Rolex takes on the grey market?

Or is this CPO move bigger than that?

You’ve likely seen the news that Rolex will begin issuing certificates of authenticity to accompany pre-owned Rolex watches being sold by their authorised dealer (AD) network, as part of the new 'certified pre-owned' (CPO) program. I have yet to see any decent commentary on the subject, so here's another sh*t analysis to add to the list.

What is the news, exactly?

On the 1st of December 2022, Rolex decided to get involved in the buying and selling of used Rolex watches. Here's the official press release. Bucherer was the first to begin selling CPO Rolexes, and other Rolex ADs can begin participating in the programme from spring of 2023. Note this is still a choice, not an obligation. Knowing Rolex, they will probably attach many conditions to this privilege such as the purchase of expensive Rolex service equipment and testing devices, hiring of over qualified watchmakers and so on. However, as it usually is the case with Rolex - it is probably worth it for the AD in the long run!

Rolex will only certify watches that are at least three years old. The programme only covers physical retail sales of pre-owned Rolex models. This is probably a deterrent to shady ADs with working capital to burn, discouraging them from hoarding stock to boost their income. If you think this is absurd, I can assure you it isn't. I know first hand that a famous family run middle eastern AD regularly 'sells' hyped Rolex models thereby activating the warranty - only to keep the sold item in the safe to sell to a real customer later on - at a premium to the MSRP. Not only do they charge a premium, THEY ACTUALLY ISSUE AN INVOICE WITH THAT PRICE ON IT! No shame, nothing to hide - just the wild f*ckin west! The point of 'selling' and activating the warranty, is that this triggers the 'ordering system' with Rolex HQ to allow them to get more stock when available... Anyway, I digress.

So what does this mean?

Rolex can't suddenly become a price setter overnight, so in many ways all these new CPO ADs are going to learn how to become grey dealers over time. They'll probably be issued guidelines from Rolex for assessing the watches they buy, making price adjustments for parts and materials which they will need to repair or replace. Clearly, this will all be done relative to market-related pricing.

The thing to remember here, is that this isn't some grey dealer - this is Rolex. So there is probably more to the deal with ADs than we will know anytime soon. For example, there was a time when sports models were sold at 40% off to ADs, who then sold them as MSRP (and sometimes even offered a small discount to loyal customers). Rolex might have some sort of target pricing mechanism set up with the AD network, who can then endeavour to buy well, but in order to meet certain stock targets would require some kickbacks from Rolex to ensure they are kept whole. In the early days, this might work well for Rolex, until all the ADs are up and running with CPO stock, and they have a regular flow of stock coming in and out. This all remains to be seen, ut isn't worth digging into for now. At some point an insider will share more on how exactly this works.

That’s not the most interesting part at all.

As many have alluded to, this is about customers and revenue. Probably more about regular customers, ideally ones who have yet to build large collections, and ones who just walk into boutiques and ask for submariners and daytonas. Ultimately Rolex doesn’t want to turn away customers empty-handed. This move ensures that any regular walk-in customer can buy any Rolex they want. It is as simple as that. Note this point about regular customers, as I will come back to it later.

In August we saw the news that Rolex is opening a 3 storey flagship boutique in London. Last month we saw vague confirmation that Rolex is possibly building a new production facility which would be completed by 2029. With a million watches a year, possibly growing over the decade, it makes sense that they take a bite out of the secondary market pie as well... a pie they have left untouched for a surprisingly long time.

The market price will also increasingly become controlled by Rolex over time, as their authorised dealer networks increase inventory of CPO pieces. Why? Because when you can get a CPO watch from Rolex for a particular price, any non-CPO piece will simply be worth less than that - by definition. This becomes the price setter in the market. Who in their right mind would pay more for an equivalent non-CPO piece, than a CPO piece with a warranty? As you can see via WatchCharts: as of today, Rolex CPO watches are 14% more expensive than non-certified used Rolexes.

Now if you take your 'enthusiast' hat off for a moment, and just imagine this was something else entirely - a visit to the BMW showroom perhaps. You walk in, they have some new cars for sale, but none you like. They do have a nearly new M5 in mint condition with all the right extras, but its 14% over MSRP. You can however, drive it out today. It comes with a CPO warranty, and you get to put your name down for dibs on the new M5 coming out in a year or two, for which you can trade this one in. I don't know about you, but paying that 14% premium and enjoying the rest of your day seems quite appealing to me. Who wants to waste time browsing around to save a few grand and also lose out on dibs for the new M5, not to mention the peace of mind buying this car with the CPO warranty? Yes, I am being a little dramatic, but to make the point - the 'in house experience' has, and always will be, an enjoyable one. Plus, you're being offered dibs on a new M5 which you now know will trade for a premium when it lands - so you're paying 14% over today, and could possibly make 25% over o the new car they deliver to you later on.

That's basically the same thing with Rolex too - almost anything they promise you later on, will likely be worth between 20 and 100% over MSRP, and so you're always going to be better off buying from a CPO AD instead of a grey dealer if you're in it for the long run. If you're just buying one watch and you don't care about future purchases or warranties, sure, grey dealers will be cheaper and probably a smarter choice... but back to the point on general customers - do they even want to deal with grey dealers? Yes, we enthusiasts know how to vet a dealer, and how to find a reputable one, and who to ask for advice... does an average walk-in customer want to deal with that BS? Nope.

This is where it becomes interesting to consider from a grey dealers' perspective. After Rolex settles into the CPO business and their ADs are well stocked with CPO watches, and they have had time to smooth out all the issues... they will set the market ceiling price - and then it remains to be seen, how much is left for grey dealers, and whether the levels at which they need to sell can be maintained at all. There are many trusted and reputable grey dealers out there who have a fantastic track record and would likely offer incredibly attractive deals despite the allure of a CPO piece. However, the target market of this CPO program, as I have said repeatedly, is just regular customers who walk into a boutique!

So potentially, I think this move from Rolex could see all the 'overflow' of unsatisfied clientele from boutiques no longer flowing over to the grey market - because the 14% premium (at least that is what it is today!) doesn't seem particularly large for a new client to pay, particularly if it comes with the promise of a longer term relationship - as enthusiasts we all know how alluring that 'promise' can be from an AD.

On the other hand, grey dealers could argue that their clients were ever overflowing from the boutiques in the first place, so they'll keep doing the same business regardless. Also possible, indeed. The difference here, is that we're talking about Rolex - the marketing gurus, Once they have stocked up the CPO AD network, they'll no doubt be advertising with the same monster budget they have been advertising all the 'unobtainable' stuff for years - except this time, its all available lol! Then what? Maybe it will require grey dealers to join forces and create some sort of unified alliance to market together? Who knows.

To end off ... There's an awesome Forbes article about the McLaren CPO Program... the head of McLaren USA has a lot of interesting quotes in there - I'll paste a couple here:

Our CPO program is a great opportunity to either enter the brand or stay with the brand. Depending on the car, depending on the dealership...

For McLaren and its dealers, the CPO warranty and service contract make it far, far easier to resell older models, buoying values and keeping the entire enterprise successful and profitable. As the Germans learned long ago with luxury sedans, it’s not the first sale or lease that matters most but finding a second or third owner to extend the car well over the horizon. Unlike workaday luxury sedans and SUVs, supercars tend not to gather high mileage. They can thus migrate from one loving home to another. Oftentimes the second owner is the first owner’s friend.

There are many telltale signs of track use: running a diagnostic, inspecting the undercarriage of the car. The buyer of a CPO vehicle would know and be able to factor that into the decision-making process.” Here again, the value of the dealership is knowledge of prior owners and their use of the vehicle. We all know it’s not the year or the mileage, but how hard the car was used.

...with specialty cars, particularly high-performance cars, it is almost always preferable to buy and sell through the dealership. Sure, there’s the cost of the transaction through the dealer, but it’s a much cleaner process and opens the door to the certified pre-owned warranty, which is of great value.

That's all she wrote... this was a rushed post, got busy, lost my train of thought at least 10 times in the middle of parenting duties and f*cking amazon deliveries; why do those c*nts come at such ridiculous hours? Anyway, look forward to your feedback and comments as I have undoubtedly missed some salient points.

Cheers, F