Wednesday, December 28, 2022

Rolex in the World: What to Expect in 2023




Twenty-twenty-three will be unlike any other year. Rolex started its Certified Pre-Owned (CPO) program which means for the first time in years, it will be possible again to walk into a Rolex authorized dealer and buy a watch on the spot to crown an achievement — with a peace of mind rarely paralleled on the grey market. 

But the biggest factor of 2023 is how quickly China fully reopens. Beijing recently abandoning its zero-tolerance approach to Covid likely means the luxury world will be again able to rely on China to be a locomotive of growth as the U.S. and European economies slow. China health authorities plan to lift Covid-19 quarantine requirements on international arrivals in January.

The Chinese market going back to pre-Covid demand might just be what the grey market needs to reverse the falling trends in value of second-hand Rolex pieces. 

A survey in China of 1,500 adults with an annual income of over 500,000 yuan (USD 71,700) found that 88% of respondents expected to maintain or increase their spending on luxury watches over the next 12 months. Prestigious timepieces, especially Rolex, are an attractive alternative for wealthy Chinese at a time when authorities are cracking down on property speculation. 

Meanwhile, the war in Ukraine is going to keep energy prices high. Rolex said it expects its energy bill to go up as a result. The brand has turned off the nighttime lighting at its offices in Geneva and manufacturing facilities and said Rolex signs overlooking the harbor of Lake Geneva will no longer glow at night.

Still, it avoided a manufacture shutdown: The Swiss government as part of its energy-crisis contingency plans had big consumers of energy stop operating for up to a month if those plans are activated. The contingency plan is staying in place for the winter of 2023/2024 should the reserve levels trigger its execution. 

Europe, however, will continue in 2023 to benefit from U.S. consumers coming with a strong dollar, making shopping of luxury products in Europe more attractive. The Rolex CPO program has already started in Europe, months ahead of the American market. In the U.S., authorized dealers worry they will capture enough inventory to offer as CPO. One manager of a well-established authorized dealer in California told me he currently has 20 pieces he could start selling this spring, but he doesn't think that will be enough.

The CPO program is one of several maverick decisions Jean-Frederic Dufour has made as Rolex CEO. Hired just at 45 years old to be the "King of the Crown," he has led the brand to its most successful time ever and was nominated this year to be chairman of the board at Watches & Wonders

Under his leadership Rolex has embraced YouTube, Instagram, and most recently Twitter. It brought back the Pepsi in steel and released a GMT with a crown on the left. At the same time, the brand hasn't been afraid to walk back a few design decisions; the Explorer is again at 36mm, and the Submariner lost its blocky case design. Last month and for the first time ever, it commercialized a watch that could go down to the Mariana Trench, a place Rolex had first visited in 1960. Mr. Dufour's company finished 2022 by buying 24 acres of land in rural Switzerland for 31 million CHF and plans to build a fifth manufacture. 

Rolex CEO Jean-Frédéric Dufour

Rolex has slowly switched the entirety of its watch lineup to a new generation of movements which feature a longer power reserve, but a few models remain, like the Milgauss and Cellini. The Daytona, which will mark its 60th anniversary in 2023, houses a movement that is more than two decades old. The Yacht-Master II's movement will be 10 years old in 2023.

Whether the U.S. will tip into recession sometime in the next 12 months could affect the Rolex market though, I predict, to a small degree. The super-affluent will continue to spend money and now they can spend it worry-free on CPO Rolex watches. But others, especially those with no spending history at ADs, will exercise a more timid approach until Rolex prices on the secondary market stabilize. Either way, demand for Rolex watches is still strong, and the reopening of the Chinese market will guarantee to make 2023 interesting.