Why the grey market premium is good for ROLEX

[dpkong]

Ten to fifteen years ago, you could walk into an AD and see most steel ROLEX sport models on display and if you were buying, you could probably get a little discount as well. Other than the Kermit 16610LV or the Daytona 116520 of course as there would be waiting lists and a little premium on it. You would see a couple of two-tone sports models as well and if you wanted the 116523, you could get maybe 15-20% off retail price, probably a little more if you knew someone in the AD. You would see trays upon trays of Datejusts in all sizes and colours and these could also be had for 20% off. If you like the solid gold models, then the AD would be even more willing to discount and I have heard the 116618 and 116619 as well as the Presidents going for even up to 30% off or more.

For ROLEX, this was bad. Stock was not moving as quickly as they would like and ADs had to discount to move inventory. Another way of course was to bundle a sale of a Daytona or Kermit with a bunch of other full gold watches at great discount to grey dealers. If you have to give 20% off, then that's profit you didn't make. And when profit is low, you complain to ROLEX and they can't raise prices.

Let's say that ROLEX sells a RM10,000 watch to ADs for RM4,000. The AD will have to cover costs of staff and shopfront with RM6,000 gross profit. If they have to discount 30%, then the gross profit is only RM3,000 which is halved.

Now fast forward to the present day. We all know what it's like now. And the way I see it, ROLEX has no reason to intervene to control the grey dealers and the premiums they are charging. ADs are now begging ROLEX for inventory to sell. ADs no longer need to discount to sell their inventory and ROLEX knows that. So now if ROLEX raises the price for their stock and reduce the margins for the AD, the AD won't complain anyway because demand is greater than supply and their profit margins now are much higher than before since they don't need to discount. The only rule that still applies is that ADs cannot sell above retail price.

So for those who are wishing and hoping that ROLEX will step up production or intervene with the market, forget about it.

Merry Christmas to all and may those who are waiting for Santa to come be rewarded...

 

[i.z.z]

Yes agree with you. I never experienced buying Rolex from local AD, I bought them overseas as work gave me the opportunity. But from what I've read and heard it is sad that it become like that.
No more Rolex for me , just can't justify buying watches double the retail. I'll just keep whatever Rolex I have forever then.



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[c4all]

Ten to fifteen years ago, you could walk into an AD and see most steel ROLEX sport models on display and if you were buying, you could probably get a little discount as well. Other than the Kermit 16610LV or the Daytona 116520 of course as there would be waiting lists and a little premium on it. You would see a couple of two-tone sports models as well and if you wanted the 116523, you could get maybe 15-20% off retail price, probably a little more if you knew someone in the AD. You would see trays upon trays of Datejusts in all sizes and colours and these could also be had for 20% off. If you like the solid gold models, then the AD would be even more willing to discount and I have heard the 116618 and 116619 as well as the Presidents going for even up to 30% off or more.

For ROLEX, this was bad. Stock was not moving as quickly as they would like and ADs had to discount to move inventory. Another way of course was to bundle a sale of a Daytona or Kermit with a bunch of other full gold watches at great discount to grey dealers. If you have to give 20% off, then that's profit you didn't make. And when profit is low, you complain to ROLEX and they can't raise prices.

Let's say that ROLEX sells a RM10,000 watch to ADs for RM4,000. The AD will have to cover costs of staff and shopfront with RM6,000 gross profit. If they have to discount 30%, then the gross profit is only RM3,000 which is halved.

Now fast forward to the present day. We all know what it's like now. And the way I see it, ROLEX has no reason to intervene to control the grey dealers and the premiums they are charging. ADs are now begging ROLEX for inventory to sell. ADs no longer need to discount to sell their inventory and ROLEX knows that. So now if ROLEX raises the price for their stock and reduce the margins for the AD, the AD won't complain anyway because demand is greater than supply and their profit margins now are much higher than before since they don't need to discount. The only rule that still applies is that ADs cannot sell above retail price.

So for those who are wishing and hoping that ROLEX will step up production or intervene with the market, forget about it.

Merry Christmas to all and may those who are waiting for Santa to come be rewarded...

 

That was what my buddy told me when he said i was late to the Rolex collecting scene. Didn't believe it then but looks like it is true.

[Cocas]

I see. This means that Rolex was doing charity and selling the watch below its intrinsic value for abut a century.

Finally, its price get justified. The Rolex collectors who have been enjoyed getting Rolex at low price, it's now Rolex pay back time.

[dpkong]

I see. This means that Rolex was doing charity and selling the watch below its intrinsic value for abut a century.

Finally, its price get justified. The Rolex collectors who have been enjoyed getting Rolex at low price, it's now Rolex pay back time.

This isn't about doing charity or selling a watch below intrinsic value. That value is determined by the buyers.

You obviously cannot expect ROLEX the company is supplying their watches to ADs at 80% of retail price. I'm thinking it will be in the 40-60% range depending on models but of course I could be completely wrong.

When inventory moves slowly, a manufacturer makes less. Now if your distributors are selling them faster than you are supplying them, you can reduce the margins you are giving your distributors and increase your revenue. Which company wouldn't want that? It wasn't your doing that the secondary market has put premiums on your product but you certainly aren't going to stop it are you?

I'd just say that if I were ROLEX, I would regularly implement the usual 3-5% increment in RRP and gradually reduce the margins given to distributors which increases my profit and yet none of the distributors would complain.

[Cocas]

Yup, this makes sense and aligns with what Rolex does these years.

[Potential_Highlight]

TLDR: Rolex is playing the artificial scarcity game

[G.MAC]

The situation is what it is today because of increased demand. Rolex did not reduce its supply over the years nor are they going to invest to increase production. If grey market dealers globally dump their stocks into the market, more people can own a piece at lower prices.

[IamJacky]

Yeah I totally agree. I hear a lot of people complaining that Rolex is intentionally reducing its production to create an artificial shortage, which I do not believe to be true.

The reality is that the demand has simply exponentially grown in the recent years. Everybody wants a SS Rolex, and the SS Rolex watches are the best money-for-value luxury watches out there available. Not only are they highly durable/reliable, their design don't change much in decades and thus retain their value greatly, which in turn attract even more "investment" type buyers. I believe Rolex simply kept its production at their normal pace, and since the demand sky-rocketed over the past decade, the seemingly "shortage" phenomenon occurs.

There is absolutely no shortage of SS Rolexes. They are out there in the grey by the thousands. The only problem is we the consumer have to decide whether or not we want to pay the premium to get them.

Rolex will not increase its production for its popular models to meet the demand neither. There is no reason for them to do so. The last thing Rolex needs to worry about is to make more money than they're already making by producing more popular models and reducing production for the lesser favored watches - that would just damage their brand image and they wouldn't want that. They want to maintain the Prestige of their brand, and they're doing a great job at it.

[Gentlemen101]

Rolex saw the opportunity and obviously shooting for Patek exclusivity, turning their Tudor (particularly BB58 into ‘Rolex’)

Can’t deny Rolex is ‘money’ now, no other brand even come close....

[dpkong]

The situation is what it is today because of increased demand. Rolex did not reduce its supply over the years nor are they going to invest to increase production. If grey market dealers globally dump their stocks into the market, more people can own a piece at lower prices.

Why would ROLEX increase production to maintain availability? If trays are fully stocked at ADs like in the 90s and 2000s, then people will be less inclined to buy. ADs will have to discount heavily and stock will not be moving. And it becomes difficult to repay that huge investment to increase production.

TLDR: Rolex is playing the artificial scarcity game

Try to read instead of sitting in your corner feeling grumpy about not getting the toys you want.... 

There is no artificial scarcity game. The lessons ROLEX learned from the past is shaping it's future, from a tool watch to a luxury tool watch. It simply makes no business sense to invest heavily in facilities to ramp up production when the end result could be counter productive.

[G.MAC]

The situation is what it is today because of increased demand. Rolex did not reduce its supply over the years nor are they going to invest to increase production. If grey market dealers globally dump their stocks into the market, more people can own a piece at lower prices.

Why would ROLEX increase production to maintain availability? If trays are fully stocked at ADs like in the 90s and 2000s, then people will be less inclined to buy. ADs will have to discount heavily and stock will not be moving. And it becomes difficult to repay that huge investment to increase production.

Yup. That's what i mean. Supply has remained over the years. Demand has increased exponentially leading to the current situation. Grey market dealers are snapping up the sports models when available. If there is indeed a shortage, the numbers in the market for desirable models should reduce. Instead you see grey market dealers globally having excess stock of desirable pieces. This is not limited to Rolex. It affects any brand with desirable models.

[Gentlemen101]

Typical hardworking joe can no longer afford any Rolex as its only available at grey nearing doubled pricing ..

Rolex is for vip only ...

[dpkong]

The situation is what it is today because of increased demand. Rolex did not reduce its supply over the years nor are they going to invest to increase production. If grey market dealers globally dump their stocks into the market, more people can own a piece at lower prices.

Why would ROLEX increase production to maintain availability? If trays are fully stocked at ADs like in the 90s and 2000s, then people will be less inclined to buy. ADs will have to discount heavily and stock will not be moving. And it becomes difficult to repay that huge investment to increase production.

Yup. That's what i mean. Supply has remained over the years. Demand has increased exponentially leading to the current situation. Grey market dealers are snapping up the sports models when available. If there is indeed a shortage, the numbers in the market for desirable models should reduce. Instead you see grey market dealers globally having excess stock of desirable pieces. This is not limited to Rolex. It affects any brand with desirable models.

Exactly! My post was in agreement that ROLEX has no good reason to increase capacity. PP and AP are also similarly in no rush to increase capacity. The real reason for the shortage is that "runner" who gets the stock from ADs and supplies them to grey dealers.

Typical hardworking joe can no longer afford any Rolex as its only available at grey nearing doubled pricing ..

Rolex is for vip only ...

Not true. You can get any ROLEX from ADs display cases when you visit them but there may not be a lot of choice. Only the "hot models" have premium pricing at grey dealers. Almost everyone walking into a ROLEX AD is targeting the sports model and that's what drives up perceived demand.

[IamJacky]

Typical hardworking joe can no longer afford any Rolex as its only available at grey nearing doubled pricing ..

Rolex is for vip only ...

As bitter as it may feel, the true value of some of these popular SS models are indeed reflected and determined on the average transaction prices in the grey. The MSRP really doesn't mean anything when one simply has zero chance in getting it. This is the result of the huge demand for these popular models.

Do I think a steel Daytona is worth RM100K? No. But there are hundreds out there across the globe who are willing to pay that price because that's how badly they want the watch. And as long as there're people who are willing to pay at that price, then that's the true price of these steel Daytonas.

Very few VIP or VVIPs may be able to get the Pepsi, Batman, Cermit, Daytonas at MSRP, but is that truly MSRP? How many more other PM and TT pieces did they have to spend in order to push their rank up that high in the AD?