Tudor about to do a Rolex?

Beautiful Tudor!

I do think that there is a great deal of mis-information, misunderstanding with regard to the different manufacturers' "sales tactics."  

• Manufacturing at scale is incredibly complex and difficult - when you are putting together incredibly high precision machinery, it takes A HELLUVA LOT to ensure high build quality and reliability
• Moreover, you have a 5-year warranty that you must honor above all else!  So, if ANYTHING goes wrong with your little machine with 300 moving parts, you lose a lot of money and goodwill 
• Now, imagine trying to scale up!  There's a ton of increased consumer demand!  Yay!  Double capacity, Jones!  
• But, now, you need to source additional materials, you need your highly trained workers to work evenings and weekends.  You need to purchase tons of new capital equipment.  Maybe you need to open up a new production facility, so go buy some real estate, erect a factory, get all new machinery, get new workers, train them, get new suppliers, qualify all the materials...

Rolex has said over and over and over again that it takes 1 year for any given watch to go through all the manufacturing, performance, and reliability testing, before it can be sold.  I believe it.

Now, if you were an executive at Rolex would you increase supply if you could?  Or, would you purposefully hold back on production, in order to raise prices?

• If you hold back production, grey market prices go through the roof.  Rolex does not capture a single dime of that grey market premium.  Thus, Rolex's revenues don't go up due to constrained supply.  Nor does Rolex's profits.  Which means, as an executive, you don't earn a single dime more.  And, the reason you became an executive at a multi-national company is because you LOVE MONEY.  So, why would you screw yourself out of money?
• If you increase production, revenues go up, earnings go up, you get a huge bonus, and your restricted stock units go up in value (or whatever means Rolex uses to long-term incentivize management, as they're private).  And because you LOVE MONEY, you're happy

Yet, supply hasn't increased to match demand.  Well, a) in a high precision manufacturing environment, increasing supply by as much as even 5% a year is well-nigh impossible, if you want to maintain quality and reliability, and b) market demand has been increasing something like 40%+ per year, and c) COVID has really put a damper on manufacturing and supply chains

So, no, Rolex is not constraining supply on purpose.  I trust that their executives are as greedy as executives everywhere the world over, and if they could increase production to meet demand, they would.

By the inexorable logic of supply and demand, supply shocks and demand shocks are always and forever temporary.  As such, as COVID (supply shock) and the Instagram Effect (demand shock) moderate, prices and waiting lists for Rolexes and Tudors will die down.

 I think that you raised a good point about warranties and skilled workers as well as the increased demand. But I don't think Tudor will go down Rolex's route because Tudor has a difference audience. If you have a budget for Rolex I feel that you would either look to pay more, as Rolex's brand is so strong and recognisable brand and as you say people want that for their Instagram etc. But as you say I feel the demand for mechanical watches is at a high. 

However, I would argue that ADs have too much power and having to buy a certain number of watches before you can get such models, to me doesn't sit right. I am aware that car manufacturers do the same so it isn't limited to ADs. 

How long do you see the Rolex bubble lasting for?

I absolutely agree with @Omeganut, he completely nailed it.

Many parts are hand made in their 3 plants. If they want to double there amount of watches, they have to built 3 new plants and hire almost the double of amount of watch makers and other specialists. This is impossible w/o a lost of quality and knowledge. Omega produces around 500k watches a year, Rolex 1 mio. It's the demand that is that high, not the production number is low.

But if you mean with sales strategy: keeping quality high while the world out there is trying to seduce you to earn more money in cost of quality; then I hope Tudor is doing the same!

I hope Tudor doesn't go down the same path!  

With regard to AD bargaining power:

• My AD was telling me how back in 2016, his Rolexes would just sit in the display cases.  He had an AP Royal Oak, and he was having trouble selling it for $12k
• AD's only have "extra" bargaining power when the MSRP does not match the real market price.  So, the real market price for a Daytona is, say, $40k.  The AD is only allowed to sell it for $14,550, otherwise Rolex corporate will take away their dealership rights.  So, the AD can now extract greater "surplus" from the consumer via non-pecuniary means - waitlists, making you come by every month to show your interest, having you provide them with home-cured prosciutto every week (no joke, this was a thread on r/watches on Reddit), etc., etc.
• It's the same with the job market.  My experience has been that every job I've ever had where I've been under-paid, I've been treated like royalty.  My bosses know they're not paying me enough, so they treat me extra nice.  That's non-pecuniary compensation.  On the flip side of the coin, when I've been paid a lot of money, they all treat me like S&%#!  
• The Porsche 911 GT3 has an MSRP of $161,100.  You have to have bought something like 10 other Porsches from a dealership in order to finally "get the call" for your GT3.  Why?  Because the real market price of the GT3 is ~$300k?  $350k?  So, the Porsche dealer will extract its surplus in non-pecuniary compensation

If we were all robots, manufacturers would simply auction all their products, and supply and demand would always equilibrate, and nobody would ever have to play these stupid, inefficient, non-pecuniary games.  I wish we were all robots.

Finally, I don't believe in the traditional concept of "bubbles."  I know, I know, I know...  heresy.  Here's the best, most rational explanation I've ever come across with regard to what people typically call "bubbles":

https://johnhcochrane.blogspot.com/2017/11/bitcoin-and-bubbles.html

https://johnhcochrane.blogspot.com/2020/02/tesla-bubble.html

Anyway, I think the overall gist of the question is:  "When do you think Rolex prices will come down?"  In which case, I would say, "I have no ability whatsoever to predict market pricing, otherwise I would be the richest man on earth, because then I would buy and sell stocks all day long, making millions on every transaction."

Regardless, on the supply side, vaccines seem to be working, Omicron has a very low infection fatality rate, so manufacturing and supply chains should get back on track.  Beyond that, there are perfectly decent substitutes for Rolexes, and you see that in the fact that so many other luxury watch brands' sales and production numbers have skyrocketed, as well as the emergence of lots of hot micro-brands.  Given all that, supply of Rolexes and Rolex-substitutes will be continuing to grow over the coming years.

On the demand side, who knows?  But, at some point, people get sick of Instagram flexing using wrist shots, and maybe we all start doing a$$ shots or something, and suddenly jeans will be the hype thing?

I can't imagine Tudor going the Rolex route. I really can't. I agree with Omeganut as well.

What my favorite watch professional (the rare veteran sales person who never upsells) keeps saying to me is that the Rolex line, a few Omegas, and some Pateks are impossible to get and sell, while the rest of his product line - Hamilton, Tag, Tissot, Breitling, etc. - just sits there. The phone rings constantly with people all looking for the same stuff, and it's all the best stuff.

All I can say is save your cash, get what you want, and never pay a penny more than list. Don't play the "limited quantities" game when there are so many worthy alternatives out there.

A$$ shots, that's where the market is heading and I'm here for it 😂! 
Also the home cured prosciutto is incredible, I will have to try that at my local Rolex AD 😉

I like this thread an appreciate it as it has shown me a different view to it. I always thought they asked you to buy multiple as they want reoccurring customers and to extend business from people rather than the one and done customers. 

Thanks for the super thorough analysis @Omeganut...I love that macro-analysis of the watch world.  All points are valid.

I hope they don't. The have some incredible watches and the reason for their creation, being a more affordable alternative, should hopefully steer the brand away from that. 
 

I find it amazing now that the hype culture of clothing and shoes has come so much into watches. But I also find that there is brand snobbery in the watch community Additionally the brand recognition of Rolex in pop culture is amazing! Hence a lot of demand for them  

@Omeganut has the best sense of it.  When demand outstrips supply most producers will increase capacity. In a niche business with fluctuating demand cycles Rolex may not want to ramp up production.  It would be worse to have excess capacity if demand cools.  Missing profits in the now is better than actual losses in the future.

Great point!  Check this out if you haven't already seen it:

https://www.ablogtowatch.com/patek-philippe-was-right-to-discontinue-the-nautilus-5711-watch/

Patek can do this, because they're family-owned, family-run.  In which case, Thierry Stern is probably doing this for the long-term good of Patek, because he wants to hand off the CEO position to one of his kids one day.  Meanwhile, in any large company that is shareholder owned, as an executive, WTF do I care if the company is around 5 years from now?  Just let me cash in on the hype now, so that I get that massive year end bonus, and if the company dies, I'll just move on to the next job!

But, I suppose the flip side of the coin is that the worst jobs I've ever had in my life, with the most toxic environments, were ones in which the CEOs had controlling equity stakes / voting rights.  Like, these places made the antics in "Succession" look reasonable!

Funny how this works. I've never paid any attention to a Rolex advertisement. I like the watches because the quality is fantastic - I don't care if anyone ever looks at my wrist. I'm not making some sort of bold statement. I like watches, and I don't need to be "recognized." 😉

I think Tudor is executing the Rolex strategy - albeit to a lesser degree. It's not easy finding a popular model - i.e. a Black Bay Chrono - in the case.

Outside of the watch community Tudor is more or less an unknown brand compared to Rolex. Therefore Tudor isn't even close to generating a similar demand. 

Best way for it. Do what makes you happy and have your own style. Don't let others dictate you. 

That's a fair point. That watch is very hard to get hold of. But I was learning about the movement of that watch and in the Tudor it offers some great value compared to the price of other watches such as Breitling.

I wouldn't say unknown. I was driving last year and on the radio they were discussing Tudor watches. I also feel as the demand for watches grows especially Rolex, more people will come across Tudor due to the affiliation. But I agree in terms of brand recognition and identity. There isn't many if any more well known watch brands than Rolex. 

I didn't mean completely unknown, just an entirely different category than Rolex. If I asked my son, my boss, or my neighbor about Tudor, they would have no clue. Without that recognition Rolex watches would have never become the status symbol and investment objects that they are. And Rolex has created and maintained that image for a very long time.

From a brand recognition perspective Rolex is a unicorn in the world of luxury watches, and without it you cannot build that huge of a demand, aside from the fact that Tudor may also suffer from a "lesser Rolex" image.

Yeah I agree a total different class when it comes to identity. But I suppose if we look at things now. Supposedly 6 month waiting list for the Royal. The Black Bay Chrono I believe has a waiting list. There is demand within this community at least. Even if you look at the BB Harrods which has done well on the grey market I think Tudor is on the up and the demand is there, obviously not to the level as Rolex for sure. But I wonder if the ADs get more power with certain models? Harrods was a success and we know how crazy the market is for Tiffany items (looking at you Patek). Just interesting to see how these things play out as with all things they come in waves. 

I don't think it is enough to have a couple of good watches or to have a waiting list. (Many microbrands have one.) You need a waiting list at an elevated price. Yet I can still pick up Tudor models other than the most sought after on grey market discount sites. The brand as a whole is not there. Keep in mind that companies like Omega are unable to pull it off.

I think that is fair and you make a good point about brands struggling to get the hype they want. 

I am interested to see what happens next and which watches will be the next big thing. 

Brilliant

Hey sweet Royal! I'm looking to get the silver dial diamond day date because I like the less busier dial. I was just wonder is the bezel removable or is actually just part of the case. If it is I was thinking of designing another bezel with my partner's cousin to make a tasteful diamond bezel, I don't want to have it drilled and ruined naturally. 

Here is a picture of it side on. Looking at it I would say it could be removed but obviously don't just take my word it speak with your AD and there in house watch professional. 

That idea sounds pretty cool and far above my skills as a man who modded a Seiko once 😅 But if you do manage to make it please let me see! I don't think it will look pretty cool.