x60$ is 10’500.- of gold, with a generous spot price.

126618 is 35’000.- or around 37’300$.

So we have, 26’800$ of margin for Rolex.

However you need to remove the price of 904L steel to have the true spread, the caliber and other material.

Working the materials, transport, sourcing, insurances, safety and processing the material also incur various variances in costs.

So, you have on one hand, a watch that can yield a maximum of 26’800$ of profit, against a SS variant that can yield at maximum (assuming it costs Rolex zero to build, material and work labor), 10’000$.

It is then impossible for SS to be more profitable than PM.

Unless I am very wrong, but I don’t think it is possible for SS to be better then PM for Rolex.

[peterpl]

Originally Posted by JRique

Impossible.

In Rolex pockets, I refuse to pay Rolex PM prices, 21k of profits just for making it in Gold? LOL

This is EXACTLY why Rolex precious metal pieces are through the roof. As I said Instagram/Facebook/Tiktok all those social media platforms are very very powerful tools to influence the current hype in any market.

If you read blogs of certain hypebeasts they are quite clear why they are or have moved away from SS. To differentiate themselves with the average joe blow.

As I said before every dick and harry has SS. Even kids 18 years old saving up or taking out loans for SS pieces at MSRP or saving for 2 years and buying SS at $20k. Move the bracket up to $40-$50k all these wannabe flex and clout chasing kids are gone from the equation.

The hypebeasts with big big influence need to differentiate themselves. Its their bread and butter. They cant be wearing the same thing a 17 old kid is wearing that works in takeaway drivethroughs.

[dannyp]

Originally Posted by JRique

Impossible.

All Gold Sub 39k USD
SS Sub 9k USD

Thats 30k for the gold, a Rolex PM has less then 200g of 18k Gold, which is 75% pure, thats 150g of 24k Gold.

Each g of gold is 60 usd, so we have 9k for the Gold, in market prices, Rolex for sure get it for less, so where is the rest of the 30k USD diference?

In Rolex pockets, I refuse to pay Rolex PM prices, 21k of profits just for making it in Gold? LOL

That analysis leaves out a key question: What's the cost/value of a Rolex movement? Let's say that it's worth $3,000 for a simple date variety. Now that sub breaks down as follows:

Gold Sub: $3k for the movement; $36k for the gold
SS Sub: $3k for the movement; $6k for the steel

The gold is going for about 6x the spot price for bullion (assuming 150g=5.23oz at $1,700/ounce).

Now, let's assume a steel version has 3oz of steel (which is probably high). 904L steel is about $2/oz in Europe (if the figure I found is correct). So we're talking a 1,000x markup on the raw steel.

Yes, I realize that the price of a Rolex is about A LOT more than raw materials, but the margins on the materials themselves would seem to favor steel.

[FORTN]

These Rolex marketing strategies got them aiming their own toes.

[zengineer]

Originally Posted by padi56

Why would you think there is like you put a Rolex's strategy, Rolex is a business like all businesses, there strategy is to make and sell as many products cost effectively as they can .

I don't think that is 100% true for many companies with a longer view, including Rolex.

Rolex could raise list prices fairly significantly and in turn raise the wholesale price they charge dealers and/or distributors...and still sell every watch they make at current annual output. They don't and instead raise them very carefully and resist being caught up it a temporary swell. There are few things that will destroy the prestige of a luxury brand faster than getting ahead of themselves with pricing and needing to drop prices or discount heavily.

Although I don't know the Swiss skilled labor market in any detail I suppose given time Rolex could significantly increase output. But they instead, for the same reason as above, only do it very gradually such as to never exceed demand. Nothing sends the message of "Do I really want this?" to some buyers more than "its easy to get and available at a discount".

Rolex wants to be around forever and worshiped as long as they are around. They aren't going to abandon that for a few years of record sales numbers.

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[JRique]

Originally Posted by dannyp

That analysis leaves out a key question: What's the cost/value of a Rolex movement? Let's say that it's worth $3,000 for a simple date variety. Now that sub breaks down as follows:

Gold Sub: $3k for the movement; $36k for the gold
SS Sub: $3k for the movement; $6k for the steel

The gold is going for about 6x the spot price for bullion (assuming 150g=5.23oz at $1,700/ounce).

Now, let's assume a steel version has 3oz of steel (which is probably high). 904L steel is about $2/oz in Europe (if the figure I found is correct). So we're talking a 1,000x markup on the raw steel.

Yes, I realize that the price of a Rolex is about A LOT more than raw materials, but the margins on the materials themselves would seem to favor steel.

It does not matter the margin on material, of course gold is much more expensive then SS, the amount of SS used in a watch is completely inexpensive, your are paying for the brand, movement, heritage, everything but the SS, the problem is you pay 4 times the price of a SS model to get a PM one.

[thenewrick]

It costs something like $2,000 to make a SS Rolex sports model including marketing and everything and about $5,000 to make the precious metal models so the margins on PM are massive compared to SS.

[Chester01]

Originally Posted by MorningTundra

I assume this is based on your anecdotal observations. If you have data, please share. Because I'm personally seeing the opposite and my anecdotal observations are at odds with yours... Our bias is magnified by algorithms, when it comes to online information. And my feeds are full of "hot young things" sporting two-tone and jeweled bezels, riding private jets, driving lambos and vacationing in places I can only dream of visiting. Sure it's fake, but it's youthful aspiration for the 3% that is RLX's target market.

Yes, the other "97%" are poor and not in the market for over priced, personal adornments, but they're poor and Rolex doesn't care about them or their plebian opinions.

My information is from personal experience. The more I spent the “luckier” I got. Period. Just like magic all the hard pieces just happen to come in with my name on them. BLNR, subs, daytonas, etc.

If the market were so healthy and AD were moving stock in a consistent basis, the gray market would not exist. Period end of debate. The gray market exists because it serves the AD, not the other way around. Simply not a debate.


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[liberalclown]

Originally Posted by dannyp

I would imagine you are correct on all fronts. However, the price of gold at any given time will almost certainly affect a large consumer of gold (like Rolex) at some other point in time. It won't impact Rolex at the same point in time it impacts spot buyers, but it has to hit eventually, assuming Rolex is constantly buying gold (unless of course its reserves are so large it could continue producing at current capacity while going a certain period without buying any replenishments).

Perhaps when gold spiked Rolex decided to hold off on buying more, to avoid cutting its margin per watch, and instead elected to release inventory made from its current reserves more slowly to accommodate.

On the other hand, perhaps Rolex saw an opportunity to sell some of its gold reserves/futures contracts during the spike. That is exactly the sort of move I'd expect from an extremely large, sophisticated consumer of gold. It made good financial sense, though at the end of the day, it left a lower quantity of gold to actually make watches out of.

Either way, my hypothesis remains: the price of gold has an impact on the PM models available to the market at any given time.

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.

[sgwatchguy]

Originally Posted by Master_Grogu

215g for a full gold sub. Remove 40 for sapphire, caliber and ceramic.



We are left with 175g of 18k gold, so 132g of gold, and the rest is precious metal such as platinum, palladium and others.

Let’s still calculate the total price as 175g of 24k gold, for generous estimation.



175x60$ is 10’500.- of gold, with a generous spot price.



126618 is 35’000.- or around 37’300$.



So we have, 26’800$ of margin for Rolex.



However you need to remove the price of 904L steel to have the true spread, the caliber and other material.



Working the materials, transport, sourcing, insurances, safety and processing the material also incur various variances in costs.



So, you have on one hand, a watch that can yield a maximum of 26’800$ of profit, against a SS variant that can yield at maximum (assuming it costs Rolex zero to build, material and work labor), 10’000$.



It is then impossible for SS to be more profitable than PM.



Unless I am very wrong, but I don’t think it is possible for SS to be better then PM for Rolex.

Originally Posted by thenewrick

It costs something like $2,000 to make a SS Rolex sports model including marketing and everything and about $5,000 to make the precious metal models so the margins on PM are massive compared to SS.

Originally Posted by JRique

Impossible.

All Gold Sub 39k USD
SS Sub 9k USD

Thats 30k for the gold, a Rolex PM has less then 200g of 18k Gold, which is 75% pure, thats 150g of 24k Gold.

Each g of gold is 60 usd, so we have 9k for the Gold, in market prices, Rolex for sure get it for less, so where is the rest of the 30k USD diference?

In Rolex pockets, I refuse to pay Rolex PM prices, 21k of profits just for making it in Gold? LOL

Originally Posted by JRique

It does not matter the margin on material, of course gold is much more expensive then SS, the amount of SS used in a watch is completely inexpensive, your are paying for the brand, movement, heritage, everything but the SS, the problem is you pay 4 times the price of a SS model to get a PM one.

Very keen to see data to back this up.

This is not about absolute $$$, it’s about profit margins ie %.

I suspect that remains higher for SS but I’m not an expert and am keen to learn as my opinion could be wrong.

Thanks

[teck21]

Originally Posted by Madman37

I bet the ADs are telling everyone this so that people go oh if everyone wants a gold watch I want one to. Creating fake FOMO.

Other brands like omega must be pretty stupid for not employing this obviously very simple tactic then, creating fake FOMO.

All their ADs have to do is tell everyone what other people like, doh.


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[MorningTundra]

Originally Posted by Chester01

My information is from personal experience. The more I spent the “luckier” I got. Period. Just like magic all the hard pieces just happen to come in with my name on them. BLNR, subs, daytonas, etc.

If the market were so healthy and AD were moving stock in a consistent basis, the gray market would not exist. Period end of debate. The gray market exists because it serves the AD, not the other way around. Simply not a debate.


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The market would seem to be working perfectly well, as everyone in the chain is making money and everyone’s inventory is turning over quickly.

I’m not seeing what’s not working.

[MorningTundra]

Originally Posted by Omarion07

They really don't have to try that hard to stay on top.

Is this because of lack of competition? I mean their direct competitor Omega is 16% behind Rolex in terms of market share.[/QUOTE]


Marketshare, GDP contribution, employment, national prestige, Rolex Foundation... there is simply no way this company would be allowed to fail.

[teck21]

Originally Posted by MorningTundra

I’m not seeing what’s not working.

People unwilling, or unable to pay the necessary dollar for a luxury item.

They want money distributed to them according to capitalist principles but Rolex watches distributed according to socialist ones.


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[MorningTundra]

Originally Posted by teck21

People unwilling, or unable to pay the necessary dollar for a luxury item.

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It’s not like inventory is sitting unsold. They’re selling like hot cakes. Everything is working as intended.

[Chester01]

Originally Posted by MorningTundra

The market would seem to be working perfectly well, as everyone in the chain is making money and everyone’s inventory is turning over quickly.

I’m not seeing what’s not working.

I’m not saying anything is not working for some. But the reality is if AD was moving stock at a consistent and high level the gray market would not exist. The gray market is helping the AD make money more consistently and perhaps more overall so yes that’s working. But it’s also suggests that the market is not as good as it seems otherwise again there would be no gray market.

However it’s not working for most consumers and it’s very poor user experience. The reality is Apple
Watch is eating the entire Swiss markets lunch for them and Rolex nor any company immune. Other than the few WIS here that no the side door most people will just move on to other things are don’t have the time or patience to play AD games or venture into the gray market. We will see how things turn out, but the market research on the younger generations show strong dislike for things that smack of privilege and hierarchy, both of which has been Rolex bread and butter.


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[Chester01]

Originally Posted by MorningTundra

The market would seem to be working perfectly well, as everyone in the chain is making money and everyone’s inventory is turning over quickly.

I’m not seeing what’s not working.

In other words, the gray market may well simply be propping up an industry in decline by commodifying Rolex into a stock not unlike what investors can do with anything. See game stop and the recent deli in NJ for sale.


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[shaunylw]

Originally Posted by Chester01

I’m not saying anything is not working for some. But the reality is if AD was moving stock at a consistent and high level the gray market would not exist. The gray market is helping the AD make money more consistently and perhaps more overall so yes that’s working. But it’s also suggests that the market is not as good as it seems otherwise again there would be no gray market.

However it’s not working for most consumers and it’s very poor user experience. The reality is Apple
Watch is eating the entire Swiss markets lunch for them and Rolex nor any company immune. Other than the few WIS here that no the side door most people will just move on to other things are don’t have the time or patience to play AD games or venture into the gray market. We will see how things turn out, but the market research on the younger generations show strong dislike for things that smack of privilege and hierarchy, both of which has been Rolex bread and butter.


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It depends on how set that particular person is on rolex. Or, do they just want a nice watch?

I do believe however that new to watch buyers could go to other brands. If a new buyer walks into a dealer and gets told 3 years for the most common dive watch made, a sub, many will just find something else. If prices continue to skyrocket, there could be an effect on future luxury watch buyers. Younger kids might think it’s too far out of their price range and buy an Apple Watch instead.

I think we have entered a world where it’s not really collecting anymore, it’s just buying. Those that don’t have the means to buy a lot, are going to miss the boat.


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[kizerman]

Originally Posted by SS Oyster

My AD says he gets at least 50 requests per day for SS sub, so he’s not seen the SS demand drop.


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I doubt he gets a fraction of that many requests per day. That's a joke.

[logo]

I blame this all on Mark Zuckerberg. Social media tells people what to want, like, buy. Add an element of exclusivity, perceived investment capability, and the constant need for external validation and digital stimulation among todays youth and you have a recipe for mayhem. Anything from Nike sneakers, Rolex watches, Supreme t-shirts, and perhaps the dumbest of all perpetuated by Elon Musk for some reason - Dogecoin. Doesn't matter if people like these things or not, they know they are the "it" things to buy and have.

I'm reminded of the classic line from American Psycho, modified slightly: Why do you care about watches, sneakers, buying dogecoin etc?

"Because I want to fit in."

[Oystersteel92]

Originally Posted by logo

I blame this all on Mark Zuckerberg. Social media tells people what to want, like, buy. Add an element of exclusivity, perceived investment capability, and the constant need for external validation and digital stimulation among todays youth and you have a recipe for mayhem. Anything from Nike sneakers, Rolex watches, Supreme t-shirts, and perhaps the dumbest of all perpetuated by Elon Musk for some reason - Dogecoin. Doesn't matter if people like these things or not, they know they are the "it" things to buy and have.

I'm reminded of the classic line from American Psycho, modified slightly: Why do you care about watches, sneakers, buying dogecoin etc?

"Because I want to fit in."

The thing about Dogecoin is that some people are going to make real money from that, and lots of it. Those people will go out into the market looking to buy goods they could not easily afford before, including Rolex. We're starting to see an assault on the very concept of money, which is disquieting, especially for someone like me. I'm doing in the traditional way...find and keep a good job long term, take advantage of all benefits, live below my means and save, carefully building a diverse portfolio of quality assets while carefully managing leverage/debt. Yet, people are becoming millionaires almost overnight out of almost thin air, and you could argue that's always been a thing, but it feels like it's more common now.

To quote Robert L. Bateman: "Once, every village had an idiot. It took the internet to bring them all together."

And yes, I realize the irony of me posting these thoughts on a watch enthusiast message board on...the internet.

[logo]

Originally Posted by Oystersteel92

The thing about Dogecoin is that some people are going to make real money from that, and lots of it. Those people will go out into the market looking to buy goods they could not easily afford before, including Rolex. We're starting to see an assault on the very concept of money, which is disquieting, especially for someone like me. I'm doing in the traditional way...find and keep a good job long term, take advantage of all benefits, live below my means and save, carefully building a diverse portfolio of quality assets while carefully managing leverage/debt. Yet, people are becoming millionaires almost overnight out of almost thin air, and you could argue that's always been a thing, but it feels like it's more common now.

To quote Robert L. Bateman: "Once, every village had an idiot. It took the internet to bring them all together."

And yes, I realize the irony of me posting these thoughts on a watch enthusiast message board on...the internet.

I agree with you in full, though we shall see how long the dogecoin train lasts. Some will get burnt. I do wonder sometimes if it is in fact me who is the village idiot haha - as someone who spent 17 years in post-secondary education, and continue to grind my arse off to be in the financial position I’m in now, its better for my mental health to not think much about the 16 year olds who bet their allowance savings on dogecoin 3 months ago because Papa Musk told them to.

[Chester01]

Originally Posted by shaunylw

It depends on how set that particular person is on rolex. Or, do they just want a nice watch?

I do believe however that new to watch buyers could go to other brands. If a new buyer walks into a dealer and gets told 3 years for the most common dive watch made, a sub, many will just find something else. If prices continue to skyrocket, there could be an effect on future luxury watch buyers. Younger kids might think it’s too far out of their price range and buy an Apple Watch instead.

I think we have entered a world where it’s not really collecting anymore, it’s just buying. Those that don’t have the means to buy a lot, are going to miss the boat.


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I agree with this a great deal. I have many colleagues and they could buy rolex or other lux brands and are simply not, and opting for the functionality of Apple Watch. I mean it’s not just the issue of affordability, it’s a value shift in the generations as well. People look at this “demand” and think oh man Rolex is so hot and forget that this demand is largely coming from speculators, investors, and gray market (who profits the most from the hysteria-more than the AD who can charge only MSRP). What’s getting obscured is the fact that it the speculators and gray went away, people are and have been turning away from the wrist watch industry for decades now and not just folks with little money, plenty of folks that can well afford a Rolex or other luxury brand but don’t want the association. Rolex used to be a tool watch and though expensive known for its robustness and it still is robust and tough as nails. Now what comes to mind: wait list, AD games, privilege, luxury, wealth, etc. ?

I also agree with your point, for most it’s about consuming and having the hot item and less and less are actually into watches, they want the prestige of posting pics on vacation with their Rolex on and little else.


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[Daveh777]

Originally Posted by sgwatchguy

Very keen to see data to back this up.

This is not about absolute $$$, it’s about profit margins ie %.

I suspect that remains higher for SS but I’m not an expert and am keen to learn as my opinion could be wrong.

Thanks

Disagree. It’s about profit margin per watch. When you factor in all fixed and variable costs (incl Overhead allocation) the margin per PM piece will be massively more.

[JRique]

Originally Posted by sgwatchguy

Very keen to see data to back this up.

This is not about absolute $$$, it’s about profit margins ie %.

I suspect that remains higher for SS but I’m not an expert and am keen to learn as my opinion could be wrong.

Thanks

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

[alweisenberger]

interesting - would be nice if the marginal loss of interest in SS would shorten our wait time for something simple like a sub date