Rolex buys Bucherer

Here are some thoughts on the strategic and financial rationale of the Rolex / Bucherer deal from both sides. Happy to hear your thoughts on it.

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While I think the deal has huge strategic benefits to Rolex, I still think it was an opportunistic move and a “hard to decline” offer for J?rg Bucherer.

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Let’s start with the view from Bucherer:

It was long known that J?rg Bucherer, 87 years old, founder and sole owner of Bucherer, without any descendants, needed to find a solution for his baby. I see mainly 5 options:

• Selling to private equity: we know that some firms looked at the opportunity. Bucherer’s profit is heavily (probably more than two thirds) dependent on a single supplier contract - the one with Rolex. This causes massive red flags for PEs. So not sure they were willing to make any exciting offers.
• Selling to a competitor: Bucherer probably also looked into it. But could have the same issue as PEs.
• Selling to a brand or group of brands: Here Rolex (and maybe Patek) was the only true option. I doubt that LVMH, SWATCH or Richemont would have taken the risk of buying a (mainly) Rolex retailer and potentially losing the Rolex & Tudor contract. In this scenario, Bucherer would be rendered almost worthless if Rolex canceled their partnership. ??
• Taking Bucherer public.
• Transferring Bucherer into a foundation – so basically what Hans Wilsdorf, whom J?rg Bucherer knew personally, did many decades ago.

Most insiders expected the foundation solution. We heard that a solution had been worked out, but nobody, not even the management, knew the details. I always expected this to be the outcome.

I doubt that Bucherer, in has late years, would want to go through the hassle of taking Bucherer public. I also thought that he did not want to sell to a PE or competitor at the risk of potentially destroying the soul of his brainchild.

I imagine that Bucherer opted for selling to Rolex, probably his perceived most trusted buyer, or transferring Bucherer into a foundation. Since Rolex is already part of a foundation both options might even be somewhat similar to him. And by selling to Rolex, he could still use the financial proceeds to set up a foundation.

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So, let’s shift to Rolex’s view:

They knew for years that this deal would arise sooner or later. Rolex hardly ever makes the first move - nor even a close second. They usually take their time, think, and once they do move forward, they do it right. A bit like Apple. ?

It was part of Hans Wilsdorf’s testament not to sell directly to consumers (with the exception of that one store in Geneva) and continue to partner with dealers. That might also be the reason why Rolex has always been considered a very loyal, if stringent, partner.

But now the times have changed. CPO has become more and more important. Expanding Rolex’s market share could be challenging while retaining exclusivity. You already see probably too many Rolex watches on people’s wrists. I do not know any other luxury category with such a dominant player at the forefront. So vertical integration must be a valid (maybe even the only real) expansion strategy.

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I don’t think that Rolex was eagerly looking to purchase a dealer. But this was a “hard to pass up” offer. I am sure they did not want their most important retailer to be in someone else’s hands.

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Do we I expect any relevant changes in the industry within let’s say 3 years? No! Do I expect changes within 5-10 years? Definitely! Rolex will use Bucherer to have more control over their CPO business and better control supply and sales into the grey market. If 3rd party dealers do not follow Rolex’s guidelines now, they might be more readily willing to let them go. So this will put more pressure on all other Rolex re-sellers.

Rolex stated they will not make immediate changes at Bucherer. It does not need to. The company is very well run by Guido Zumbühl. But Guido is older than he looks (-: and will not stay indefinitely. So, Rolex will implement its own management sooner than later.?

So, what does this mean for other brands? Some have openly congratulated both parties. But we expect some relevant brands (mainly from Swatch and Richemont) will pull out of Bucherer. Maybe not now – but it will happen. Also, Watches of Switzerland will be more at risk. It’s a billion-dollar business that is heavily depending on a single contract. Their shares already dropped more than 25% this morning.

Interesting times ahead!