David Rosenthal: belief

Transcript context

…This business is so efficient from a headcount perspective, and everybody talks about it like it’s craftsmanship. It’s high economies of scale production. Yeah, there are people working on these things, but there’s a tremendous amount of machines and they don’t have to operate the stores. But they mostly get all the good parts of highly controlled retail experience without having to also be in the very crappy retail business. Industry-wide, third-party retailers make a 37% gross margin after they mark up from the wholesale price. That’s their margin. For Rolex in particular, it’s lower than average because Rolex, you only get to keep 33%–34%. I’ve heard that actually went down 1% this year. Rolex gets to have their cake and eat it too by not owning retail stores and having all the benefits of as if they did, at least over the last 30 years or so. I think your points are valid about they are increasingly wanting that customer touchpoint, especially as it comes to things like waitlists. The thing about Rolex in pursuing this strategy until now, at least, they don’t necessarily do things for the gross margins. This is a foundation-owned company. They do things for long-term strategic reasons. I think if at least you buy the premise that if they were to operate their own retail locations, they would be pushed by customers to have more things in those stores than just the six or seven core Rolex models, which you probably can’t walk out of the store holding one of them anyway. You’re just going there to sign up for a waitlist. Which again is a very different experience than the Hermès retail experience. You can’t walk out of there with a Birkin, but you sure as hell can walk out of there with a scarf, a piece of furniture, or an Apple Watch strap, et cetera. It is astounding that Rolex has had the discipline to remain just a watch company. Imagine the opportunity to become a fully-diversified luxury company. Rolex jackets, Rolex sunglasses, Rolex fragrance, Rolex you-name-it. Rolex luggage. Why are they not in the luggage business? You could make 904L steel carry-ons.…

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