In 2015, entrepeneur Elizabeth Holmes had an estimated net worth of $4.5 billion. On January 3, 2022, she was found guilty of fraud. In the interim, her net worth was reestimated as zero. One of the most important lessons from the Holmes saga is that falsified data can open the spigot to great riches. A whistleblower testified that Holmes' company manipulated data in order to pass certain tests. We can't lose track of the fact that a spreadsheet always begins empty, and the process whereby that spreadsheet is filled is just as important as the entries in the cells.
This month, news broke of a LuxeConsult / Morgan Stanley (hereafter LM) report purporting to describe the state of the luxury watchmaking industry in 2021. It generated a lot of attention. I was a bit bothered by the published pie charts and tables, though. I could not find a copy of the report anywhere. Moreover, the authors assert very specific revenue figures for Rolex, whose secrecy is the stuff of legend. I just couldn't figure out how the "spreadsheet" behind this report was built, which gave me great pause.
I'm not a fan of believing numbers when I can not understand the methodology behind them. My own analysis of the report suggests it is inconsistent with a financial statement from a Swiss watch group which was audited by a third party. It also seems inconsistent with numbers reported by both a trade association and the Swiss government. I will explain.
First, the major headline from the LM report was that, in 2021, Rolex had a 28.8% market share with sales of CHF 8,050 million. From this, we can deduce the report's implied claim for the watch industy's total sales. Let's call this total sales number x. The report implicitly states that 8,050 / x = .288. Solving for x, we get CHF 27,951 million. Here is where the data story starts to fall apart.
According to industry group Federation of the Swiss Watch Industry FH, total watch exports from Switzerland were CHF 22,297 million in 2021. If the LM report is believed, buyers in Switzerland must have bought CHF 5,654 million in Swiss watches. This is the total global sales alleged by LM minus the amount of Swiss watch production exported according to FH. Total sales in the top two markets for Swiss watches, the United States and China, was CHF 6,045 million. I find it hard to believe that a small country like Switzerland, with a population of roughly 8.6 million, bought almost the same amount of watches as two countries with a population totaling 1.4 billion.
Let's look at it another way: in 2019 (the last year for which statistics are available), Swiss authorities report that households spent CHF 14.03, on average, on jewelry and watches per month. There are roughly 3.9 million Swiss households. This implies that their annual spending on jewelry and watches was CHF 656 million. That is nowhere near the CHF 5,000+ million of purchasing they would have to carry out if the LM number were accurate. It is very unlikely that Swiss households increased their watch expenditures by more than a factor of ten between 2019 and 2021. This is strike one against the LM report
Let's next turn to the Swatch Group's annual financial report. Their audited financial statement indicates that the group sold CHF 7,014 million of watches in 2021. The published LM report lists market shares for some major brands owned by the Swatch Group: Omega, Longines, Tissot, and Breguet. The market share for these companies, according to the report, is 17.2%. Using the (probably erroneous) total sales number described above, this implies Swatch Group sales of CHF 4,745 million, which is roughly 2/3 of the watch sales reported by the Swatch Group. Granted, there is 20.5% of the market attributed to "Others" in the LM report. I suppose it is possible that Swatch Group's portion of this 20.5% will harmonize the two figures, but I highly doubt it, especially given the "strike one" described above.
In summary, trade statistics, Swiss authorities, and audited financial staements from the Swatch Group contradict a watch industry report that is not publicly available. Without compelling argumentation from LuxeConsult / Morgan Stanley, it is not advisable to accept their claims regarding the watch industry in 2021.
News recently broke that watch brand Rolex was on the receiving end of a €91 million fine levied by French authorities. A view of Rolex's offices in France. Source: Google Maps. Generally, the headlines ascribed this fine to Rolex's alleged practice of prohibiting online sales of its watches. However, I've looked closely at the situation and I don't think those headlines are completely accurate (although they're probably what French authorities would want you to believe). I came to this conclusion after reading a Google translation of a 134 page report issued by the French Competition Authority on December 19, 2023. Generally speaking, such documents do not make for engaging reading. However, for those who know how successful Rolex has been at maintaining a comparatively high level of corporate secrecy, the French report provides a compelling and rare insight into some specific aspects of the brand's business. It is these insights which lead me to conclu...
The other day, I was poking around in Swiss business registries (as one does on a weekend) when I noticed that Jörg Bucherer was still listed as the "president and delegate" of luxury watch retailer Bucherer, AG. A Rolex clock in front of an AD in New England. Since Bucherer, the man, passed away on November 8, 2023, this clearly raises some questions. More curious was the fact that Rolex ownership of Bucherer, the business, was not indicated in Bucherer's commercial registration and Rolex's own business registrations did not indicate a lash-up with Bucherer. News of Rolex's intent to acquire Bucherer broke roughly eight months ago. Now, I will admit that I do not understand or know all the nuances involved in Swiss business registration. I do know that registrations are administered by the Swiss cantons (roughly equivalent to states in the US) so perhaps this was simply a matter of delay in updating the registrations across cantons (Rolex is registered in G...
There's a quip in the world of finance: "nobody rings a bell at the top or bottom of the market." AI generated image of someone looking for the bottom of a chasm. If you're on a trading floor, you know it is the start of the day because of the "opening bell." But, if you reach the low point for prices, there is no bell. Everyone just has to do their best to figure out if prices are finally going to start increasing again. This is certainly true of watches. According to Chrono24's Chronopulse index of watch prices (full disclosure, I've contributed to this index), we've just begun the third year of a "bear market" for preowned watches. Chronopulse overall index of late. The rate of decrease in prices has certainly slowed, but there hasn't been an overall turnaround in prices just yet. It is hard to say if we're at the bottom or if we're just on a gentle downslope that will continue for the near term. Right or wron...
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