Rolex buying back inventory from AD to stop discounts

[d4m.test]

http://www.luxist.com/2009/06/16/rolex-buys-rolex-watches-to-prevent-price-drops/

My questions are these.
1. Are they planning to hold them as the article claims and then ship them back out to the AD's when things improve in 2-3 years?
2. If they are going to reship them, are they being serviced prior to being sent out again?
3. Are we going to see Z and W series watches showing up again in 3 years as new?
4. Are they going to disassemble the watches being returned and scrap the cases? Then recycle the movements, dials and bracelets?


Watch sales are down, way down in some places, and the only option for many dealers is to provide deep discounts to move inventory. This creates price drops that many watch brands are less than thrilled with. Some brands are taking an active approach to protect brand pricing. Rolex is personally purchasing back inventory from dealers who are having trouble selling Rolex watches. Buying back the watches gives some money back to the retailers to help them during hard times, and allows Rolex to be confident that less deep discounting is occurring in the market. Rolex is of the most protective brands when it comes to pricing and image. They have an almost legendary reputation for not giving significant discounts. This is not a fact that they wish to change right now when keeping the integrity of a brand's pricing system solid is an important endeavor.

It is no secret that Rolex is a cash rich company. It is not likely a huge impact for them to be buying back inventory which will likely be warehoused until future times when things are better for the luxury watch market. I would go so far as to say that it is probably in Rolex's best interest to dismantle and recycle unsold watches than to release them at below market rates (that they set). Further, you might be wondering why dealers are all selling back to Rolex in the first place rather than discounting and potentially getting more money. This would likely conflict with their authorized dealer contracts with Rolex. Plus, Rolex likely has a redemption right - that allows it to buy back stock under certain circumstances. For you, this means less chance that your dream Rolex watch is going to be discounted any time soon. Pictured is a 2009 Rolex Datejust watch with Arabic numerals.

 

[R2D4]

That's one way to look at it. Likely, these are dealers in smaller markets that had less than stellar sales to begin with. I would think these watches will go to other dealers who can bring in better volume. So to paint a picture of Rolex helping the dealer is another way of saying, we will contact you at a later date to see how your sales numbers are and you can re-apply to be a dealer at that time. That's just my humble opinion on it anyway.

 

[jack_bauer]

More of a reason to buy more reps!

 

[MEYER8888]

the crise since to touch the world of watchmaking too; Franck muller for exemple have 550 employees last year, it would still more than 200 this year. That not a good news for rep world too, because if the Brands doesn t make fantastic benefice like before, the repression against the contrefaict goods will be very hard

 

[guru]

the answer is easy, in bad times it is better to look for profit then for revenue, we are doing the same in the computer sales. As you may know, I work for big blue and we are doing the same. The only way to survive.

 

[hk45ca]

this economic downturn isn't even started good yet. if they are going to buy back their product they might as well shut down until times are better. corporate greed knows no boundaries, just ride this horse until it's dead and we will figure out what to do later.

being forced into buying back your products because of buyers not willing to pay your prices does nothing to prop up the remaining stock, if anything it will make it go down. it is common knowledge their are no buyers and luxury item sales are in a free fall. :roll:

 

[d4m.test]

Im really kind of conflicted on the practice...
If the could have done this with no one but the AD's ever knowing about it then it might have worked for their purposes. The AD would be happy because they are not sitting on hundreds of thousands of dollars of inventory that isnt turning over.
Rolex is happy in that the AD will no longer need to offer a 25% discount on a price controlled item to make sales. Any informed buyer knows they are doing this and now expects it, which drives the VALUE of the watch down, which drives the value of the NAME down.
I think in the long run it is a lose/lose situation. I understand the desire to instantly make things better... but I dont think it is going to have the desired effect.

 

[guru]

Rolex does not have a problem with cash, the AD's have the problem, they are not able to pay the bills. So they offer the watches with a disount to be able to pay the bills. The watches are loosing the value. Rolex is going to protect it by buying them back to keep the value and protect their AD's...I think this is very smart

 

[LegendofSpeed]

This sucks for the AD's... think about it... they have had the stock on hand and have had to finance it (at least partially)... now, say their cost is 60% of retail... and they can move product at 25% off... that's at least 15% to recoup their financing costs, overhead, and make a meager profit... really, it would allow them to basically break even...

If the cost is closer to 50%, which is what I would believe, then they could make a small profit...

By selling back the stock to Rolex, they lose out on any financing costs they have had to outlay and any potential profits, not to mention the overhead money they could generate...

I am thinking about the $500-600k in construction materials in my warehouse right now... if the distributors were to buy it back, I would have to have at least 10 points on top for it to make sense.... hope the AD contracts have some type of provision in it for points on top...

 

[hk45ca]

Rolex does not have a problem with cash, the AD's have the problem, they are not able to pay the bills. So they offer the watches with a disount to be able to pay the bills. The watches are loosing the value. Rolex is going to protect it by buying them back to keep the value and protect their AD's...I think this is very smart

nobody in their right mind will pay retail now knowing rolex is buying back stock. they killed that deal when it became public.

 

[d4m.test]

Rolex does not have a problem with cash, the AD's have the problem, they are not able to pay the bills. So they offer the watches with a disount to be able to pay the bills. The watches are loosing the value. Rolex is going to protect it by buying them back to keep the value and protect their AD's...I think this is very smart

nobody in their right mind will pay retail now knowing rolex is buying back stock. they killed that deal when it became public.

DING DING DING... that is exactly my point. AND I just spoke with a close friend who works at an AD. This is FACT. The first shipment of Rolex watches was sent back to New York three weeks ago. Rolex is buying them back at 5% over cost.

From what I was just told, the AD's are not pleased... but are doing it as a way to pay down the inventory held of other watches from brands that are not offering this option. TO further make the issue difficult, Rolex is not allowing these dealers who exercise this priviledge to special order watches for their customers. They were told to contact other AD in the area and either search for the watch and make arrangements to send the buyer to them.

THAT is absolutely STUPID. What AD in their right mind is going to say, "Sorry, I dont have the watch that you want... I cant get it... But Ben Bridge in the mall has one that they will sell you for 25% off!" That is a customer LOST FOREVER.

 

[hk45ca]

yep, if they are sending back to rolex at 5% over cost they will be better off to sell it to me for 6% over cost. i am the same as them, it's all business to me too.

people aren't stupid, nobody will ever pay retail for a car again either, i don't care how much they try to manipulate the market.

another thing i don't buy is that rolex is a cash rich company. there is not one thing available to the public to substantiate that claim. the us banking industry tried selling that story to us also. i call bullshit on that one.

 

[fakemaster]

The dealers don't have to sell their stock back. I'm sure they can keep it if they want. Rolex may take them apart, leave them in a drawer. Who knows. They've got so little in them to begin with it doesn't really matter what they do.

 

[coling]

They've got so little in them to begin with it doesn't really matter what they do.

I would be interested to know aprox how much starts in a gen rolex deal?

 

[kimdeal]

another thing i don't buy is that rolex is a cash rich company. there is not one thing available to the public to substantiate that claim. the us banking industry tried selling that story to us also. i call bullshit on that one.

There has been a lot of speculation that Rolex had money involved in the Madoff scam, and that the Rolex CEO 'retired' shortly after the Madoff scam fell apart. I suppose with Rolex's sky-high profit margins that they have plenty of cash leftover, but who knows.

 

[d4m.test]

I have been part of the discussion on TRF about the Madoff scandal and the basic feeling is that Rolex would have never invested in such a way. They may very well have had executives that did, but it would have been with their own personal money.
There is a near complete copy of the Madoff list of customers available online, and there were no recognizable Rolex references. I have the list if anyone is interested in it and dont feel like searching for it. Its something like 300 pages long.
There has also been no mention of this "buyback" being required. It is a matter of the AD requesting to sell stock back, and being allowed to do it.
Its also rather common knowledge that the markup for the dealers is 100%. Meaning a $6000 watch cost them $3000. That is how they are able to sell them out the back door to gray market dealers for 40% off retail and still come out even.

 

[ABC123]

Sounds like Rolex has a lot of money to play with. I'm surprised at this, usually luxury product company are always tight for cash since they can't sell in volume.