Watches of Switzerland (WOSG) shares tumbled on Friday morning amid fears that Rolex was taking steps to set up its own retail network.
Rolex has bought Bucherer, which like Watches of Switzerland, sells Rolex products through its shops around the world. Rolex currently relies on partners for retail sales, and so the possibility of it shifting to a direct sales model sent Watches of Switzerland’s share price down 26 per cent.
A statement aimed at calming WOSG shareholders did not have the desired impact. “This is not a strategic move into retail by Rolex,” the company said. “This is the best-judged reaction to the succession challenges of Bucherer SA.”
The shift to direct distribution has changed the way consumer brands operate, although this has more obviously had an impact in sportswear rather than luxury retail, with Nike (US:NKE) leading the way. Watches of Switzerland generates just over half of its revenue from Rolex products, as per RBC Capital Markets.
The retailer was adamant there would be limited impact from the Rolex-Bucherer acquisition: “There will be no change in the Rolex processes of product allocation or distribution developments as a consequence of this acquisition.”
RBC analyst Piral Dadhania said the glass-half-full view was that Rolex was just “securing stability for one of its key distribution partners” through the deal. The alternative is not so good for Watches of Switzerland: “Bucherer is a foot in the door, and now that it is capitalised by Rolex, it could pursue a more aggressive expansion plan if it chooses to”.
A significant rollout is unlikely given Rolex has kept supply limited even in the face of significant demand in recent years. Watches of Switzerland has benefited from this: through both expansion and price rises, its sales have climbed from around £800mn in 2020 to £1.5bn in the financial year ending 30 April, and guidance for the current year is £1.65bn-£1.7bn.