I apologise in advance for 'jumping on the Rolex bandwagon', I know it's tedious and I know every watch blogger/YouTuber does it all the time. But this is actually quite a big story and it could potentially influence other Swiss brands (including TAG Heuer) to follow the same path so on this occasion I actually thought it was worthwhile.
For several years now Rolex have been in the position of being able to sell many more watches than they can actually make, and while on the surface this may seem like an enviable position to find oneself in, the reality is slightly different. Sure, their balance sheet is healthy, but you can only have empty showrooms for so long before customers start to get disgruntled. A reasonable wait of say 2 months for your chosen product is acceptable, favourable even as it engenders the product with a desirability factor. For some watches maybe even a 6-12 month wait might be more of a positive than a negative, but when it comes to basic run of the mill watches it creates more problems than it solves.
So what should Rolex do about it?
Well I guess the most obvious thing they should do is put their prices up about 30%, because clearly the market is willing to pay. But this itself is problematic. Does it annoy the customers who feel you are ripping them off by increasing prices without justification? Probably, so this would need to happen gradually, and I'm sure we will see more than steady price rises in the coming years to make this happen.
Also, Rolex is in a surprisingly precarious position if the retail price is actually dependent on the second hand value maintaining it's current elevated status. If they create too much new product and deplete the second hand value that could cause them problems, leading to a downward spiral in value. So doubling production, even if possible, would be a terrible move on their part - rest assured they won't be doing that anytime soon.
Then there's the question of flippers. These guys are having a whale of time, buying at retail and selling to the grey market and making a fortune off of Rolex's back. Make no mistake, Rolex aren't seeing the benefit of the high prices, and neither are the grey market dealers. Sure they make a buck, but the percentages will be small because there's so much demand that the flipper won't sell for less than top dollar.
So Rolex's options are fairly limited, yes they can try and control the sales of their product, and they seem to be weeding out AD's they no longer trust to play fair - ultimately I can see Rolex going the AP route and taking all their sales in house, but that will be a long process. For now what they can do, and what they indeed have announced they are doing, is sticking their nose into the pre-owned market.
I've watched a few videos about what this means and all of them seem to miss the point to me. I don't see Rolex wanting to undercut the opposition (quite the contrary actually), and nor do I think that's particularly possible - after all they have to buy their stock from somewhere. But I do think they see it as a way to influence the pre-owned price and keep the second hand value elevated, thus protecting the sales of their new pieces.
Interestingly, Rolex have declared that all the watches sold will be at least three years old, which is quite smart as it prevents AD's from pulling tricks like selling and buying back watches at a profit (for the buyer) to then resell as 'pre-owned' for twice the price (which is exactly what is happening at Richard Mille boutiques apparently). But it does make you wonder what happens when someone comes to the top of the list and asks if they can trade in their old Daytona (est value £30k) for the new one (approx £12k). I guess those will have to be treated as separate transactions...
My guess is that Rolex will confidently price their pre-owned watches at least 10% above market value, if not more. After all, buying direct from Rolex gives you a cast-iron guarantee that what you are buying is the real deal, plus the full-on Rolex buying experience including creating buying history with your AD or boutique (which we all know is crucial to getting in the queue for new pieces). Besides, if the way to get up the ladder with the AD is to pay high prices for precious metal watches you don't really want, wouldn't your money be better spent paying over the odds for a watch you might actually want?
But okay, why should we care? Rolex is a mug's game after all and we're not playing. Right?
Well maybe yes, but even three years ago I heard rumours that TAG Heuer were looking at selling pre-owned pieces themselves. And with the fakes now getting to the point where you need a metallurgy degree to tell them apart from the real thing I can foresee a time a few years down the line where buying an Aquaracer from eBay will be as foolish as having a picnic on the M25.
Of course, it's not so easy for TAG Heuer to join this particular party as with a less expensive product the margins are way more limited, but if they started with higher end pieces where there are greater margins they could eventually take a similar stake in the pre-owned market, having a say in setting the pre-owned prices and similarly supporting the sales prices of new products.
And wouldn't it be awesome if, say, Bicester Village had a second TAG Heuer boutique selling a range of pre-owned products (maybe even the high value vintage Heuer pieces). I for one would love the opportunity to buy older pieces safe in the knowledge that I was buying pukka product with a pre-owned warranty and I definitely think it is an avenue they should be exploring in the future. After all, jewellers like Goldsmith are already selling pre-owned Swiss watches and allowing trade-ins for new pieces could prove very profitable (judging by the trade-in prices I've been offered over the years).
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