There is absolutely no doubt that Rolex’s network of authorized dealers stands squarely behind the watchmaker’s certified pre-owned (CPO) program but, as I described in a column earlier this week, there is disquiet behind the scenes about its challenges.
Watches of Switzerland Group is demonstrating its loyalty to The Crown by singling out the second hand watch program for praise in its end of year review for FY24, which ended in April.
In a conference call with financial analysts following the publishing of those accounts, WoSG CEO Brian Duffy said he had been delighted with how the pre-owned business has performed.
“Things are currently tracking ahead of expectations in both the UK and the US with the Rolex certified program being particularly strong. We are rolling out distribution and increasing resources to support this business momentum,” he adds.
Pre-owned, and Rolex certified pre-owned, are mentioned in WoSG’s Long Range Plan, which was unveiled last year with a target to double sales and profits by FY28 (May 2027 to April 2028).
Revenue is forecast to be in the range of £3.3 billion to £3.4 billion in FY28, according to the plan, up from sales of £1.65 to £1.70 billion forecast for FY24 at the time.
That target is looking more challenging since FY24 sales actually came in at £1.54 billion, flat on the prior year, and ending a run of almost 20% year-over-year growth stretching back to 2015.
The group currently forecasts sales in FY25 of £1.67 to £1.73 billion, growth of 9% to 12% at constant currency, with growth mainly coming from acquisitions of 19 Ernest Jones stores from Signet Jewelers in the UK and Roberto Coin’s American distribution.
One area for expansion, acquiring or opening stores in continental Europe, is over for now as Watches of Switzerland sounded the retreat from a program that aimed to have nine monobrand boutiques up and running this year.
The group is in negotiations to sell its existing stores to the brands they represent and will, for now, redirect all capital and resources to the UK and United States where it is still actively pursuing acquisitions and opening more doors.
A lot will have to go right to reach its Long Range Plan’s mid-target sales forecast of £3.3 billion in FY28.
If this year’s mid-estimate forecast revenue growth of 11% is delivered, sales would rise to £1.7 billion, pretty much all of that extra turnover coming from Roberto Coin in the USA, which it bought for $130 million.
If it maintains 11% growth every year through to 2028, it will reach £2.3 billion in sales, a billion pounds shy of the target outlined in its Long Range Plan. In fact, it needs to grow at 21% per year, around double this year’s forecast growth, to reach its goal.
As Mike Tyson once famously said, everybody has a plan until they get punched in the face, and it is a sign of good leadership that Watches of Switzerland is pivoting away from Europe and into areas of highest potential growth.
This includes opening a three-storey Rolex showroom on London’s Bond Street (rebranded as a “European flagship” in its last financial report), along with an AP House in Manchester, a new Watches of Switzerland in Pittsburgh and conversion of a Mayors into a Rolex monobrand in Atlanta.
We can expect this sort of capital investment will go as far and fast as the brands allow through to 2028, so somewhat beyond the control of WoSG’s leaders.
It has more control with second hand watches, which the Long Range Plan describes as a “new growth opportunity”.
Following US success, WoSG says, it plans to launch Analog:Shift in the UK as a sub-brand handling non-Rolex CPO.
If you go into Watches of Switzerland multibrand showrooms in the United States, you will see Analog:Shift shop-in-shops given the same prominence and space as brands like Grand Seiko and Hublot, which suggests it is delivering similar returns.
WoSG says it expects Analog:Shift/Non-Rolex Certified Pre-Owned to deliver sales growth of more than 35% and 25% in the US and UK respectively over the life of the Long Range Plan, but we do not know the starting point from which this growth flows.
Ramping-up CPO on both sides of the Atlantic is certainly an opportunity, but it will not be easy, as we see from specialists like Watchfinder, which saw sales fall in 2023 and caused an already low-margin business to fall into a substantial loss of £12 million.
Watchmaster, one of Europe’s leading CPO players, went bust last year, Chrono24 laid off at least one third of its staff and Hodinkee is going through a painful restructuring after its purchase of Crown & Caliber under-delivered.
Rolex CPO is separate from WoSG’s forecast for Analog:Shift/Non-Rolex Certified Pre-Owned and WoSG describes its growth ambitions in different terms.
The Long Range Plan says it expects Rolex CPO to deliver 20% of new Rolex in the US and 10% in the UK by FY28. 20% of what — revenue, profit, or units — is not specified.
It is essential to differentiate between Rolex CPO and CPO from all other brands because they do not operate the same way.
Second hand watches from all brands other than Rolex are handled through Analog:Shift, a pre-owned specialist acquired by WoSG in the United States in September, 2020. This business is entirely in the control of WoSG, allowing it to buy watches of any age and at any price it chooses, service and refurbish watches to its own chosen standards and timescales, and put them back on sale wherever, and at whatever price, it wants.
Rolex CPO is a tightly controlled program where it is only permitted to buy and sell watches that are more than three years’ old. Those watches have to be thoroughly checked, serviced and restored to a standard set by Rolex, and the watchmaker insists that it checks every piece before giving them certified pre-owned tags and Rolex-backed international two year guarantee.
Rolex CPO watches can only be sold in showrooms that also are official Rolex doors.
These rules are making it extremely difficult for Rolex partners to make a profit from CPO watches, as discussed in this column.
Rolex’s CPO program is likely to evolve, and retailers like Watches of Switzerland Group, Bucherer (soon to be owned by Rolex) and The 1916 Company in America, are investing heavily in Rolex-accredited watchmakers and workshops that will, if given the green light, be capable of servicing, authenticating and guaranteeing second hand Rolex watches.
This would give these retailers more control, and more profit potential from pre-owned Rolex watches, and WoSG may have visibility over how the program will evolve.
Rolex CPO and non-Rolex CPO sales and profits are not broken out separately in trading updates for WoSG, but the company’s chief financial officer, Anders Romberg, told analysts on May 16 that, combined, CPO is now the second biggest brand within the group’s portfolio. “It’s the fastest growing by a mile for that segment of our business … and 100% within our control. So we’re really happy about that,” he added.
This isn’t quite the revelation it seems. Tourneau, before it was acquired by Bucherer, told me about a decade ago that pre-owned was its second biggest brand.
Mr Romberg was asked about the current contribution of Rolex CPO relative to the rest of the company. Here, the conversation became a little unclear because the analyst was specifically asking about Rolex CPO, but Mr Romberg’s reply was for all CPO.
“Rolex CPO is somewhere around 10% of group revenue at the moment?” asked Jon Cox from Kepler.
“Pre-owned in total is not far off that level of penetration, but the curve we can see is accelerating. Quite encouraging, it’s somewhat exponential, which is good. But it’s now the second biggest category or brand in our portfolio,” Mr Romberg replied.
WatchPro has since clarified with WoSG that the “second biggest brand comment” relates to the total pre-owned category.
There is no doubt that the CPO market has been detoxified over the past 10 years and is now seen by every major brand and retailer as an integral and increasingly integrated with the primary market for new watches.
Rolex’s CPO program will only add legitimacy and increase demand.
Deloitte caused a stir last year when it predicted CPO would grow to deliver global sales of CHF 35 billion by 2030, comprising more than half of the primary market. Prices and the volume of transactions have fallen since that prediction was made, but Deloitte stands by it because of compensating factors, in particular the Rolex CPO program.
All of this suggests CPO — Rolex or otherwise — is a critical part of WoSG’s future growth plan and, if Deloitte is right, has the potential to become half of its new watch business.
WoSG currently provides breakdown of sales between luxury watches (89% of group turnover in its latest quarter), luxury jewelry (6%) and services/other (5%).
I hope it will soon break out CPO sales, because the performance of this category could be the difference between delivering and missing its Long Range Plan.