Data Study on Rolex Watches and Grey Market
The skills the author demoed here can be learned through taking Data Science with Machine Learning bootcamp with NYC Data Science Academy.
Brands like Rolex employ a number of methods to maintain their position as a luxury watchmaker. They are selective about the brand ambassadors they hire, the location and decoration of flagship stores, the events they sponsor, and, most importantly, the price tag of the watches. With such effort, Rolex has become one of the most iconic brands in timepieces and is known to many as the most expensive watchmaker, despite the fact that data shows there are actually far more exclusive brands that are more expensive.
With the coming of the internet, buying a timepiece is no longer limited to the Fifth Avenue flagship store, authorized retailers around the globe, or the stores that are not certified by Rolex to sell Rolex (the so-called grey market).
A few years ago, when a customer typed in Rolex on Google, the results included the online grey watch market that often ranked above the official Rolex website, a phenomenon that is not unique to this luxury brand. Customers realized at that moment there is an alternate way to obtain some of the most coveted timepieces from Rolex, possibly at a much cheaper price, though they may not have been certain of the price difference.
This problem was compounded by the fact that official Rolex website didn’t show the price for their timepieces at all. The only way to obtain that price transparency online was by finding the watch on grey watch market. And if the customer would go to the retail store to check out the price of the same watch that is being sold online, the customer would find that the online price is much cheaper, a revelation that likely would result in the customer making the purchase online rather than at a retail store authorized by Rolex.
This situation raises two key questions: Why are there Rolex watches on the grey market? Are these watches actually made by Rolex?
The slide here illustrates the business model of the online grey market, and it is AuthenticWatches.com in this case, as it draws a significant share of the online grey market.
AW (AuthenticWatches.com) buys a particular Rolex watch from both Rolex (manufacturer), and from AD (authorized dealer/retailer). AW is able to obtain Rolex and other watches at a much lower price because of its relationship with both Rolex and AD. If there is a watch in low demand that either Rolex or AD can’t sell, AW will have the opportunity to buy this watch in bulk and thus sell this watch at a price lower than the retail price.
The opposite scenario is where a watch is actually in demand, and AD has no need to sell at discount, in which case AW will find it harder to drive a good bargain. Due to the special relationship between AW and its go-to AD, AW will still be able to obtain the watch, just with less of a discount. This can be reflected by the availability of a particular watch on the AW website. If it is available in stock, it might indicate that this particular watch is in low demand and can be discounted more.
On the other hand, if the watch is available only after weeks or even months, then the watch could be a timepiece in demand, which usually translates into a lower discount. From my research, Rolex as a manufacturer does not deal/trade/sell to AW. It also places strict restrictions on its ADs to deal with AW. Despite the brand’s efforts, one can still find plenty of Rolex timepieces floating online at cheaper prices.
This causes three problems: 1) AD (Authorized retailers/dealers) lose profit 2) Customers prefer to compare watches from online grey market 3) The luxury positioning of Rolex is affected
The goal of this project is to use webscraped-data to quantitatively address the first and the third problem, namely how much profit is lost and how much has Rolex’s luxury positioning being affected, and to qualitatively seek a solution for the second problem. The project will also address these three problems from Rolex, AW, and AD’s perspectives. In order to answer these questions, AuthenticWatches.com’s Rolex section was being scraped using Scrapy.
At the end, about 2,500 Rolex watches were scraped, along with their online prices, retail prices, availability, warranty, and product name. In order to make sure the retail prices listed on AW are correct, I have checked some of them against Rolex’s official website to make sure they align with each other (AW has no incentive to lie about retail prices since trust is the key piece to online grey market).
Data on Online vs Retail Prices
Out of the almost 2,500 watches scraped from AW, only 80 do not have the retail price listed. The findings from the rest of the watches confirmed our hypothesis that Rolexes on AW are cheaper than retail prices. However, AW’s Rolex watches are only about 10% cheaper, (though they are also tax-free, which makes them nearly 19% cheaper) as compared to retail prices. If 10% seems too much to you, comparing other brands on AW, such as Breitling where some watches are almost 50% off, online Rolexes are not too cheap.
Watches online are perhaps toward the cheaper end, where most of the watches are around $10,000 range, although this cannot be confirmed without Rolex’s sales data. And given the same discount, expensive watches will result in more “savings” ($30,000 with 10% off comparing to $10,000 with 10% off). If a desired Rolex timepiece is only 10% off online, a customer might have more incentive to shop at a retail store where he or she will receive good service and satisfy instant gratification.
Data on Availability vs Online price
One of the hypotheses about online watches is that if a watch is available in stock, this is an indication that the watch is not desired by the market and usually comes with a deeper discount, and vice versa. This has been confirmed true with AW’s Rolex. Watches that can be purchased right away have a discount mean of 18%, whereas watches available after weeks and months usually come with less than a 10% discount.
Another observation is that watches only available after 3 months have less discount range comparing to other availability. This could indicate a weak negotiating position from AW because of the popularity or rareness of some timepieces.
Watches that are in-stock are usually cheaper than watches available only after longer periods. This might reflect the riskiness of carrying expensive watches in its inventory for AW. However, this could also reflect the online popularity of watches, where the preference and appetite is usually toward the lower end of the price tag.
Popular watches Data
After seeing the comparison of different stock availability option, you may ask what are some of the popular watches? In fact, one of the most advertised watch on Rolex official website is Oyster Perpetual Rolex Deepsea, which is not even on AW’s website. This could indicate this particular timepiece is so popular that AW does not even have access to it, or even if it has access, AW is in no position to sell it at a discount.
Since this project has no access to Rolex’s database, the only approximation to the popularity of a particular line of timepiece is through counting the number of products being sold under that category on AW, and if that category has less of a discount than other categories, then one can make the assumption that this line of Rolex is a popular line. Through this assumption, the category with most products is datejust 36.
When comparing the top 10 most popular category discount with the other categories, it is statistically significant that the popular lines are less discounted online. If a particular line of Rolex (e.g.: datejust 36) has many products online and is giving out less discount, there is a reason to believe this line is a popular line and could indeed be the cash cow for Rolex.
Since we have all the information about Rolex’s discount on one of the largest online grey market, it is time to make assumptions and calculate how much profit margin AD lost for every Rolex sold on AW or online in general. By making the assumption that most of the Rolex watches sold online are around $10,000 to $20,000 range, with average discount around 10%-- assuming no one would buy watches that cost twice the mean price sold online (larger than $40,000) -- the AD loses $1,500 for every watch being sold online.
The case when online is more expensive
As mentioned earlier, there are around 80 watches on AW that do not have retail prices listed. This is not due to mistake or due to AW’s lack of information. Instead, the reason AW does not want to put retail price for these 80 watches is because they are more expensive than the retail price listed on Rolex’s official website. In such cases someone who buys a watch at a retail store can profit by reselling online.
In fact, these watches are usually iconic Rolex lines that have been heavily featured in various channels, and thus one may expect sell-out of such watches at a retail-level. Therefore, if a customer has to wait to buy a watch from AD, the customer may opt to buy online, albeit with a higher price tag. This finding contradicts to AW’s image as a cheap seller that only sells watch that are not in demand.This also brings up the idea that AW should not market itself merely as an online place of cheap watches, but an online place to get timepieces that one can not obtain offline.
In conclusion, Rolex is holding its brand well comparing to brands like Breitling, but there is more it can do. Knowing that Datejust 36 is the most popular line and a cash cow for Rolex, Rolex should be careful not to overproduce the item and thus make these products susceptible to discount, which would impact the luxury positioning.
Rolex should also adjust its position for popular watches because it is better for AD to be able to pocket the profit margin with enough inventory than for it to lose customers to AW because of inventory issue. Rolex should also place further restriction for AD to be able to sell online as the presence of discount harms the positioning.
As for AW, AW should market itself as a boutique timepiece dealer to rebrand itself and to attract more customers for its platform. AW should also optimize its inventory so that consumers would purchase the watch for instant gratification, thus increasing sales. AW should connect with more ADs or deepen the relationship with existing AD to increase the selection and availability of some products.
AD should prioritize its relationship with Rolex since Rolex is holding its branding well as compared to other brands. This will help AD to obtain more popular pieces and thus keep the profit margin from losing to AW. AD should also cut relationships with brands that have been significantly diluted by online presence, especially Breitling. Last but not least, AD should work with Rolex to improve online search results and online shopping experiences together so that customers would prefer to shop directly with Rolex’s certified channel.