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.


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