SDC Weekly 12; Rolex Acquires Bucherer

A discussion about the rationale and impact of this acquisition, and some other random bits about India on the moon, Google's new flight tool, and a Russian execution.

Hello again! It feels much longer than 10 days have passed since I have had a moment to write anything… having spent the last couple of weeks travelling for work and leisure, I found my head swirling with ideas but no time to get it all down! It’s Wednesday, though, and that means the SDC Weekly is due - rather than be a day late and a dollar short, I thought it was a good opportunity to opine on Rolex acquiring Bucherer. Apologies for being later than usual this morning, but life got ahead of me!

I did get notified of a bunch of new subscribers, which is always awesome to see… thank you for subscribing - you can find the older editions here. To the rest of you, thank you for sticking around!

---

Rolex & Bucherer - What does it mean?

The benefit of waiting this long to post about the topic, is that there are plenty of others who have shared their views already. I will link to a few of these other opinions as well.

To kick off, as far as I am aware, WatchPro was the first to announce the acquisition, and they have also shared a copy of the press release from Rolex:

The most important fact to understand upfront, is that Bucherer was ‘up for sale’ because of their founder having to embark on a succession planning exercise. Rolex didn’t actively pursue getting into retail, so this nuance is much more important than it might seem.

Another important fact is that the deal isn’t quite done… yet. The transaction is subject to approval by the relevant authorities in Switzerland, but I agree with Brendan Cunningham, that this deal is going to be approved. The rest of his article is also an interesting dive into the historical connection between the two companies, and worth a read.

“There is an open question about whether regulators in Switzerland will raise a barrier to the acquisition. I'm not a betting man, but I wouldn't bet against Rolex.”

Brendan Cunningham

I think Rob Corder’s conclusion in this article captures my initial reaction perfectly:

My hunch is that, once the coming hours of hysteria have died down, very little will change.

The problem is that it could very well change in the years to come, but that is a risk everybody that has supped with Rolex has been running for decades.

After trawling around the internet doing a ‘literature review’ for this post, I stumbled across the video below, which is the most thoughtful and sensible take I have heard on the subject - far better than the usual drivel you may have seen, where content creators and influencers have been rushing to put out speculative opinions with very little thought - most of them have overlooked the most important fact I shared above.

In summary, the video says this was a defensive strategic acquisition to maintain the status quo, rather than an acquisition driven by broader strategic ambitions for growth. This does not mean that Rolex won’t end up finding ways to use this to their advantage, but at this point we’re still only talking about initial intent.

Here’s another sensible and measured take which I agree with:

“They wrapped their hands around their brand to protect it from outside influence”.

Oisín O Malley

Well said! He also shares a great analogy where Taylor Swift re-recorded her own songs to protect them from an a**hole who may have devalued her music (and therefore her brand)… in addition, he contrasts this with The Beatles’ music which suffered the opposite fate. Very well presented, and worth the 10 minutes you’ll spend watching it.

Many of the memes I have shared thus far, allude to the fact that Watches of Switzerland (WoS) are ‘in trouble’ as a result of this deal. Indeed, their shares dropped by ~21% when this deal was announced. I think this is an overreaction for now, and there’s a whole article about that too! In 2020, Rolex accounted for 53% of WoS sales, so it seems unlikely that this supply is simply going to dry up overnight - Rolex isn’t going to divert all of this stock to Bucherer stores instantly. This may change over time, but even the Swatch Group which sells products via Bucherer agrees that this move is good for the industry right now. Here’s a key quote:

“Selling Bucherer to foreign groups or private equity firms would have been a very bad solution”

With all that in mind, what might happen over time? Let’s speculate!

Ok, it was defensive. So, what next?

In this section we will talk about all the various aspects of the merger which might end up affecting us consumers in the longer term.

Customer Relationship Management (CRM)

Let us start with this definition from Salesforce:

Customer relationship management (CRM) is a technology for managing all your company's relationships and interactions with customers and potential customers. The goal is simple: Improve business relationships. A CRM system helps companies stay connected to customers, streamline processes, and improve profitability.

Until now, Rolex didn’t sell directly to customers, apart from one boutique in Geneva. Now, they will have access to all of Bucherer’s clients directly and can engage in more targeted marketing and relationship management.

Additionally, one of the biggest bugbears for watch collectors is the behaviour of authorised dealers when it comes to their buying experience of Rolex watches. Rolex will now be able to control this directly and ensure they stop this from happening in Bucherer stores. This, in turn, may lead to Bucherer stores winning market share from WoS, and in due course, result in a larger share of watches being sold via Bucherer instead of WoS. I don’t think Rolex will simply start reducing allocations to WoS stores without cause - but customer experience is a real and tangible reason for why, over time, WoS allocation may naturally decline.

Rolex CPO

Another impact of proper CRM, is the consequences of reselling, and eventually how this links to the Rolex Certified Pre-Owned (CPO) programme which I wrote about before.

Prior to this acquisition, Bucherer, WoS or any other retailer would typically not care about customers reselling their Rolex watches after 2+ years of ownership. Ultimately, retailers were aware that desirable watches were a form of ‘easy profit’ and would use these watches as sweeteners to increase their sales of other goods to clients who wanted to gain access to ‘hype models’. With Rolex now controlling Bucherer’s approach to sales, this is likely to change at Bucherer, but possibly continue everywhere else. As I said above, this will likely drive customers towards Bucherer, and away from other retailers.

That doesn’t mean customers will not be allowed to sell their watches - Rolex knows better than to tell customers what to do with their property. Instead, Rolex could use their CRM data as leverage and implement a policy which rewards customers who offer their used watches back to Bucherer when they want to sell them. In return for doing so, customers will be offered a fair value which can be used towards their next purchase. In addition, they will be able to follow an upward trajectory in their Rolex journey which was previously not possible without access to huge sums of money to keep buying pieces without selling any.

Since Rolex sells their watches to retailers for ~35-40% below retail, and assuming Rolex’s own margin on these watches is between 40-60% depending on the metal and model… there is a lot of room in the price to allow Rolex to offer a decent buyback price to customers¹. A Submariner retails for £7,700 today - here’s a little thought experiment:

Even if you do not agree with the exact numbers or percentages, bear with me. The cost of making a steel Rolex Submariner is likely below £800 including labour and materials, however, there is an implicit cost for marketing and sponsorships etc which would take this up to what the table states at £2,406. This is a guesstimate - and it may vary - but the purpose of the table is to highlight how, even in the worst-case scenario, Rolex would be able to buy back a Submariner at a competitive price, without making a loss, even if the grey dealer price was as high as £16,242 (in this example).

I am not saying they would, nor that it makes business sense, but I have yet to see any commentary about Rolex CPO and the impact on supply.

To me, this is the real kicker: Rolex can use the CPO program to manage the grey market price - simply by managing their CPO buyback price. This was true before, but now that they own the retailer too, their ability to do so increases by … about the size of the retailer margin which is ~40%.

The other thing Rolex can now do, which they could not do before, is use Bucherer to buy back the watch, and then simply restore it to new, and sell it as a new watch. This is a ‘new source of supply’ - since the vertical integration means they do not have to keep ‘old as old’. Imagine they bought back your 2023 Submariner today, sent it back to the factory, replaced the case and rehaut with a new serial, and popped the movement into a new case with a new serial. This makes the cost of that watch even lower than a brand new one, and that watch you sold to them is effectively ‘deleted’ from existence. They can afford to do this, and they can therefore directly influence the grey market supply and therefore… price.

They can. Whether or not they will, is a different story.

Big versus small retailers

Another point covered by many, was smaller retailers versus larger ones like WoS. Rolex will always prefer to maintain their ubiquity, and therefore, the small authorised dealers in towns around the world will always be safe as long as they refrain from outright criminal behaviour like this and this. Rolex would rather have a presence in small towns than not - and these are usually locations where WoS, Bucherer and similar other large-chain stores may not have or want a presence.

Tudor, and other brands in Bucherer

The most noteworthy brand in Bucherer other than Rolex is possibly Tudor. Remember, Rolex owns Tudor, so the CRM for Rolex and Tudor could likely be integrated for the benefit of customers. Imagine you’re a recently graduated student starting your first job. You could be welcomed into the fold with a Tudor to celebrate your new job, and noting your future earning potential and life expectancy, they can lock you in and reward your patronage through the allure of access to desirable Rolex watches in the future. This is by far the biggest threat to the other remaining brands on offer.

As shared above, Omega celebrated the acquisition of Bucherer by Rolex, but they will undoubtedly lament the fact that Tudor is now a legitimate problem for them. In many cases, Omega is competing with Tudor instead of Rolex, despite the fact that Omega is often ‘technically better' on a like-for-like basis (e.g. the Co-axial movement in a Seamaster is may be superior to the Submariner’s movement according to some) - this is of course down to brand power.

Still, the Rolex brand lures people through the door, and so I believe other brands will reluctantly still prefer to remain in Bucherer, rather than remove their brands from Bucherer stores. A big question which remains unanswered, is how many sales of non-Rolex brands are actually just a function of buyers spending money to unlock access to Rolex’s desirable watches. Could it be, that someone who has bought a Breitling, Bvlgari, IWC and Hublot was simply doing so to reach a level of spend required to gain access to a Daytona? I have been told personally by WoS staff that buying other brands would be viewed favourably by management when allocating a Rolex - so this isn’t entirely baseless… but how many people actually do it (I never did)? If this proportion is large, then we will likely see other brands’ sales fall off a cliff, because Rolex will certainly put a stop to this ‘quasi bundling’ behaviour.

Conclusion

To summarise, this was a defensive strategic move by Rolex, to prevent a major retailer falling into the hands of an entity which could harm the brand. I have an example of my own to make the point:

In Saudi Arabia Saddik & Mohamed Attar Co. have the exclusive right to sell Rolex watches. They are lawless and tend to do whatever they please when it comes to Rolex. I once bought a Daytona from them, with the help of a friend, and they set the retail price above the global Rolex MSRP - at the time the same watch in the U.K. was about £10,000, and I paid roughly 60% more. Bear in mind, the grey market price at that time was around £25-30k, so I was still paying less than grey.

I happened to have a problem with the bracelet clasp, and took the watch with the guarantee-card to the Rolex Service Center (RSC) in London. The card was dated September in the year of purchase, and the RSC representative told me the guarantee had been activated in January of the same year, not September as the card implied.

The way this works is as follows: Rolex controls how much stock any retailer has available for sale - you will never have an AD sitting with 1000 unsold steel Daytona watches in the safe. However, when a watch is formally ‘sold’, the guarantee is activated with Rolex on their system. What this Saudi retailer does with desirable models (Daytona, GMTs, coloured OPs etc), is simply activate the warranty to enable them to order new stock from Rolex, but then hold the stock in the safe to sell to whoever they please, at their own leisure. This means they may have untold quantities of hype watches in the safe, to allocate to anyone on short notice. They then use this to effectively bundle as sell other watches at their own convenience.

The loser here, is the customer. I bought a new, unworn Rolex Daytona which was supposed to have a 5-year warranty, but I received 9 months less than I paid for. What’s worse, I would never have known about it, had I not visited the RSC. Rolex confirmed to me directly, they do not care about the date on the card - they simply go by what their system says the activation date was, and they honour the 5-year warranty from that activation date. Hence, I was not harmed or out of pocket as a result of the skullduggery, but the point is, I could have been!

Now, imagine this family bought the Bucherer?! This ridiculous practice would become widespread - and in the end, it would harm the Rolex brand!

Anyway, I look forward to hearing your feedback in the comments.

---

Links of interest

😇 Netflix hit ‘Painkiller’ shows how Purdue Pharma’s greed and deceit fueled a nationwide opioid epidemic. Barry Meier was the first to uncover the truth.

🤩 India on the moon! Chandrayaan-3 the first probe to land near lunar-south pole.

💀 A Very Public Execution in Russia: A jet plunging out of the sky sends an unmistakable message.

🧠 Brain-reading devices allow paralysed people to talk using their thoughts.

🦧 The SEC brings its first NFT enforcement action.

✈️ Google launched a new flight tool and says October is the best time to book cheap holiday flights. I don’t agree, but perhaps you will have better luck!

🧓 A new stage of life and what it can teach the rest of us about how to find meaning and purpose—before it’s too late.

---

End note

On reflection, there are so many links in this post, I probably should have left out the ‘links of interest’ this week! That said, I will leave you with just one more:

That was a comment on an old post of mine, called ‘The Hunt’ - perhaps you will enjoy it too. Thanks for taking the time to write that comment, Bruce.

If you enjoyed the post, please hit the heart symbol to ‘formally like’ the post - it seems to help with the Substack referral thing.

Until next time!

F

Bonus link: Why Oppenheimer deserves his own movie

1. I am just guessing the percentages here… with some insight from random links online:

What’s the markup on Rolex pieces? What % do AD’s make on Rolex watches? (reddit.com)

How Much Does it Cost to Make a Rolex? (Prices)

Profit margins for ADs? - (Rolex Watch Forum)

What does it cost to manufacture a Rolex watch as opposed to the retail sale price? - (Quora)

What is the cost of a Rolex for a dealer? - (Quora)

What's the average profit margin for products like Rolex, Audemars Piguets and other high end watches, and similar luxury products? - (Quora)