The Hour Glass

How much would buyers - especially informed traders and collectors - in the pre-owned branded-watch market be willing to pay for additional service of authentication? Intuitively, I think not much, most likely less than 5% of the transaction price.

While pre-owned market prices fluctuate with supply and demand, they do take reference from the official recommended retail prices (RRP) ultimately decided by the brand-owners, even though usually actual transaction prices paid by consumers at official retailers would be lower than RRP after friendly discounts. The current situation of pre-owned Rolex watches selling for higher prices than RRP is mainly because of shortage which started after Covid, and careful brand and supply management by Rolex's management. By logic, this cannot last forever. Having said that, the secular trend that more and more people like to own a Rolex - and many like to own more than one! - as a desirable personal item stays and will underpin the demand into the foreseeable future.

I doubt very much Rolex's CPO Project through Bucherer will be a big success.

Today, does THG have technical expertise at its boutiques to open, inspect and maintain watches?

The way I see it:

1) Rolex want to keep the profiting on Rolex watches between itself and its authorised distributors (i.e. a close ecosystem).

2) If executed well, Rolex-Certified will drive out Non-Rolex-Certified as consumers gravitate towards Rolex-Certified.

3) Near-medium term, good for ADs as the profits earned by the gray market are now earned by ADs.

4) Long-term, if ADs prosper greatly from this pre-own business, Rolex may just adjust the economic terms between itself and ADs such that the prosperity is shared between itself and ADs.

Reckon that THG as one of Rolex's key AD in Asia Pacific would surely have to support this move of Rolex.

What I cannot get my head around is - does it not feel illogical and disrespectful towards customers?

- For a brand new Rolex, you can get it for say $9,000 at e.g. THG at Paragon. But please get onto the waiting list and buy other watches first.

- For a second-hand Rolex, you can get it immediately for say $18,000 at e.g. THG at Takashimaya. 

So the proposition to customers is one of - pay a high price for instant gratification.

After some thinking:

Rolex's Certified Pre-Owned (CPO) programme is good for the brand as genuine customers can now buy Rolex watches (pay more for instant gratification) while enjoying the full Rolex retail experience at an AD.

Rolex's CPO programme may not be good for ADs. Margins are likely low (buying and reselling at mkt prices). More importantly it could also reduce the room for ADs to practice bundling and profit from other lesser brands.

This move by Rolex highlights a key risk of ADs. A strong brand can make unilateral decisions that can have a profound impact on your business model (bundling) and profitability. 

However and ultimately, much will depend on the ingenuity and execution of management which THG's owner-management have prove themselves to be first-class.

Perhaps this is why THG has stopped share buyback. Accumulate cash to stock up on pre-owned Rolexes.

(03-12-2022, 10:21 PM)Choon Wrote: ... Margins are likely low (buying and reselling at mkt prices)...

I did some thinking too and just wanted to add that if I'm The Hour Glass, I would likely do a trade-in instead of buy at mkt price (for a higher margin). 


https://watchesbysjx.com/2022/12/rolex-c...owned.html

Gratitude.

Even Emirati royals can’t always buy ultra-hot Rolexes in Dubai

One thing that’s sure to get you shadow-banned, or quietly dropped from the list, is watch-flipping. The Seddiqi company has to sell the watches at the suggested Swiss retail price. Seddiqi says he has seen people – some with more wealth than you’d know what to do with in a lifetime – flip a watch to make a couple of thousand dollars. How does he know? Over decades in the business, he has acquired contacts who inform on flippers, he says.

https://www.businesstimes.com.sg/lifesty...exes-dubai

strange rich people doing strange things... haha!

The Swiss watch industry has experienced surging demand over the past two years, and is on track for its best year, by value of exports.

Through October, the value of Swiss watch exports in the sector’s 30 largest markets was 13.3 per cent higher than in the same period last year, according to the Federation of the Swiss Watch Industry. Growth in the UAE slightly exceeded that, at 13.8 per cent. This makes the country of only about 10 million people the world’s ninth-largest market for Swiss watches.

Record year 2022!

The Seddiqi company has to sell the watches at the suggested Swiss retail price. -> same control over AD's SRP, profit margins fixed, (exclude bundling effects)

A pity though that despite the qualities of the THG's business and management and the good industry prospects, but THG has always remained cheap (from a PE perspective) and thinly traded (when the company does not do share buyback).

Consider that Watches of Switzerland (WOS) earned net profit of GBP101M (SGD162M) for YEMay2022. In comparison, THG earned PATMI of SGD155M for YEMar2022. Both are about the same size in terms of net profit.

Yet as at 2Dec2022,WOS has a mkt cap of GBP2.4B (SGD3.9B) based on share price of GBX 1,018 while THG has a mkt cap of SGD1.5B based on share price of SGD 2.08. WOS' mkt cap is about 3X of THG.

Somehow institutional investors shun the stock. Liquidity reasons?

How can we help to promote awareness and interest in the THG stock?

think as long as THG continues to do well, and increase their dividends payout in a sustainable manner, value-investors will be happy to hold forever!