LONDON, Aug 25 (Reuters Breakingviews) – Watches of Switzerland (WOSG.L) is having a bad time. Shares in the London-listed luxury retailer slumped on Friday morning after Rolex, one of its major suppliers, bought Swiss store chain Bucherer for an undisclosed sum. Investors fear Rolex might start selling through its own shops. In the short term, these concerns look overstated, but Rolex’s move may still have called time on WoS’s business model.
A broken clock is, famously, right twice a day. But in this watch-making intrigue, Rolex and the markets cannot both be right. The Swiss company, whose pricey creations grace the wrists of financiers and celebrities, insists that Bucherer – a 100-plus store chain of jewellery and watches – will remain independent. The stock market, on the other hand, seems to believe Bucherer is a stepping stone for a Rolex move into direct-to-consumer selling. Investors in Watches of Switzerland – where Rolex products account for over 50% of sales – are a case in point. Their company’s shares lost more than 20% of their value on Friday morning. That prompted WoS to put out an odd statement containing a stronger denial of Rolex’s alleged direct-sales strategy than the Swiss group’s own communiqué.
The luxury watchmaker has good reasons to contemplate retailing. Relying on third-party shops means less control over brand execution and increases promotion and discount pressure. To do so, admittedly, will take time. Bucherer owns just over 100 stores globally, compared to WoS’s about 200 shops around the world. Besides, Rolex stresses that it will not be involved in Bucherer’s operation directly. In that context, Friday’s slump in WoS shares looks excessive.
In the long run, though, those ambitions are a threat to WoS and other watch retailers. Rolex could easily acquire WoS. After Friday’s share price drop, WoS is valued at around 1.6 billion pounds, or 6.1 times EBITDA in the year to April 2025, using Refinitiv data. RBC analysts estimate that a buyout could be done at a multiple of 9 times, implying an enterprise value of 2.5 billion pounds. That’s a modest sum relative to the enterprise value of 4 billion Swiss francs that Vontobel analysts believe Bucherer is worth. RBC analysts estimate Rolex generated 8.8 billion Swiss francs of revenue in 2022. Putting that on the 3 times multiple of Richemont (CFR.S), its closest listed peer, would give Rolex an enterprise value of 26 billion Swiss francs.
If WoS’s value keeps dropping, its shareholders might find that being gobbled up by a direct-selling Rolex is their best, and only, idea of a good time.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
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Rolex announced on Aug. 24 that it would buy luxury watch retailer Bucherer for an undisclosed amount.
The news sparked a sharp sell-off in the UK-listed shares of Watches of Switzerland, a major retailer of Rolex watches.
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Watches of Switzerland, which sells Rolex, Piguet and Cartier watches, said in a statement on Aug. 25 that Rolex had confirmed that there would be no change in its processes of product allocation or distribution. “There will be no operational involvement by Rolex in the Bucherer business,” Watches of Switzerland said in the statement.
Watches of Switzerland shares were down more than 20% at 0933 GMT on Aug. 25.
Source : Reuters