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Why Are Rolex Watches So Expensive?

Here’s why people are willing to pay $10,000 for a Rolax watch.

 

For years, we have seen their advertisements all over the newspapers, magazines and on television. This has created a desire within us, even if not all of us understood why it costs so much.

When we become older and start making our own money, we start to research more about it. The more we read, the more we are convinced that owning a Rolex watch is worth our money.

Before long, we find ourselves swiping our credit card as we splurge S$10,000 for that dream Rolex watch.

But have you ever wondered why Rolex watches are so expensive to begin with?

Background Of Rolex

Established in 1905, Rolex is known globally as the biggest Swiss luxury watchmaker.

The company produces about 700,000 watches each year, or roughly about 2,000 per day. On first look, this may seems like a decent number, but that only represents about 2% of all Swiss watches sold annually. More tellingly, it represents about 0.06% of the 1.2 billion watches sold worldwide each year.

Starting at an entry-level price of about S$8,000 for an Oyster Perpetual, a Rolex watch is expensive to own. With that kind of money, one can easily buy the next 6 versions of the iPhone and still have some money left.

How Much Does A Rolex Cost?

Since Rolex is a privately held company own by a trust set up by its late founder, there is no public information with regards to its financial figures. That said, an extensive search online have most people pegging the product cost of a Rolex watch to be between S$750 to S$1,000. This is of course at best, an educated guess.

If between S$750 to S$1,000 feels a little high to produce a watch compared to the S$3 watch one can manufacture in China, it’s worth noting some aspects of Rolex watch that makes it intrinsically more valuable.

For starters, each Rolex watch is carefully created with the kind of precision you expect from a Swiss watchmaker. These include the type of steel used, the technology that the company introduce, adopt and innovate and of course, the human touch and obsession to quality it takes pride in. All these takes time, skills, resources and of course, money.

Rolex watches are produced entirely in Switzerland. With Switzerland being one of the world most expensive countries to do business in, cost is naturally high. It’s nevertheless the stringent standards that the company has adopted which allows it to charge a premium for its watches, and why buyers are still happy to pay for it.

The Rolex Brand

Similar to other luxury goods like designer bags, jewellery, supercars and high-end fashion brands, Rolex is able to charge its customers more because of the brand it has built up over the past decades.

Even buyers who are not watch enthusiasts and who do not fully appreciate the craftsmanship and technical complexities that goes behind producing a Rolex are willing to pay a high price for it.

If you base a watch value on functionality, a digital watch would certainly be worth more. Yet even the casual customer will know that a Rolex is more valuable and that equates into brand equity that Rolex is able to capitalise on, and which is what people pay for.

A large part of what creates the desirability of a Rolex comes after years of years of advertising. Rolex is known for sponsoring sporting events such as tennis Grand Slams and important golf tournament. These are events that attract their affluent target market. These people in turn sets the trend creating further demand within their social circle for people desiring a Rolex watch.

Rolex As An Investment

Is $8,000 too much to pay for a watch that only tells the time? This depends on how you look at your watch. Is it merely a watch? Or could it be seen as an investment asset as well?

Because of the unique brand it has, Rolex watches hold its value well over long periods of time as compared to its peers. Not withstanding wear and tear or other damages, a Rolex watch can sometimes be seen as an investment.

Here’s a simple illustration to prove our point.

In 1957, a Rolex Submariner costs $150. We don’t think you need to be an investment expert nor a watch enthusiast to know that if you have that very same watch today, you can expect to receive a lot if you were to sell it.

The point here that we are trying to make is that unlike your iPhone 7 which would probably lose half of its value within 12 months, and be worth nothing in 2040 unless you sell it to some desperate Apple Museum, a Rolex watch is not necessarily a depreciating asset.

In fact over time, it may even increase in its value. For example, a 1949 Rolex Perpetual sold for about USD$1.24 million in 2014. Now that’s some crazy returns.

What helps retains the value of a Rolex watch is the fact that luxury goods are hardly ever cheap, even in the used market. In fact, for products such as Rolex, their value may even start increasing after a certain number of years when the number of existing watches from that year decreases (due to some watches being damaged) while demand continues to remain high.

Read Also: How Wine Investment Works

Should I Buy A Rolex?

This article isn’t meant for you to throw financial prudence out and to justify why it’s okay to buy a Rolex watch without regards of its cost.

Rather, it’s important for us to understand that the cost of a Rolex, and other investment watches, go beyond what it takes to create it as a watch. As a buyer, you are paying a premium because of the brand of the watch and the future possibility that you can profit from it as an investment.

So given enough time (this is not a guarantee), your S$8,000 Rolex watch may actually end up being cheaper than your S$400 G-Shock in the future.

 

 

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