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Openwork: Inside the Watch Industry
Rolex Pre-owned Values Slide – Certified Pre-owned to the Rescue? – Episode 73
00:41:05
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- [00:01]
A
I look at this and I think when I see this is like clients are subsidizing Rolex's education. Nobody's necessarily getting rich on it per se, but Rolex is getting paid to learn.
- [00:14]
B
This is openwork, a look inside the watch industry, a podcast from Collective Horology. I'm Gabe Riley, co founder of Collective.
- [00:21]
A
And I'm Ash Sharapkin, co founder of Collective. Collective Horology is an independent watch retailer based in Southern California. We carry a wide range of independent brands including Archinaut, Ming and the now non beeped Dominic Renault. We also carry many more brands. To learn more about us and to check out our available inventory, visit collective horology.com wow, that was heck of a launch for Dominic Renault, huh?
- [00:45]
B
Yeah. You know, every once in a while there are these watches that when they launch they just show up everywhere. You know, not just from the brand promoting them or media, but they're also quite, quite a number of collectors that were able to get hands on with the watches. It was, it was the watch, the Dominic Renault Pulse 60 was the watch that was everywhere on March 17th and for good reason.
- [01:08]
A
Yeah, one thing that I took away from that, like putting aside our business interest in the brand was the reality of how the news of that watch got out, which I think touches on some of what we've talked about in the past about the pivot from, you know, these, these authoritative media outlets announcing like an introducing in Hodinkee from six or seven years ago, for example, and what we saw, which is the watch being discussed and really images, whether it's the pro images that they sent, which were beautif or just live shots of the watch ricocheting through groups and discussion on Substack, for example. So to me this launch really solidified my belief that these micro communities, I don't mean that in a, in a pejorative sense like these small chasms of collectors that are connected together in these private groups trusting one another's taste is really what is driving so much excitement and trust in independent watches today relative to what we would have seen even three to five years ago.
- [02:05]
B
Yeah, I mean the watch actually got relatively modest like media coverage from like the watch blogs. I remember checking in the morning and the only story I could find at that time was right around the time of embargo was from monochrome. I'm not sure it was even in hinki or still hasn't, has been rather, but pretty modest media coverage yet. Like I said, it was everywhere. It was all over Instagram People were discussing it in groups. Our phone was ringing off, off the hook yesterday. And you're right, it just go show how much the media landscape is shifting not just broadly in society, but within watches in, in particular. I don't know that you would have been able to generate that amount of interest 10 years ago without coverage from say Hodinkee.
- [02:48]
A
Oh, I'm, I'm completely confident that you couldn't. So. And I mean obviously like you know, it's substantive, the watch is interesting, there's a cool story behind it. I mean these things matter. But I'm more, I'm more curious about the vector than I am the substance in this particular instance because this was just such a good example of how information and the sharing of watch collecting passion has changed. And in an interesting way, if you think about it has almost gone full circle because to a certain degree this is the second version of Purist Pro. You know, if you think about like
- [03:23]
B
prior to, prior to Hodinkee and that era, the blog era of watch media, it was entirely community driven and decentralized.
- [03:31]
A
Exactly. So I think interesting to see how these things operate in cycles.
- [03:35]
B
Well, it's also a perfect microcosm not just of everything we've talked about with watch media, but also of everything we talked about relative to the success of independent brands and why they're succeeding. I mean this is obviously Dominic Renault himself doesn't come out of nowhere. This guy is a truly a living legend in the industry. But this is a new brand. Or basically he's restarting his, his eponymous brand here with or as you like to say, eponymous eponymous. Dude. It's not anonymous. It's anonymous. You know, he's, he's got the bonafides to do it, but I see what you did there. Yeah, exactly. He's, you know, this is a brand that is doing everything that demonstrates why independents are succeeding. I mean first of all, this is a very, these watches are not cheap or inexpensive. They come in at $59,000. You start there, they go up for a two tone titanium rose gold or pink gold, they go up to $69,000. However, I would say what you're getting horologically is still a relative value. You're getting a really just truly eccentric and idiosyncratic take on haute horology from a mastermind. You're getting this insane 1 Hz movement that manages to deliver better accuracy and robustness by actually slowing down the escapement. I mean the, the gear train of this watch, the finishing of this watch is incredibly beautiful. The aesthetics of the watch overall are entirely compelling. These are small batch watches, this is artisanal watchmaking and it's a huge success. So it points to what the independents are doing, which is, yes, it's the premium segment of the market that's really doing well, but it's doing well because it's inventive, it's creative and it delivers value. I mean it's not a cheap watch, but for what you're getting here, for the horological level of interest, I think it's a relative value and it's not a watch we've had any objection to around price.
- [05:39]
A
It's a pretty good pitch there. You sure you still want to just do marketing?
- [05:43]
B
But, but again it's like this is why independent can succeed in a down market. To me, this watch is a poster child.
- [05:51]
A
It's not can. I mean this watch did succeed.
- [05:53]
B
Yes, exactly. So we've sold through our 2025 allocation or 2026 allocation. I forget, you know, it's, it' I keep forgetting it's 2026. We've sold through our allocation. We're now taking orders into 2027, which is wild. But this is a poster child for again in a down market, how you can succeed. And good for Mr. Renault and good for the team. Well done.
- [06:18]
A
Absolutely. Which brings us to our topic today, which is I think kind of fascinating and related when we talk about where there's value and how that value translates on a much larger scale.
- [06:30]
B
Yeah. So today we're going to talk about essentially the pre owned market for, for Rolex. There is a lot going on there that's I think personally fascinating. So the headline here is value retention for pre owned Rolex is down. There's a lot to discuss within that and at the same time it looks like Rolex's certified pre owned program which continues to gather steam and has turned into a juggernaut. Just for context here, the, the estimated value in terms of transactions or so the revenue that goes through Rolex certified pre owned now is over half a million dollars. The estimates are anywhere between like 530 million to 500.
- [07:12]
A
Half a billion dollars.
- [07:13]
B
Sorry, half a billion dollars. Anywhere from 530 million to 594 million. So this is big business. This is the size, if not bigger than Tudor. So let that land Rolex certified. I know you're going to pick it apart here, but in terms of the value of watches being sold, Rolex's CPO program is now the size of Tudor and it seems like it couldn't have come soon enough just as the market for Rolex is starting to slide. Certified pre owned is coming in to really hold up the floor and it's a huge benefit to Rolex in this context. So we're going to talk about all of that. But I think it makes stars start sense to start with the just the numbers around Rolex pre owned in general. And this is, this is the overall pre owned market we're going to start with. This is not CPO in in particular and I think you know the headline here is really around value retention. Now before we get into value retention, about 35% of Rolex References trade above retail. That's actually down. So last year it was 45%, it was 45%. So fewer. So first of all, most Rolex pre owned watches do not trade above retail relative to their retail price. 2 the percentage is getting smaller so from 45 to about 35% year over year. But that's not the full story. That's certainly part of the story. The other part of it is value retention. So this is what's really interesting. And value retention looks at two things. It looks at the pre owned price of a watch and it looks at that price relative to the retail price of a new watch. So there are plenty of examples we know of watches that have incredible value retention.
- [09:06]
A
There's a couple of interesting things just to point out here. I mean there are the usual suspects, right? Daytona's, GMT masters to a much lesser degree, subs and interestingly datejusts all either retain their full market value essentially like a datejust or retail value like a datejust or a sub. Daytona's and GMT masters trade meaningfully above. One thing that I found particularly interesting, which was a cool strategic shift for Rolex was that the OP is generally trading for about 126% of retail. Which is fascinating because of course ops were, were not terribly popular watches. You know I started to see that trend shift about a decade ago.
- [09:40]
B
Those cool color dials.
- [09:41]
A
No, even before that, even before COVID there were the, I mean those like
- [09:44]
B
purple dials and things like that.
- [09:46]
A
Even before that back then you had like the grape dial. Yeah, yeah, the one that really changed it. If you recall the white dial, there was a white dial op around 2017ish.
- [09:54]
B
That was after the grape dial.
- [09:56]
A
Yeah, yeah, that was the one.
- [09:58]
B
Black, right.
- [09:58]
A
That was the one that really kind of I think put a lot of intention on, on the op. From a collector standpoint, folks were like hey, can I get on a list for an op because previously the ops were like $5,000 watches. That was my first Rolex that I ever bought with an op. Makes sense, you know, and it's interesting to see that. Also interesting on the movers and shakers in the COVID era, day dates pretty much across the board traded over retail, you know, like rose gold, green dial were very, very popular. So seeing those on average losing about 10% of value makes sense, probably work probably at this point given how we've seen tastes sort of pivot and change. I'd be curious to know how that breaks down by reference because I suspect there are still some day dates that perform pretty darn well.
- [10:39]
B
Probably the really rare ones.
- [10:40]
A
But the other thing to note is like the prices on day dates have gotten significantly higher than they used to be. Price of gold exchange rates, et cetera, et cetera. So that's that, that makes sense.
- [10:49]
B
And then these are, these are the drivers. So just for clarity here, in 2025 Rolex value retention of pre owned watches versus new watches was about 10%. That was the number I was referencing then in 2025. So sorry, in 2024 it was 10% above retail. In 2025 it slips down to 6.7% above retail. So that relative value retention is, is compressing. Now in that context this is important. Rolex pre owned values, and there are some exceptions here, but Rolex pre owned values actually went up 4.6% year over year. So you're asking yourself, well hold on a second. You're telling me value retention is diminished. However, you're telling me that Rolex pre owned pricing is going up. What's going on? The challenge is that the price of new watches has increased more than the pre owned examples have gone up in price. And we famously Talked about on January 1st of this year, Rolex price prices went up from about 7 to 9% for steel watches, double digits for gold watches. To your point. So even though the, you know, the value of your pre owned Rolex may be going up, it's not keeping pace with the, the prices of, of, of new watches and precious metal watches. To your point, whether it's a gold submariner or, or a day date or whatever it might be, those have always been the most challenged in terms of value retention thinking historically. So that's no surprise. However, it' exacerbated by the fact that the cost of gold has gone way up and the retail pricing of those watches have gone way up. And so this is a real reckoning for those watches during that Covid era things had kind of turned around for the precious metal Rolex watches. The day date you, you mentioned is a perfect example. That beautiful rose Gold Date 8 with the green dial that all of a sudden was this like all star watch.
- [12:45]
A
And it is a good watch.
- [12:47]
B
I mean in terms of its performance on the pre owned market it was like wow. Now this, this problem is being magnified not just by a cooling market but also by the price of gold and the retail price of those watches.
- [12:58]
A
Yeah. The other way to look at this, and I think this is, this is like an important context is I think these numbers are fantastic and it's like we're talking about things like being up or down but like, I mean. Oh yeah, you know, like let's take a step back here. These numbers are incredible.
- [13:14]
B
I mean in the context of the
- [13:15]
A
broader market, in the context of, of any goods market, any used goods.
- [13:20]
B
Sure.
- [13:20]
A
I mean this is so important to look at that contextually when we start talking about like runaway retail. The fact that the value retention is still standing where it's sitting is remarkable which of course is a, is a testament to the power of that brand.
- [13:32]
B
But there's some exceptions.
- [13:34]
A
Sure.
- [13:34]
B
And, and they're regional exceptions. So there's two dimensions for exceptions here. Number one is regional. That value retention is strongest in, in the United States and the Japanese market. If you look to uk, the UK and Europe, the value retention is essentially marginal or flat. So for instance like if you had a used submariner versus a new submariner, the, the value retention would be zero, would be, it would basically be flat. So on average in Europe and the UK a pre owned example of a Rolex trades at retail. Whereas in the United States, all things being equal, a pre owned Rolex trades about 6% above retail. And in Japan there's a similar gap as well. So there's market to market dynamics as well. So if you're shopping for a pre owned Rolex, maybe buy one in the UK or Europe, you'll get a better deal.
- [14:29]
A
We can of course, until you have to declare it upon your reentry.
- [14:32]
B
Oh yeah, good point. And that's probably part of the reason why is the, the tariff situation being what it is. A lot of the pre owned inventory in this country in the United States does come from overseas. So and even if it doesn't, it's a you know, contained market. So supply, demand, all that kind of stuff where things can you know, flow a little bit more freely across Europe. The, the other interesting exception is vintage and neo vintage. So though Vintage and neo vintage. This is what I dug into. Now there aren't retail comps for vintage and neo vintage. You know, if you take a Submariner, a current era Submariner, you've got a pre owned price, you have a new price, the reference number is the same. Great. If you have a five digit Neo vintage Submariner like the 14060 one of our favorite watches, you don't really have a comp on, on a new watch. It's a fundamentally different product. But if, if you look at the price increases for vintage and neo vintage Rolex, they're actually outpacing pre owned Rolex. So vintage and neo vintage are doing
- [15:38]
A
and you have fewer examples in good condition. Maybe some of those are also coming into the country from another, you know, from another location. So all of that makes sense. They're not making any more of them.
- [15:48]
B
And the other driver of it is a lot of those watches we talked about last time, the proportions of them are more refined and they play more into the current taste for watches that are smaller, more refined, more ergonomic and things like that. So they do fill a gap in the market beyond just being rare. Hard to find fewer quantities. Believe me, there are still plenty of 5 digit Rolex references out there. I mean not in a bad way. This is a great thing about collecting them. The market is awash in them. So there are some exceptions. But yeah, the value retention, you're right, is absolutely remarkable compared to any other category for anything.
- [16:29]
A
Yeah, 100%.
- [16:30]
B
You're a Rolex man, you stand by their, their value retention. So let's talk about the CPO program in that, in that context, to me, the CPO program now in a market where, not just a Rolex market but an overall watch market where things have cooled and come back to normal and where we're even seeing some softening in Rolex pre owned pricing, the certified pre owned program looks like a masterstroke for any number of reasons.
- [17:02]
A
I really struggle with this. So a couple. And part of it is because we're missing a really critical data point here which is the actual profitability of this program. So we're seeing a lot of money move through it, but I'm not entirely sure what kind of revenue it's generating because we don't really know what the average margin is on a CPO sale. And I keep coming back to this,
- [17:23]
B
I forget who said this, but we have some sense.
- [17:26]
A
I'll get there, but I mean we'll
- [17:27]
B
reverse engineer the numbers for you.
- [17:29]
A
I remember someone telling me and forgive me because I'm quoting someone, I can't recall who, but someone once said to me like gross revenue is vanity, net profit is business.
- [17:38]
B
And that's a good.
- [17:40]
A
Yeah, I wish I could bring someone in the comments will tell me who said that because it's a great quote and I'm just looking at this and I'm seeing a lot of money run through the system. We can make an argument for how it brings certain types of clients into a boutique. It offers an alternative. When something's not in stock, there's all sorts of selling tool opportunities.
- [17:59]
B
It provides benefits to Rolex and their dealers too. This is brand protection.
- [18:04]
A
Yeah, it's brand protection for Rolex. The there is a modest charge per watch that Rolex charges dealers to, you know, to CPO and to re equip it with, you know, CPO boxes and papers and all of that. But it's not a lot, you know, relative. I mean, for what Rolex has to do to employ a watchmaker and all of the logistics and the photography, I mean like it's work. It's work. It's not just, you know, no one's just looking at it and like, you know, tapping it with one and going excellent. It's, it's work. So I'd love to, I mean I'd love to hear what you think on the margin side of this. You know, there's a part of me that makes me feel like dealers are involved in this program for two reasons. One, everything we just described about footfall solutions for another, you know, client, if you can't get them a new watch, et cetera and so forth. And I think there's another angle which doesn't get talked about a lot, but I think maybe the real value hidden in this half a billion dollars of revenue. What's happening here is that Rolex and its associated dealers are starting to learn what it is to conduct E commerce because previously there was no price competition, at least in the modern era of Rolex. Ten years ago, you know, sure, people got discounts, whatever. Nowadays, like that doesn't happen anymore. But in the pre owned market, prices are very fluid. Negotiation is very common. Like it's a very different market, very different buyer, in some cases very different attitud. And the fulfillment of these watches through a digital like an E Commerce, like workflow is very different than, you know, Asher, the Rolex sa, you know, who makes sure to like, you know, go down the checklist of how the clasp must be buckled with your wrist turned
- [19:49]
B
upside et cetera and don't forget your lapel pin.
- [19:51]
A
Exactly. And then go ahead and sizes it himself and then make sure and verifies the ID himself. And the guys on the, you know, the buyer's on camera in the store, the green box is handed over. It's a tried and true thing. Not the same for Ecom at all.
- [20:04]
B
Hey, it's Gabe. Openwork is proudly ad free and requires no paid subscription. If you'd like to support the show, please take a moment to subscribe, rate and review on your podcast platform of choice. Please also check out and subscribe to collective horology on YouTube where you'll find hundreds of videos we've made on independent watchmaking. You can find our channel@colliveherology.com YouTube and of course, you can always subscribe. Support the podcast by picking up a watch from over a dozen independent brands along with our Latest merch@colusive horology.com thanks for listening and for your support. Now back to the show. Yeah, and, and to be clear here, I guess what we're saying is Rolex dealers are allowed to sell certified some of watches through E Commerce.
- [20:49]
A
Not all.
- [20:49]
B
Well, some do.
- [20:50]
A
Yeah, but, but to me, like, that's the most interesting side of all this, where it's not that Rolex or the dealers are making money hand over fist here. I'm sure they're doing.
- [21:00]
B
They're building a new muscle.
- [21:01]
A
Exactly. And the way that's what I see as this program, which is like, well, okay, where does half a billion dollars of sales become really powerful? If you're pumping a lot of that through E comm and you're learning how to do it, and as you learn how to do it, it sort of says, could I imagine a world in the future? And I know someone at Rolex is like, never. But at the same time, let's get real. At some point, Rolex at some point is going to have to embrace E commerce in whatever format Rolex decides E commerce is acceptable to them, and they will have billions of dollars of data to figure out the right process for that. From a marketing standpoint. From an operations standpoint. No. So I look at the. And even if we step back on that and we say, you know what? Rolex will never do E Comm. Tudor might.
- [21:47]
B
Well, doesn't TUDOR do E Commerce?
- [21:49]
A
There are a couple of stores that do it, but it's not like a blanket permission slip.
- [21:54]
B
Yeah. It's a patchwork. Yeah.
- [21:56]
A
And it's, it's like on a. And you need explicit permission to do it.
- [21:59]
B
Interesting.
- [22:00]
A
So my point is I look at this and I think when I see this is like clients are subsidizing Rolex's education. Nobody's necessarily getting rich on it per se, but Rolex is getting paid to learn. And that is a really kind of interesting adjustment here.
- [22:17]
B
I, I had never considered that. It's a fantastic point. Let me give you some, some numbers then to put things into context. So we mentioned the estimate and this is from Morgan Stanley and Lux Consult. Their estimate was that in 2025 Rolex CPO sales were about 530.
- [22:33]
A
But I must protest from the Rolex organization. These numbers cannot be true.
- [22:38]
B
Speaking of, must protest. So Tudor again according to Morgan Stanley and Lux Consult, if I can remember correctly is about 540 million in revenue. So I've seen other estimates for Rolex CPO revenue for last year for 2025 that put it at $594 million.
- [22:56]
A
So it's, so we have a range.
- [22:57]
B
It's somewhere in there. By estimates that's the size of a tutor. I mean that's pretty remarkable. But what's more remarkable is a year before in 2024 Morgan Stanley estimated that they were doing 319 million in revenue. So that's a 66% leap in revenue. It's pretty, that's pretty good, pretty good growth. So imagine where they'll be next year or at the end of this year and the year after that. I mean this will be a billion dollar business the way it's compounding. I mean heck, it could be a billion dollar business this year in 2026 given the past, the past rate of growth.
- [23:33]
A
I mean that would be insane growth.
- [23:34]
B
Now margin. Your point is a really good one. And frankly most of the margin benefit here accrues to the dealers in terms of what it accrues to Rolex financially. It' from what I understand and what's been reported, they're charging the dealers for service and authentication and photography and things like that. But it's relatively, relatively modest. It doesn't seem like it's a huge profit center for them. That's something that they're enabling. Most of the margin sits with the dealer and for the dealer, their margin is really the price they ask for the watch or they sell the watch at versus what they paid for it. Now a couple things are important there. Well, what are they asking for the watch? What are they selling the watch for in the United States? If you compare a Rolex certified pre owned watch to the same watch, same pre owned watch being sold down the street at a gray market dealer or pre owned dealer or whomever, the Rolex CPO watches command about a 22% price premium above, above the pre owned market.
- [24:35]
A
Okay, so what we're saying is like if there's an MSRP on a watch
- [24:38]
B
that trades above, I'm saying the, the pre, the certified pre owned watch.
- [24:42]
A
Yeah.
- [24:43]
B
From a Rolex dealer compared to that same pre owned watch being sold at a pre owned dealer.
- [24:49]
A
Yeah, that's what I'm getting at.
- [24:50]
B
Which is that no MSRP though.
- [24:52]
A
No, no, this is what I'm saying. If it's a, if it's a watch that trades above that. So like take a GMT Master, there's the MSRP, there's the secondary price. And what you're saying is CPO is 20% above that secondary price.
- [25:03]
B
Correct.
- [25:04]
A
So significantly higher than the msrp. Oh yeah, that's what I'm getting at.
- [25:08]
B
Yeah. Yeah. But for some watches it might not be significantly higher than the msrp. For some watches the CPO price might help them get to the MSRP, that price premium. Because again only 35% of references trade above retail. Now in Europe the price premium is even higher. It's about 28.8%. Globally it's about a 26% price premium between a Rolex certified pre owned watch and that same watch. Just pre owned, not certified, sold, wherever. So a bunch of the margin is coming there. Now the second question, like I'm saying is, all right, well what are they buying the watch for? What is their, what is their source for the watch? Where are they getting the watch from? Some of it's coming from trade ins. I suspect based on what, what I'm seeing in the growth of the program that most of the watches themselves are coming from the secondary market. So deal. Rolex ads are buying these from other dealers wholesale.
- [26:03]
A
So they're probably as opposed to clients,
- [26:06]
B
as opposed to a client coming in and trading it in. And here, here's why I say that we don't know. But if you look at the growth of the program and the fact that it's a cold start. So let's say you and I own a Rolex boutique and we're opening up our certified pre owned program and we need a case full of watches. Where are we going to get them? Well, we haven't been taking them in as trades from clients. It's not like we have a bunch sitting in our safe that have been traded in over the last couple of weeks.
- [26:30]
A
I'm sure, I'm sure You ask some clients but at the same time you want to be careful about that because that could also create a whole other world of hurt.
- [26:37]
B
We also don't have people walking into the store knowing they can trade in a pre owned watch. So like there's just no legacy there. There's no institutional muscle of like well we're taking in these watches on trades or buying them from clients. So where do you go? You need to open and I suspect Rolex probably says if you're going to do this you need to have a minimum amount of watches in stock or whatever it is because you're not just going to open your pre owned section of your store with like one box that you got in one watch, you got in a trade the day before. So they got to go out and source these watches. Well where do they source them from in the quantity that they need at the rate of growth we're talking about where now hundreds of dealers are open. So it's 144 dealers in the program, 200 plus doors that you're going to
- [27:23]
A
go to a wholesaler. But the funny part about that is ironically it creates a secondary market of dealers which are now competing with one another for inventory which also creates an inflated price point because the thing people raises the floor. Yeah. I mean the interesting thing about the way Rolex did this is it's a very hands off program. Like they are not supplying the watches.
- [27:42]
B
No.
- [27:43]
A
You know, so basically what they're saying is like, you know, this is byow, bring your own watch.
- [27:47]
B
They're providing authentication service and photography.
- [27:50]
A
Correct. And, and you know like merchandising and all this stuff.
- [27:54]
B
Oh yeah, the merchandising they are, I
- [27:56]
A
mean it's like a different sub brand. It's the whole thing.
- [27:58]
B
That's true. You need to buy all those fixtures.
- [28:00]
A
Yeah. And I'm seeing, I'm seeing ads running for it which means it's co marketing because there's no way ads are running that Rolex didn't approve. So you know like there is a service but to a certain degree like they're just like hey man, you bring your stuff here, we'll deal with it. But like don't look at me, I'm not gonna get you any watches. Which really means that there's only a handful of wholesalers in the United States that have the volume of watches to be able to make available to these folks.
- [28:21]
B
Yeah.
- [28:21]
A
Unless you happen to be someone like the 1916 company that was already in this business and you have a leg up, you know because people know to come to you anyway, you probably were sitting on hundreds of Rolexes to begin with. So you probably had like you know, a little, a little bit of an advancement.
- [28:36]
B
Absolutely.
- [28:37]
A
That's expect Bucher and watches of Switzerland also to a degree they have pre owned watches. But anyway, at a certain point that'll run down.
- [28:42]
B
At a certain point you need watches. I mean when we're talking about like this is a professionalized operation, when we're talking about a half of a billion dollars in watches being sold at the scale of an entire brand like Tudor, the watches need to come from somewhere in quantity. It's not onesie twosie trade into your deal.
- [29:00]
A
Yeah. And some of those are going to be bogus watches too. Which is why it's sort of interesting as well to have this filtration system which is able to catch in its net. This is a Franken watch. That's not appropriate. Oh, this one was stolen. Like all of the various different things that need to happen in there. But all of that said, so now we have multiple market dynamics. We have the.
- [29:20]
B
Hang on a second, I want to get to the margins before we go to that. So the question is let's assume that and I'm making this up, I don't know it to be true, but let's assume your average pre owned watch, certified pre owned watch came through wholesale. So it's being purchased by the, by the Rolex dealer, wholesale from, from another dealer. And they're not getting a screaming deal on that. They're probably paying a little bit below market price to get, to get that watch. So the entire margin, let's say they're paying about market price, that entire margin is about 20%, maybe 25%. And then you have to pay to service and recondition the watch and all that. So I'm going to guess the net margin ends up being and depreciation because
- [30:05]
A
from the moment that you buy the watch, the moment it's in your box to sell is months.
- [30:09]
B
Yeah. And now what we're saying is like the average Rolex watch actually is decreasing in value. Right. So let's say your net margin on this is somewhere between is somewhere maybe around 15%. You know that's rough. It's rough but. And it's a lot more work. This is the other thing. It's a lot more work. Right. Because when you get a new watch, factory fresh watch from Rolex, you put it in the case. When you buy a new, when you buy a pre owned watch, whether it's from A client or from a wholesaler or whomever, you got to go through the whole rigmarole of certifying it. It's not in your possession for a while or even if you have your own watchmaker in your store who's working at, it's out of the queue. You have your own watchmaker who you've hired to work on it and all this, there's a lot more cost that goes into these watches for a dealer at lower margin. So it, it's not, it's not necessarily a cakewalk but it's probably worth doing because the inventory, you can, you can choose what you buy. You know, we've talked famously about a lot of dealers, Rolex dealers and dealers of other brands who don't really get to choose what they buy new what, you know, it's like your order shows up and you need to sell everything. At least with pre owned you can kind of pick and choose what you're going to buy and what you're going to sell. But the margins are thin. So what you're counting on is turnover and what you're counting on is being able to sell watches to customers who walk through the door asking you for a submariner and you can't sell them a new one. Well, now you have an alternative. So I think there's some benefit. But I think the question is, is the juice really worth the squeeze? Probably. But it's a tougher business than selling Rolex.
- [31:49]
A
My theory about it being an educational experience is, is true.
- [31:53]
B
True.
- [31:53]
A
Then I think it is worth the squeeze ultimately both for the retailers to build that muscle and for Rolex to be comfortable with it as a day to day business. I think it's pretty rough.
- [32:03]
B
All right, so there's the educational value. It's like when we put astronauts on the moon in the space program. We learned all, we achieved all this attendant technology.
- [32:13]
A
Right? Sure.
- [32:14]
B
Maybe even including the Internet.
- [32:16]
A
And Speedmasters.
- [32:17]
B
And Speedmasters. But, but to your point, like there is value in that, like they're building this, this new, this new muscle so worth it. That's part of the equation. I think the other question is is it worth it? Is whether or not this is helping support the pre owned market and the desirability of Rolex overall. One number we haven't talked about is the estimate is now in the pre owned market. It's maybe 10 to 11% of the market value. This is a significant corner of and growing of the overall Rolex crown.
- [32:50]
A
Think about the life cycle of this for a moment and it makes Sense, right? Let's say I asher go and buy a watch, right? So I buy a sub 3 years ago, I'm done with the sub now and I'm going to sell it or trade it. So I sell it or trade it
- [33:01]
B
to the battery died.
- [33:04]
A
Exactly. It's real watch. So anyway, so I go and I trade it to a local wholesaler here, right? Or like you know, a third party guy who isn't in a Rolex cpo. Now he's got backstock of inventory, he starts looking around because maybe his sales have slowed down. What do you think he's going to do with my Rolex? He's going to sell it to a much bigger wholesaler who in turn will sell it to a Rolex CPO dealer. Because what we're basically creating here is gravity, right? The gravity of the Rolex CPO program. Meaning that available pre owned Rolexes that don't move fast enough for a wholesaler will inevitably end up at cpo. Because the hunger for the CPO program based on the numbers you're specifying is so vast and so intense that no matter what the black hole of the CPO program will be pulling all available matter towards it.
- [33:49]
B
Where the money is, right?
- [33:51]
A
So it makes sense when we start saying like 1 in 5 will be sold through Rolex CPO. It's like yeah, obviously, because inevitably that's where that, that's where the people are paying the most money for it in the secondary market. Because that's where wholesalers are doing serious business and betting against one another.
- [34:08]
B
Well even if it's not money, I mean yes, there's money. And, and you're right. If I'm a wholesaler, who do I think is going to pay top dollar for this watch I need to move? Is it going to be another pre owned dealer or is it going to be a Rolex dealer? It's probably a Rolex dealer. And the reason why is because that Rolex dealer knows once they put the investment into reconditioning and certifying that watch and all that stuff, they can then ask for that 20 to 22% price premium. So they'll inevitably outbid the pre owned dealer who's already working on tiny margins. I mean we know what an unforgiving business there is. But I guess from the perspective of putting a floor, all this speaks to this notion of like raising the floor for pre owned Rolex prices. Do you think it's worth it? And working from that perspective?
- [34:57]
A
Yes I do. It can't hurt. I'm woe to make any projections about how this is going to play out over time. But I think for this moment, at this era, yes, it is.
- [35:12]
B
Yeah. And I think the other question is, look, we know AP has been in, in the process of developing their own CPO and program now for years. Is there any other brand that could do this? I don't think there's any other watch brand that could build a CPO business at this scale. Is there any other brand that could build a CPO program where the one, the economics of it makes sense? And I think actually your point around, like hey, if we actually look at the economics of the Rolex CPO program, they're harder than you'd imagine. They're not printing money. So the question is, could another brand do this in a way that is economically sustainable? I don't know. I'm skeptical of that. And then could another brand do it at the scale of a Rolex, you know, building a half billion on the way to a billion dollar business here? Probably not. I mean this remains, I think, a case study of one versus a template for the industry.
- [36:04]
A
Agreed.
- [36:05]
B
All right, well, we'll have to keep our eyes on the Rolex CPO program. Do you think it's going to. Final question for you. You think it's going to hit a billion this year? Year?
- [36:15]
A
No, but I do think that it could in the next two. And if, if the simple gravity of it continues to perform in the way that it has been, it's inevitable. It's inevitable.
- [36:25]
B
Yeah. I love the idea of the Rolex CPO program and dealer demand acting as this black hole in the, in the pre owned landscape just sucking anything and everything into, into its orbit.
- [36:37]
A
I mean markets will do market stuff and if you have people that are competing on multiple tiers of that market, it will create a dynamic of that happening. So unless we start seeing consumer demand for cpo, Wayne, which I think is unlikely given Rolex's, the reality of the, just the volume of how many watches Rolex makes in a year, I don't see that changing.
- [37:03]
B
Yeah, I mean it goes without saying for enthusiasts who understand how to, how to navigate the minefield here.
- [37:10]
A
Just as an asterisk though, I think this is idiosyncratic to Rolex and I could see how like a Vacheron exec would look at this and be like, you know, Bazinga, let's continue to invest in our program. And the challenge there of course is that Vacheron is not Rolex and secondary value isn't there in the same Way. So the gravity of the black hole is driven by the consumer demand on the other side of it. Yes, I know, I know. We don't know what's on the other side of black holes. So nobody tell me that I'm aware. But in this instance, on the other side of a black hole are Rolex consumers. And I think that is what makes this so. Just it's like whenever I would read case study, do you remember this? Like you'd open up like a Harvard Business Review or something and there'd be like a case study about the ipod and you're like, why are we doing this?
- [38:00]
B
Yeah, you know what I mean?
- [38:02]
A
It's like, or a case study about like Nike
- [38:06]
B
write a case study if the Microsoft Zune is successful. But not, come on, the ipod is singular.
- [38:11]
A
Exactly. So you know, to a certain degree you're writing that, we're writing the hbr like you know, study on Rolex where it's like, you know, could be one, you know, TLDR1 page.
- [38:19]
B
Yeah. I think the question is is this a house of cards or is this a turbocharger on the Rolex business? And what I mean is if you know we, we do see decreased demand for Rolex watches, does do the economics of this thing fall apart or is this thing the turbocharger that takes the desirability of Rolex watches and uses that desirability to reinforce itself? In other words, you know, putting the floor under, under the market. Time will tell. I suspect knowing how methodical Rolex is and what they've done to build just an incredible and extremely resilient brand. Forget about, you know, whether you're a watch enthusiast or not. If you're the average person, you think of Rolex as the watch brand, the luxury watch brand and one of the most desirable luxury brands, period. And so that, that points the unique economics and I think for your average enthusiast, you know, we can of course continue to navigate the minefield of the pre owned landscape and find better value than paying that price premium. But for the average person on the street who just knows a Rolex is kind of the pinnacle of luxury and of watches, you know, that's all they know. They're casual, low information folks. The certified pre owned program offers a ton of value. Not only can they walk into a Rolex boutique and now buy a watch finally, which to some extent is great, hey, that's more people in this hobby, you know, versus being told gate kept and turned away. I think this is actually a good thing for the hobby overall. But they have the peace of mind that what they're buying is legit. And I think that says a lot. So given the economics and how razor thin they are, given the question of can this continue to scale and grow, we'll see where this takes us. But my prediction is the same as yours, which is it won't be in 2026, but by the end of 2027. This is a billion dollar business and we could be surprised it could even happen this year.
- [40:22]
A
Year. Let's see.
- [40:23]
B
All right, sounds like we'll leave it there.
- [40:26]
A
Right on, man.
- [40:27]
B
All right. Well, thanks for listening. Openwork is, of course a production of Collective Horology. You can find us online@colliveherology.com and please send us your questions, your feedback, suggestions, all that stuff. We'd love to get it. And to do that, you can just email podcastollectiveherology.com. That was my mother, Gabriel.
- [41:04]
A
Gabriel, hello.