Monday, 23 April 2018

Rolex; by the numbers

“A riddle wrapped in a mystery inside an enigma” was how Winston Churchill famously described Russia in 1939; for those of us who write about the horological business, it is a much more apt description of Rolex.

Rolex SA, the Geneva headquarters of the firm is a private company, all of whose shares are owned by a charitable foundation (The Hans Wilsdorf Foundation). As such, is under no obligation to publish its results, sales or financial performance. But just as nature abhors a vacuum, so the industry and those who observe it hate the lack of information about the brand. Historically there has been a chink in the curtain - each year the office of the COSC (le Contrôle Officiel Suisse des Chronometrès) in La-Chaux-de-Fonds produces a list of all the certificates which it has issued in that particular year and, helpfully, breaks the numbers down by brand. So, it was but the work of a moment to look at the top of the list (Rolex have always been Switzerland’s largest producers of chronometer rated watches) to know the firm’s production numbers for any year. Obviously production numbers are not sales numbers, nor do they give you any idea of the value of the watch into which the movement will eventually be fitted. It is important to understand that COSC don’t test completed watches, only partially assembled movements; in the case of Rolex movements they go for testing prior to the fitting of the automatic winding system and the date mechanism. But in 2017, the chink disappeared and the shutters were firmly closed when the COSC announced: "At the request of our depositors and for the sake of confidentiality vis-à-vis the brands, our annual report has been redesigned and no longer reports statistics by brands." 
It is probably a good guess that Rolex, as the biggest customer of the COSC, had suggested that this chink be closed.

So how do we explain that in the last couple of weeks, two major financial institutions have produced investor reports on the Swiss watch industry with detailed estimates of the production & sales figures for Rolex? For many years the analyst René Weber at the Zurich bank Vontobel was the seer with the all-knowing eye, and the only person brave enough to state for publication his estimates of the firm’s numbers. In 2018 the giant New York bank, J P Morgan Stanley, decided to enter the fray, and, working in conjunction with the Swiss consultant Oliver R Müller, produced their own estimates. Curiously, the variation between the two is around 20%. In the interests of full disclosure I should mention that I have known Oliver for over a decade and consider him a friend.

The competition between the two banks has, in some ways, made the view less clear, due to the discrepancy between their estimates, but in other ways has increased clarity as both have published the logic behind their estimates. Over the last few years Rolex has obtained around 800,000 certificates from the COSC, so both analysts have used this number as a baseline; Vontobel assume that Rolex has kept to this number whilst Morgan Stanley think that in reaction to the Grey Market, Rolex has reduced their numbers to around 770,000. To me, the really interesting thing is what they have then done with these numbers - Vontobel have proposed that the average retail price of a Rolex watch is 12,000 CHF (£8,775 or $12,300) giving a total sales number of 9.6 Billion CHF; Weber assumes that retailers have a 50% margin which leaves Rolex Geneva with around 5 Billion CHF. Müller, on the other hand, estimates that the retail price of a Rolex at around 10,500 CHF (£7,675 or $10,750), meaning that worldwide Rolex sales add up to around 8 Billion CHF. However he calculates that the retailers only have a 40% margin with Rolex, so around 4.6 Billion CHF would remain in the coffers of the Genevan giant. But, taking into account the fact that several markets, such as Japan, have multi-level distribution networks where there are others taking a ‘piece of the pie’, Müller reduces the figure to 3.9 Billion CHF.

So, there you have it: Rolex sells 800,000 watches a year and pockets 5 Billion CHF or it sells 770,000 and hoards 3.9 Billion CHF - which one is correct? In all honesty, I have no idea. I just like the watches - well, most of them.

Sunday, 8 April 2018

The unknown story of the British 'Panerai' watch of WWII

In 1941, in the harbour of Alexandria, Egypt two British battleships were sunk by Italian frogmen, riding the SLC (siluri a lenta corsa or "slow-running torpedoes"); although the men who had to use them commonly called them ‘Maiali’ (pigs or swine). The British, who were the main targets of these weapons, called them ‘Human Torpedoes’ after capturing several of them.

When Churchill first heard of the Italians' use of human torpedoes against Royal Navy vessels he wrote one of his famed ‘ACTION THIS DAY’ memos, insisting that the British produce a similar device.

The Royal Navy had pushed the capital ships of the German surface fleet into heavily protected ports for most of the Second World War, but even in their distant refuges these battleships posed a constant threat to North Atlantic convoys. So, strenuous attempts were made to sink ships such as the Tirpitz, and one of the first was Operation ‘Title’ where two British copies of the SLC were towed by a fishing boat to within range of where the Tirpitz was anchored in a Norwegian Fjord. It was realised that the crew on the Human Torpedoes would need a watch capable of functioning for several hours underwater, if they were to be able to make the rendezvous with the fishing boat for their return. The divers would need a waterproof timepiece, but at this time, the Royal Navy did not have a watch capable of operating in such conditions. The watch would need to function on and below the surface for several hours at a time, and what made the situation worse was that other than the Panerai, there was no watch available anywhere on the globe with such capabilities. 

So, in the great British tradition of ‘making do’, they decided to create one. Fortunately there was almost a century’s experience in England of constructing watches able to work in extreme environments; this came from the manufacture of special watches for the Royal Geographical Society, an organization which had sponsored almost all of the great Victorian explorers. The watches made for the society were pocket watches in specially designed screw back & front cases with the winding crown protected by an additional cap which screwed on to the outside of the case and was attached by a short chain.

The original RGS Explorer’s watches used gaskets between the main case & the screwed front and back, these gaskets were made of oil impregnated leather and kept the movement protected from moisture as long as the gaskets were kept in excellent condition & lubricated regularly.

These cases seem to have been made by two of London’s best-known case makers; Philip Woodman & sons (in business between 1821 and 1907) and Albert Thomas Oliver (a five generation business which operated between 1845 and the 1980s); their respective hallmarks were PW and ATO. As Philip Woodman was no longer in business during WWII, it was to Oliver that the Royal Navy turned to develop the original design into a truly waterproof watch.

In the spirit of Churchill’s ‘Action This Day’ memo, almost no development work was done on the case design; which, by then, was over a century old; the only significant upgrade was the fitting of rubber gaskets instead of oil impregnated leather and cutting grooves into the case top and back, this allowed the cases to be screwed tightly shut with a wrench, massively improving the ability of the case to resist water pressure.

A.T. Oliver was one of the last of the old breed of casemaker capable of producing the entire case in house, casting, turning and making & fitting hinges and even pendants. The cases constructed for these watches were made individually by hand and fitted together perfectly. However due the inconsistent tolerances with handwork, the parts were not necessarily interchangeable, meaning that the back from one watch might not fit perfectly on another watch. For this reason every single part of each case bore the individual serial number of that case, the number on the watch shown is 306 and it is stamped on the case centre, the bezel and back and even on the movement retaining ring & the movement cover.

What makes the case especially interesting is that it is made from sterling silver (92.5% silver) and despite the UK Hallmarking laws (the oldest consumer legislation in the world, dating from the 13th century) it bears no hallmark anywhere on the case. This is because there was no consumer to protect, these watches were never intended to be sold and so no hallmark was needed, the fact that they were going to the Government is emphasised by the presence of the Government stamp of a Broad Arrow on the case back. The full markings are
H ^ S
C 15
H S stands for “Hydrographic Survey”; the department of the Admiralty responsible for map & chart making; as accurate timekeeping by means of a deck chronometer was an essential part of navigation, it was the Hydrographic Survey who was responsible for procuring and servicing all Royal Navy timepieces. The C15 is the individual number of this particular watch. The cases were made of silver because the metal was easy to work with, Oliver’s had great experience in working with the material and it was resistant to corrosion from sea water.

The winding crown fits inside a tube, which has a screwed cover, the cover and the tube having especially long threads, to provide the maximum protection for this most delicate part of the watch; the cover screws down on to a thick gasket, providing another level of protection. The screwed cover is attached to the body of the watch by a short chain, which prevents the cover becoming lost whilst it is unscrewed for either winding or hand setting. The strap is attached to the case by huge fixed wire lugs (I am unsure if we can still call it ‘wire’, as it is over 2mm thick) and the strap itself is on the same scale as the watch, measuring 24mm at their ends. Despite the lack of hallmarks, the maker’s stamp of ATO is stamped inside the case back.

The movement used was from a Longines wrist watch, cal 12.68N, with 16 jewels, no shock protection, indirect sweep seconds; it has a diameter of 27mm and a height of 5.45mm. Incidentally the British Ministry of Defence used this robust movement later in the war in the COSD watch made for airborne forces.

The dial was specially made in brass, it is matt black with large Arabic luminous 12, 3, 6 and 9 numerals and large luminous batons for the remainder of the numerals. The white skeleton hands and the tip of the sweep seconds hand are coated with radium paint for maximum visibility in challenging conditions.

The size of the watch is huge, even compared to the Panerais, it measures 51mm in diameter, 17mm high and takes a 24mm strap.

To date four of these watches have surfaced, all with serial numbers ranging between 306 and 338; leading me to think that less than 50 of these were made. When you consider the facts that only around two dozen of the ‘Chariots’ were built and that many of them and their crews were lost in action, it is likely that there are very few of these watches remaining.