Month: August 2023

The luxury sector was surprised by the acquisition of Bucherer AG by Rolex. Bucherer was founded in 1888 by Carl F. Bucherer. Over time, it grew to be a 100 store international network of watch and jewellery shops. In addition, the company owns a watch brand called Carl F. Bucherer. The chairman Jeorg Bucherer is the last of Bucherer family. His lack of a successor and the family’s close connection to the Rolex Foundation were given as a reasons for the sale.

Why should Bucherer sell?

Bucherer pivoting to a sale was surprising. Part of this is down both companies being private. Neither publicly disclose finances or appear regularly in the media. We don’t know if the offer came from Rolex or if Bucherer approached Rolex with a view to sell.

If Rolex made the first move

If it was Rolex that made the move, then saying no would put the 100+ strong Bucherer retail showroom network at risk. While Bucherer represents 5 percent of Rolex’ global sales. Rolex means much more to Bucherer; 53 of their stores are Rolex authorised dealerships and 48 are Tudor authorised dealers. Having a Rolex franchise increases footfall and likely boosted sales of other brands in Bucherer stores.

If Rolex were invited to make an offer

If, like it was claimed that Bucherer’s decision was down to the lack of succession, why did Bucherer conduct a lot of activity to grow its business internationally?

Bucherer has continued to expand its retail and service network. It reputedly spent up to $350 million buying US luxury watch retailer Tourneau five years ago.

The Carl F. Bucherer (CFB) watch brand has put a lot of effort in terms of expanding its watch line-up, which are made in its own factory in Lengnau, Switzerland. This watch range uses some movements that are based on La Joux-Perret or ETA movements and some which seem to be complete in-house designs that look to mirror the kind of horology that the likes of Patek Philippe are better known for. A good example of this is the minute repeater below.

The watch making side of the business has continued to design innovative movements including novel technology designs.

The brand has worked on marketing its watches globally from a roster of Chinese and western actors as brand ambassadors, movie product placement including Deadpool 2 and the John Wick series. In 2018, they worked with JD.com to establish a watch brand-specific online storefront for the China market. Marketing activity continued through the COVID pandemic.

At the beginning of July this year they launched a new watch model: the Heritage Chronometer Celebration in rose gold.

This doesn’t sound like the brand was preparing for a sale due to a lack of family members to take over the reins. So why the sudden change?

Why should Rolex buy Bucherer?

Vertical integration?

Bucherer apparently counted for five percent of Rolex’ global sales, but had showrooms in strategically important markets like Geneva, London, New York and Paris.

Bucherer was the pioneer retail partner for Rolex’ CPO (certified pre-owned) programme; so their relationship was already very close. The programme was suspected to be rolled out for a number of reasons:

• To try and deal with authorised dealers shortage of new Rolex stock, that had driven ‘watch flipping’ and allegations of corrupt sales practices at Rolex authorised dealers. If customers leave the authorised dealer network, Rolex loses control of the customer experience.
• To allow Rolex additional profits from the inflated pre-owned watch market driven by pre-owned watch dealers catering to massively increased consumer demand.

While the CPO programme arrived just as the pre-owned watch market peaked (and at the time of writing its now at a two year low), it hints at the benefits to Rolex of having both circular and vertical integration.

Buying Bucherer potentially gives Rolex 100+ owned outlets. Why would Rolex want to own its retail outlets? Let’s go back to 1977 and a seminal event in the current luxury industry history. Madame Renée Vuitton asked her son-in-law to take over the family business. Henry Racamier got under the hood of the business and found that franchisees were making the bulk of the profits. So, slowly but surely Racamier set the business on the path to vertical integration. Racamier’s only business mistake was getting involved with Bernard Arnault, who took the Racamier formula and built LVMH into the giant that it is today.

Racamier, set a path that Audemars Piguet would eventually follow. Vertical integration would mean control and increased income for the Rolex Foundation.

For Rolex, owning its showrooms is not without risk. The reactive statements by Rolex that the brand shops would maintain their brand and management seems to be designed to placate Swiss competition authorities. What the subsequent integration into Rolex Group operations would look like may depend on regulatory concerns.

Swiss competition authority COMCO confirmed that was was analysing the deal. It accesses impact based on size and its possible effect to eliminate effective competition.

Bucherer is a sales agent for much of the luxury Swiss watch industry

• Baum & Mercier
• Bell & Ross
• Blancpain
• Bregeut
• Bulgari
• Cartier
• Chopard
• Frederique Constant
• Girard-Perregeaux
• Hublot
• IWC
• Jaeger LeCoultre
• Longines
• Maurice Lacroix
• Montblanc
• Omega
• Oris
• Panerai
• Piaget
• Rado
• Roger Dubuis
• TAG Heuer
• Tissot
• Ulysse Nardin
• Vacheron Constantin
• Zenith

Secondly, being a retailer and being a manufacturer is a very different business. If Rolex is going to learn about retail, it needs to spend years understanding Bucherer’s current business. Even then, there is no guarantee that it will follow the owned single brand showroom network model.

CPO and circular economy

The idea of the circular economy is now a big idea in the luxury sector and fits into the ‘Perpetual Planet’ tenet of the Rolex Foundation and at least part of the thinking behind the CPO programme. The idea is that a product can be serviced and or resold from its first owner to successive owners. This would require less new materials to be mined and less energy expended on the manufacturing process. The customer would end up with a product that is long-lasting and better for the planet.

Rolex watches like the 1960s era 5513 Submariner are still worn as everyday watches and will likely outlast you and I, if they are serviced once every five years and parts replaced on an as-needed basis. Secondly, there is a premium set on authenticity – vintage items that may have already lived an interesting life. You see this desire for authenticity from fashionistas thrifting to Rolex collectors prizing COMEX and military-issued models.

Finally, there is precedent for watchmaker participation in the circular economy; Richemont are already in the pre-owned market with their ownership of WatchFinder.

Avoiding a retail power shift?

Bucherer is the largest of independent privately owned Rolex authorised dealer networks. Rolex has about 2,000 outlets worldwide. If a rival or a private equity company bought Bucherer on its own, it wouldn’t be a big deal. But if the private equity buyer used Bucherer as a hub and bought up:

• Wempe – which has a multi-country footprint (Austria, France, Germany, Spain, USA and the UK). Like Bucherer, Wempe is also a watch brand.
• David Rosas that has a network of seven stores in Portugal.
• Emperor Watch and Jewellery that has a footprint in Hong Kong, Macau, the Chinese mainland, Malaysia and Singapore.

You then have a private equity run authorised dealership network that would be a substantial part of Rolex Group sales and more likely to try and dictate terms to the watch maker. Often this doesn’t work, a classic example of this is how Phones4U went under after trying to dictate terms to the mobile networks. Regardless of whether Rolex fended this off or were enthralled by the dealer network, it would be damaging for the Rolex brand, its global reach and customer experience.

Realistically, Rolex dealers whilst profitable miss out on some of the things that private equity firms look for:

• Huge cost-cutting potential – this might happen if you can scale to a dominant position in the Rolex dealership network and leverage it to get costs reduced. Stores tended to be staffed pretty lean already with Bucherer using one sales manager for three London showrooms. There would be limited scaling benefits for business functions.
• Huge growth potential – maybe, but you’re still constrained by the nature of the luxury market and the complex eco-system of grey market and pre-owned specialists.
• All of this would take time, likely longer than the 4 to 6 years that private equity investors typically look for their return. But that doesn’t rule out sovereign funds from the likes of the Gulf states.

Taking Bucherer off the table means that the notional private equity firm would likely need to buy a larger publicly listed partner like Watches of Switzerland. This would likely cost more on a store-for-store basis and be less attractive to private equity.

Watch servicing

Bucherer has provided Rolex with watch servicing capability through its retail network, which gives you the high level of trust that Rolex had in the brand. Having greater service capacity would be beneficial as waiting times can take as long as six months for a Rolex service. At best this is a secondary benefit for the Rolex organisation. Purchasing it would be beneficial to prevent it falling into the hands of LVMH who have increasing ambitions in watchmaking.

Manufacturing

Rolex is building three temporary manufacturing units, for use until its new factory comes online in Bulle, Switzerland some six years from now. This will be the fifth Rolex-owned factory in Switzerland. The Lengnau factory would their add to the existing manufacturing capacity or offer additional capability. Lengnau manufactures a range of movements and complications with COSC chronometer certification. The question would then be, what would Rolex do with the additional manufacturing capacity and how would it fit into the Rolex system?

In addition to manufacturing capacity, the brand brings innovation in movement design to the table from a novel balance wheel driving an automatic movement to a minute repeater movement.

if Carl F. Bucherer were kept as a separate brand it would likely benefit from being part of Rolex’ larger materials purchases from suppliers and transfer of process technologies to further improve its own manufacturing line. Scale has its advantages.

Rolex multi-brand strategy

Rolex has more demand than it’s prepared to supply for its own brand watches and the brand has been moved upmarket into the luxury space by management since the 2000s. Its second brand Tudor has been reinvigorated through the use of innovative watch materials and playing on both the Rolex and Tudor brands heritage. Tudor seems to be moving into Rolex’s classic brand positioning, while Rolex moves its price and positioning even further upmarket. But both of these brands sit firmly in the tool watch space, despite Rolex being available in precious metals.

Having a third brand would allow Rolex to move in a number of directions:

• Have a brand that could slot in below Tudor, which the CFB Pratavi models could do.
• Allow Tudor to go exclusively heritage in their design language. The CFB Pratavi models would represent a more contemporary looking alternative.
• Go after the non-Rolex space of horological designs from the likes of Audemars Piguet, Blancpain, H Moser, Patek Philippe or Vacheron Constantin. Rolex hasn’t committed to going after this part of the market previously because of its Lexus-like reputation for reliability, even in their most expensive models. This could be done with the CFB Manero and Heritage ranges which have similar complications.

Rolex has shown for decades with the Tudor brand that it was prepared to take its time, so reinventing and repositioning another watch brand isn’t out of the question.

Watches of Switzerland

The long squeeze?

As news of the acquisition got out Watches of Switzerland (WoS) shares plummeted almost 30 percent. Rolex represents about 50 percent of WoS sales. So investors were concerned about the impact that this might have in the watch market.

What if Bucherer represented, just a first move by Rolex? What if Rolex wanted to get a readymade wholly owned global footprint. Buying WoS at a depressed price would provide the ideal footprint. Porsche very nearly succeeded in a buy out of Volkswagen in 2008 that riffed on this approach.

Like the Bucherer deal, it may receive competition scrutiny. However such an approach would likely face action from the Swiss regulator COMCO, even if the UK’s CMA didn’t step in.

A second reason not to do an intentional long squeeze on WoS is that it might attract institutional investment from deep pocketed hedge funds and private equity firms who previously wouldn’t have looked at WoS as a target, to build a dealer network and in turn squeeze Rolex.

Preference

Rolex wouldn’t need to get rid of Watches of Switzerland in order to do damage to the brand. Just the perception that Bucherer had a more favoured status for Rolex availability would be enough to adversely affect footfall to its showrooms.

This is something that could happen even if Bucherer remained an independently operated multi-brand watch retailer.

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