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Business News/ Opinion / Views/  Rolex’s direct retail stake may shake up a big seller’s market
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Rolex’s direct retail stake may shake up a big seller’s market

Profits depend on timepiece allocation by this sought-after brand

Rolex has largely eschewed the dominant strategy in the luxury industry — pushing out the middleman and selling direct to consumers—by choosing to distribute watches through partners like Bucherer and WoS.Premium
Rolex has largely eschewed the dominant strategy in the luxury industry — pushing out the middleman and selling direct to consumers—by choosing to distribute watches through partners like Bucherer and WoS.

You can’t buy shares in Rolex SA. It’s a privately held firm. The closest investors can get is probably Britain’s Watches of Switzerland Group, which generates about half its sales from Rolex timepieces. In effect, WoS is a listed proxy for Rolex. But that status is under threat after Rolex said it would acquire Bucherer, a Swiss retailer of watches and jewellery. WoS now faces a powerful rival, whose owner is its biggest supplier. Despite the slowdown in US luxury demand, there is no shortage of Rolex buyers in retail markets. The tricky thing is getting enough stock of sought-after models. If that is jeopardized, WoS will see sales come under pressure.

To recap: On 24 August, Rolex, which is owned by a Geneva-based foundation, said it had decided to acquire Bucherer, which operates 100 stores worldwide, of which 53 distribute Rolex watches and 48 sister brand Tudor. It looks opportunistic—and defensive. It comes after Jörg Bucherer, the 87-year-old Swiss billionaire behind the boutique, decided, having no direct descendants, to put the business up for sale. Rolex said that the acquisition reflected a desire to “preserve the close partnership ties that have linked both companies since 1924." It added that Jörg Bucherer was the last person still active in the industry to have known and worked with Rolex founder Hans Wilsdorf.

The purchase probably delivers a better outcome for Rolex than seeing Bucherer fall into the hands of a private equity group or Bernard Arnault’s Louis Vuitton Moet Hennessy (LVMH). Competition concerns look unlikely. The watch retail market is fragmented and luxury timepieces are not really essential items. Rolex said the deal was the “best solution not only for its own brands but also for all the watch and jewellery partner brands."

But the significance of this transaction—for which no financial details were disclosed—can’t be overstated. Rolex in effect selling direct to consumers for the first time is a seismic shift.

Jean-Philippe Bertschy, an analyst at Vontobel Wealth Management, estimates that Rolex will generate annual sales of over 10 billion Swiss Francs ($11.3 billion) this year; Bucherer will contribute annual sales approaching 2 billion Swiss Francs. Based on Bloomberg data, Rolex’s sales would be close to those of Hermes International. They would also be ahead of Kering SA’s Gucci and LVMH’s Dior.

Yet, Rolex has largely eschewed the dominant strategy in the luxury industry — pushing out the middleman and selling direct to consumers—by choosing instead to distribute watches through partners like Bucherer and WoS. Up until now, the only store it has owned and operated is its Geneva boutique.

Rolex said Bucherer would be run as an independent business, and there would be no change in its retail partnerships. WoS said it had confirmed that there would be no alterations in stock allocations. In the short term, that is likely correct. You can’t buy very many new Rolexes in stores right now anyway—most are on wait lists. But over time, Rolex may favour its subsidiary over other retailers when determining who gets the estimated 1.2 million units it produces every year.

If Bucherer becomes known as the go-to destination for Rolex, it could limit traffic to WoS stores. If fewer customers come looking for a Rolex, there is less opportunity to sell them Omega or Cartier instead. WoS’s home market of the UK, where it generates about 50% of its sales, looks the most insulated. But WoS wants to expand in the US and Europe. In America, the two are pretty close, but Bucherer is much more dominant in Europe. As the UK retailer seeks to grow, it faces a rival with the backing of a muscular parent. Given these risks, the 15% fall in WoS shares since the deal was announced looks justified.

There are some mitigating factors. For example, if Rolex were to follow rivals Audemars Piguet and Patek Philippe and restrict supply to third-party retailers, it’s the independent dealers, rather than long-standing partners such as WoS, that look most vulnerable. An acquisition of WoS by Rolex or another brand, in order to tighten its grip on distribution and control its image, can’t be ruled out in the long-term. But this looks far-fetched. Both Swatch Group and Cie Financiere Richemont already own and operate their own stores, while Rolex said it had no plans to acquire other retailers. WoS may also be able to acquire any parts of Bucherer that Rolex decided to sell.

Either way, Rolex’s Bucherer deal has cleaved apart the proxy relationship between WoS and Rolex that was a crucial element of the investment case in the former. That has serious implications for the valuation of what has been a British retail champion. ©bloomberg

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Published: 05 Sep 2023, 09:09 PM IST
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