CORDER’S COLUMN: Why Rolex prices will keep falling

I am back gazing into my crystal ball and, whichever way I look at the fledgling Rolex Certified Pre-Owned programme, I only see it bringing the cost of the brand’s second hand watches down to below retail prices.

It may take several years for Rolex authorised dealers to ramp up their capacity to service, refurbish, photograph and authenticate watches to the same exacting standards that the Swiss principal requires but, once there, everything will change.

Here’s why.

First, consider the unwavering support Rolex has for its global network of retail partners.

It does not sell direct to consumers and its entire digital presence across the web and social media is designed to do just two things: maintain the peerless status of the brand and direct customers towards its authorised dealers’ showrooms.

What is good for its dealers is good for Rolex, and vice-versa.

Rolex will allow its authorised dealers to rig the game in their favour
so that turnover and profits rise overall across new and used
watches even as pre-owned prices fall

Secondly, remind yourself what every single successful retailer on this planet has mastered: buy low, sell high.

This takes many forms: from the masterful cost control and mass marketeering of supermarkets that makes them billions from razor thin margins, to the ultra luxury space where customer relationship management, brand elevation, location and exquisite in-store experience combine to generate irrational desire and hefty profits for items that no consumer actually needs.

Let’s apply these two thoughts to the Rolex CPO programme and the first conclusion is that it has been designed to benefit both Rolex and its authorised dealers.

This will not be easy in pre-owned because it is a business that has proved to be incredibly difficult to make money in unless it is caught in the hysteria of the 2020-22 period.

For evidence, just look at the insolvency of Watchmaster and staff lay-offs at the likes of Chronext and Chrono24.

If these expert businesses with years’ of experience find it tough, what chance the privileged network of Rolex ADs which are hardly used to the sort of industrialisation and speed required to keep servicing and refurbishment costs to a minimum while maintaining the highest possible standards required by Rolex?

This leads to my second conclusion, which is that Rolex will allow its authorised dealers to rig the game in their favour so that turnover and profits rise overall across new and used watches even as pre-owned prices fall.

Here is how that might play out.

A customer, any old customer, not necessarily a super loyal client with a long-standing relationship (AKA massive spending history), walks into their local authorised dealer.

They want to buy a Rolex GMT Master II with a Pepsi bezel, one of the most desirable watches in the catalogue. It is available new for £9,150 but with long waiting lists driving up prices today on the secondary market to around £14,250 — a profit of over £5,000 for any flipper.

In any normal circumstances, a new customer would have zero chance of buying that GMT, or even getting onto a waiting list.

But wait! The customer also has a Submariner to trade-in, the post-2020 version with a green Cerachrome bezel and black dial that some people have renamed from the Hulk to the Starbucks configuration.

Unworn with box and papers, these are changing hands for around £12,500 right now, but have a retail price of £9,100.

A punter trying to sell this Hulk to a pre-owned specialist like Watchfinder would be offered £8,000 or less, but what about at an authorised dealer that is part of the Rolex CPO programme?

They might get the same offer, £8,000, to simply part with the watch, but what if a deal could be struck that also included jumping the queue to buy the GMT Pepsi as well?

The punter knows the Pepsi would cost over £14,000 on the secondary market, and also that going grey would not advance relationships with an authorised dealer.

As everybody now knows, advancing these relationships has incredible value, so the customer is highly motivated to see if a deal can be done.

What if the client were to accept only £5,000 for the Hulk, and then was immediately able to buy the Pepsi at its retail price of £9,150?

The authorised dealer makes the usual 33% margin on the Pepsi, but now has a Hulk that can be sold for over £12,000, probably significantly more with the Rolex guarantee and tags.

Even if the servicing and all other costs amount to £2,000, the AD still makes £5,000 on the used Sub in addition to the £3,500 profit from the new Pepsi.

The key is that the client is also happy, having instantly upgraded from the Hulk to the Pepsi after shelling out just £4,150 (the difference between the price of the Pepsi and the trade-in price for the Hulk).

Amazingly, they would then be able to flip the Pepsi for £14,250, buy a brand new Sub and end the day with a mint dive watch and £5,000 profit.

You can play around with the buying and selling price for the Hulk, but the theory still stands.

That is unless prices for second hand watches fall below recommended retail prices, which is likely since pre-owned specialists will have to compete with authorised Rolex dealers to buy watches.

If everything in the Rolex catalogue, right up to (on a desirability scale) the steel Daytona, is selling below retail then the maths don’t work quite as well and authorised dealer margins would be squeezed on the pre-owned part of any deal.

However, by this point it would be virtually impossible for the second hand specialists to compete with authorised Rolex dealers, which would have the advantage of the Rolex guarantee on identical watches with the same price.

If the pre-owned specialists are driven out of the Rolex market (and seasoned veterans believe this will happen) then authorised dealers could then end up with a monopoly over both new and used Rolex watches.

I should say that this analysis under-values an overriding instinct of great retailers, which is to always maintain a loyal and loving customer base.

Rolex partners are preeminent in this regard and will give up margin if that delights their best clients over many decades.

But no retailer ignores mathematics, which I suspect will play out much as I have described.