Rolex and Patek moving to PM models and abandoning SS

[ROLEX*]

Originally Posted by thesharkfactor

Worthless. Try sell a 150g lump of 904L steel and see what sort of bid you get for it.

Exactly. Hence why I said SS model has higher profit margin than PM, why is it the other way round?

[jb335]

I love gold so I am not mad at this move.
At all


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[dnd2984]

We are going to see ADs holding more SS pieces for folks who buy gold pieces. Rolex has been trying to go after Patek for sometime now. The person that gets a SS piece from Patek is the same person that has bought multiple gold pieces. SS will always be the ultimate collectables. For now SS isn't that hard to get from Rolex (some models). I do see this changing in 3 to 5 years.

[OTX]

If I’m not mistaken, Rolex marks up the price of the gold content by 3 so there is definitely more profit in gold and platinum watches. Take for example, the Sub. Rolex sells the steel sub for $10250. They sell the 2 tone Sub for about $5500 more and if I had to guess there is about $1800 worth of gold in it. So for a 2 tone Sub, Rolex makes an extra $3700 profit per watch. 2 tones and solid gold and platinum watches is where the big profit is. They have to balance it just right as they will lose a lot of customers if they go too much the PM way.

[alphadweller]

Originally Posted by OTX

If I’m not mistaken, Rolex marks up the price of the gold content by 3 so there is definitely more profit in gold and platinum watches. Take for example, the Sub. Rolex sells the steel sub for $10250. They sell the 2 tone Sub for about $5500 more and if I had to guess there is about $1800 worth of gold in it. So for a 2 tone Sub, Rolex makes an extra $3700 profit per watch. 2 tones and solid gold and platinum watches is where the big profit is. They have to balance it just right as they will lose a lot of customers if they go too much the PM way.

This ^
Rolex make more money per gold watch sold than they do with steel. So theoretically, the more gold watches they sell, the more profitable. That's as long as they find buyers for these gold watches. How many people are prepared to drop :$40k or more on a watch, compared to $10k? Rolex must get the mix right to optimise profit. Maybe they saw a surge in demand for gold watches in some markets? Only they know.

[thesharkfactor]

Originally Posted by OTX

If I’m not mistaken, Rolex marks up the price of the gold content by 3 so there is definitely more profit in gold and platinum watches. Take for example, the Sub. Rolex sells the steel sub for $10250. They sell the 2 tone Sub for about $5500 more and if I had to guess there is about $1800 worth of gold in it. So for a 2 tone Sub, Rolex makes an extra $3700 profit per watch. 2 tones and solid gold and platinum watches is where the big profit is. They have to balance it just right as they will lose a lot of customers if they go too much the PM way.

I'm not sure; if they have a SS watch costing $800 to make they can sell for $10k, they make over 9x thier money back.

If they make a PM watch costing $8000, they sell for $40k, that is 5x thier money back.

Bigger profit % in SS, and they are easier to sell, they would outsell PM and TT by at least 10x if they were only available to walk in...

Confusing..

[aa_watch]

Originally Posted by JRell

They make more $ on PM. It is that simple.

Absolutely. Few years ago they would discount them or they wouldn't sell

[worldofoyster]

they can't even fulfill the current ss waitlist, so PM it is

[OTX]

Originally Posted by thesharkfactor

I'm not sure; if they have a SS watch costing $800 to make they can sell for $10k, they make over 9x thier money back.

If they make a PM watch costing $8000, they sell for $40k, that is 5x thier money back.

Bigger profit % in SS, and they are easier to sell, they would outsell PM and TT by at least 10x if they were only available to walk in...

Confusing..

It’s not about the percentage of profit they make on the watch. It’s profit per watch sold. Im guessing the process of making the watch is not that much different whether it’s made of gold or steel.

So basically, if Rolex made 2 Subs, 1 steel and 1 gold, both would take about the same time to make and on the steel assuming it costs $800, they would make a profit of $9450. On the 2 tone Sub, they are making $13000 profit on it so it would make sense for Rolex to push more PM pieces.

I also think it’s also an image issue. Sure they can sell more steel pieces and make more money but I think Rolex is aiming for a richer consumer and trying to move upmarket. Who knows!

[thesharkfactor]

I don’t have a calculator to hand, but they could make 10x £800 watches for the price of one £8000 watch and make 9x their money, than one watch at £8000 and 5x their money back.
But true; they need to manufacture 10x more watches, but did we not account that in the cost of each watch already?

I’m too confused and tired to try work this conundrum out.

They just don’t want to sell steel.

Originally Posted by OTX

It’s not about the percentage of profit they make on the watch. It’s profit per watch sold.

I disagree, it’s about making as much money as possible while spending the least to get there.


A manufacturing spend of 8000 could be either;
10 steel watches cost 8000, sell for 100,000 = 92000 profit,
1 gold watch cost 8000 sell for 40000 = 32000 profit.

Bigger profit in steel? Almost 3 times in fact!



Side swerve; which is worse impact for the environment? Extraction of gold or the extraction of the materials needed to make steel?
Steel I suspect as that is multiple materials being mined?

[OTX]

Originally Posted by thesharkfactor

I don’t have a calculator to hand, but they could make 10x £800 watches for the price of one £8000 watch and make 9x their money, than one watch at £8000 and 5x their money back.
But true; they need to manufacture 10x more watches, but did we not account that in the cost of each watch already?

I’m too confused and tired to try work this conundrum out.

They just don’t want to sell steel.




I disagree, it’s about making as much money as possible while spending the least to get there.


A manufacturing spend of 8000 could be either;
10 steel watches cost 8000, sell for 100,000 = 92000 profit,
1 gold watch cost 8000 sell for 40000 = 32000 profit.

Bigger profit in steel? Almost 3 times in fact!



Side swerve; which is worse impact for the environment? Extraction of gold or the extraction of the materials needed to make steel?
Steel I suspect as that is multiple materials being mined?

True but making 10 steel watches takes 10 times as much time as making one gold watch so for the time spent manufacturing, PM makes more profit. According to your example, by selling one gold watch, they would make 1/3 of the profit in 1/10th of the time. PM is more profitable!. I do believe though like you said they will be making less steel watches and making it harder to get. People, hold on to your sports steel watches!!!

[thesharkfactor]

Originally Posted by OTX

True but making 10 steel watches takes 10 times as much time as making one gold watch so for the time spent manufacturing, PM makes more profit. According to your example, they would make 1/3 of the profit in 1/10th of the time. PM is more profitable!. I do believe though like you said they will be making less steel watches and making it harder to get. People, hold on to your sports steel watches!!!

Time is money.. it’s relative. So if it costs £8000 to make 10x steel watches, that’s what it costs. What they spend less on materials, they spend on time making them. The more they spend on precious metal content of a watch they save on time making PM watches because they make less of them. Relative.

[OTX]

Originally Posted by thesharkfactor

Time is money.. it’s relative. So if it costs £8000 to make 10x steel watches, that’s what it costs. What they spend less on materials, they spend on time. The more they spend on metal they save on time making watches.

I’m confused now :-). Let me go get some coffee.

[thesharkfactor]

Originally Posted by OTX

I’m confused now :-). Let me go get some coffee.

Yep, me too..

[OTX]

Originally Posted by thesharkfactor

Yep, me too..

[thesharkfactor]

Rolex CEO; Guys, we’ve only £8000 left in the company acc, we can either make 10 steel watches and sell them for £100k, or we can make 1 gold watch and sell it for £40k. We need to make as much money as possible.’

What you gonna do?

Easy.. make 10 steel watches and £92k profit.

[anodyne13]

You need to have 10 MORE steel buyers than you have for your math equation. So if Rolex is tightly controlling the supply of steel watches to meet (or be below) demand to keep Steel watch prices up they may not want to make more steel for fear of weakening steel demand/price overall.

[thesharkfactor]

Originally Posted by anodyne13

You need to have 10 MORE steel buyers than you have for your math equation. So if Rolex is tightly controlling the supply of steel watches to meet (or be below) demand to keep Steel watch prices up they may not want to make more steel for fear of weakening steel demand/price overall.

The equation takes into account the fact the watches are sold. We all know steel sells and would outsell a PM piece by 10 times easy.

The argument here is theoretical, but my example shows Rolex steel is nearly 3x more profitable than Rolex gold if pure profit making was the exercise.


Edit.. and you have 10x more customers and a 10x busier service centre getting 10x the business of lifetime services if you sell 10 steel watches instead of 1 gold watch. Guaranteed future business x10.


I should be running Rolex from my iPad over here.

[Bro Watch]

Originally Posted by JSolution

What ??

I can see by your response. You do not have the mental capacity to understand what I what I was saying.

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[cyind]

You have to remember that Rolex is not just about making profit. Every move they make is calculated and measured. The brand image is the most important thing and not the profit margin. They do not have shareholders to please.

The Swiss watch industry (dominated by Rolex) was at a low point about 8-10 years ago. Watches were not moving and people were not interested in Swiss timepieces. It didn’t help having too many steel models available in stores.

The luxury brand image had to be revitalized. This is done by making products that most people cannot afford and giving a perception of scarcity. Rolex are masters at it. In the long run it pays off because the brand survives market volatility better.

You have to stop thinking like a daily stock trader focusing on quick profits and more like a long term savings fund manager.

Lastly, now the Chinese SS super reps are almost as good as gen Rolexes. And they will keep getting even better. Most SS Rolexes you see on wrist are fakes. It does not make sense for Rolex to invest into SS models that will be quickly knocked off. Go PM where the rep market cannot compete.


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[fliegenwulf]

I wouldn't say they are abandoning SS, but they are diversifying more into PM.

[huncho]

Originally Posted by Bro Watch

I can see by your response. You do not have the mental capacity to understand what I what I was saying.

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gold would have to 5x from here for that to be true, i think that's why his post was what it was

[Patekfinder]

Originally Posted by Eric-London

Source?

INSEAD Business Case


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[Patekfinder]

Originally Posted by BriansRolex

I think PM Rolex are still grossly undervalued compared to it's counterparts like AP, PP, etc.

Absolutely.


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[Patekfinder]

Seeing non-business people attempt to articulate business finance traditionally left to a CFO is exhausting. These are not simple concepts where you can just talk about profitability. Profitability is less than 1/20th of the equation.


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[JSolution]

Originally Posted by huncho

gold would have to 5x from here for that to be true, i think that's why his post was what it was

Yes that was exactly what I was getting at

[MitchSF]

I don’t see them abandoning SS, or even making fewer. If they make 1.2m watches this year and are planning a new factory to build more, can they sell that many or close, in PM?

[Krash]

Lots of assumptions being made in this thread. My guess is that they’re still going to make and sell more Datejusts than anything. That’s not changing.


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[Michael T]

Originally Posted by MRBolton

I have to imagine the profit margin on a percentage basis on a stainless piece has to be higher than a gold one.

Maybe on a percentage basis, but not on gross margin dollars.

[nonkool]

Excellent discussion. Suspect it could be more to do with brand positioning, porting over a captured user base to target opportunities between the Pateks and the JLCs. Already see a hint of that with the 1908 "Perpetual" series.

And it is not like Rolex are discontinuing the popular SS lines either - lots of DJs, Subs, GMTs, Daytonas, to have new customers "climb the ladder".