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Luxury Trendsetters: Rolex

Luxury Trendsetters: Rolex
August 24, 2022
Bradley Calleja

The History of Rolex

With a history that traverses more than a century, no watch brand is more recognizable than Rolex. Like the brand Sharpie to the permanent market industry, or Kleenex to the tissue sector, the name Rolex is synonymous with the world's most respected watches. Founded in 1905 by Hans Wilsdorf and Alfred Davis in London, England, the brand transitioned to Rolex three years later. Wilsdorf would later take full command of the company and moved their production to Switzerland in 1920 under the formal name of Montres Rolex SA.

How did Rolex Revolutionize the Watch Industry?

Although they were developed in the 17th century, by the turn of the 20th century, watches had not developed far beyond their original spring-powered structure. The 1900s would forever change the watch world though as innovative brands emerged within an increasingly competitive market and no brand found as much success in marketing than Rolex. When Mercedes Gleitze swam across the English Channel in 1927, becoming the first women to complete the impressive feat, she was wearing a Rolex-produced Oyster case around her neck. The demonstration showed the watch's ability to be submerged for extended periods of time and Gleitze became the first brand-ambassador for Rolex SA.

In 1931, Rolex issued a patented for an innovative self-winding mechanism known as a Perpetual rotor. Today, there is legend and lore around the rotor, which is inexcusable to anyone without a set of Rolex-certified tools. The self-winding mechanics, which are influenced by movement from the wearer, provided a level of precise timing and performance that had never been achieved before by other leading watchmakers.

Is a Rolex a Good Investment?

For a simple question, the answer is much more nuanced. First and foremost, it is important to note that Rolex is a private company and has been historically tight-lipped regarding their volume and sales output. This is the primary reason for the amount of estimates provided throughout the analysis.

While the exact number of Rolex watches produced each year is unknown, it is estimated that the company manufactures between 800,000 - 1,000,000 watches annually. While certain models are common and retailers receive dozens each year, other models like the Daytona 116500LN or 116506 Platinum are only sent to select sellers and quantities at each is often maxed around 2-5 watches. There are also Rolex's that are produced in reasonable quantities but have extremely high demands that outpace the amount available. Models like the GMT-Master or standard stainless steel Submariner often have waiting lists that start months, if not years, in advance and while a retailer might receive 20-30 units, we spoke with one high-end seller who said they can be sold out before they ever make it to the store.

This Econ 101 example of supply not meeting demand plays a major factor in the valuation and appreciation of Rolex watches. When you purchase most standard cars, depreciation begins the moment you drive off the lot. In fact, the average car loses 20% -30% of its value by the end of the first year. With a Rolex though, one study found that the average Daytona priced between $10,000 - $20,000 increases in valuation by at least 12% within the first year. With all that said, returns vary greatly depending on the model of watch. Across the last twelve months, Day-Date Rolex models have increased in valuation by an average of 21.3% compared to Submariners which have gained 3.9%. The overall Rolex index is up 5.5% which trails other recognized models like Cellini and Daytona which have climbed 9.6% and 18.2% respectively.

How does Rolex Perform during a Recession?

So how has the price of Rolex watches held-up during recent recessions? During both the 2000-2001 market crash and the housing crisis of 2008-2009, the retail value of high-end ($10,000+) Rolex watches remained stable. Between 2008-2012, Rolex actually expanded their production plant and added more than 8.1 million worth of cubic feet as the watchmaker worked to meet demand. Retailers did note a drop in supply between 2006-2008 as exports from Switzerland to the United States dropped a whopping 42.3%.

Analysts estimated that new Rolex sales volume dropped by a lower margin at approximately 33% but the total financial impact was less, as 2008-2009 sales closed at an estimated $3 billion compared to an estimated $3.8 billion in the previous cycle. One of the most important factors to also consider during the 2008-2009 recession was the fact that the MSRP and direct-to-retailer prices for Rolex's never dropped. In 2020, at the height of the Covid-19 pandemic, the market prices for coveted Rolex watches including the Submariner or GMT-Master actually increased. The metrics were staggering as Rolex refreshed their site and raised the price of their GMT-Master II by 11%, from $9,500 to $10,550. Meanwhile, they also increased price of the steel Submariner by 10.5% and the Explorer by 11.6%.

Rolex as an Inflation Hedge

In the fourth quarter of 2021, the Consumer Price Index (CPI) climbed above 7% for the first time in the 21st century. At that same time, leading online Rolex retailers like Chrono24 experienced significant transaction volume and a booming secondary market. Between October through December, Chrono24 announced a 40% increase in secondary market activity for the brand while the average price on retail markets increased by 6.4% during the quarter. In a continuation of the 'blue-chip' theme mention previously, the average secondary market price for the Rolex Daytona outperformed with an 8.9% ROI for the quarter. Inflation has remained above 7.5% throughout 2022 and in the first quarter of 2022, Rolex experienced a massive surge in valuations. Between January - April, the average retail price for a new Rolex increased by nearly 20% while the pre-owned market climbed by more than 16%. Over the past two quarters, Rolex prices have dipped as the market is now experiencing a pullback. The overall market index has tumbled -12.3% over the past six months and although it has stabilized momentarily in August, there is still concern based on transaction volume that prices will continue to slip another 5-10% before next year. To date, the price of a high-end Rolex has still significantly outpaced inflation rates but with additional markets like the S&P and crypto feeling pressure, it is important not to categorize Rolex as an uncorrelated asset until more market data is available.

Rolex Investment Risks

As with any investment vehicle there are risks and Rolex is no exception. One of the primary risks involved with the Rolex market, aside from macroeconomic factors and the general turbulence of alternative assets, is the mystery that surrounds the company. Rolex is actually registered as a non-profit as the company is owned by the Hans Wilsdorf Foundation. This private family trust has kept the details surrounding the company's financials and production a secret and important factors such as volume are unknown by the general public. Until 2015, the market was aware of how many Rolex watches were produced thanks to the Contrôle Officiel Suisse des Chronomètres, the Official Swiss Chronometer Testing Institut or COSC. The COSC was once required to publish the exact number of watches they certified and all Rolex watches were required to complete the certification process. In 2015, the COSC certified 795,716 Rolex watches, the highest number ever recorded. Today, the organization is no longer required to publish certification figures which has left the overall market to estimate output.

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