Watches of Switzerland (WOSG) Initiating Coverage
The closest you can get to owning a stake in Rolex
I have initiated a position in $WOSG.LN, and as a standard disclaimer am noting that nothing written below represents investment advice. Please consult your fiduciary prior to making any investment decisions.
Watches of Switzerland ($WOSG) is not your typical retailer. With over 220 showrooms in the U.S. and U.K., the company is the world’s #1 luxury watch retailer. Over 50% of their revenue comes from the sale of Rolex products, and there is a strong argument to be made that you could characterize $WOSG as a de facto subsidiary of Rolex.
The company makes ~75% of their revenue from their 7 highest-selling luxury watch brands:
~50% from Rolex
~10% from Patek Philippe and Audemars Piguet
~15% from TAG Heuer, Cartier, Omega, and Breitling
These brands sell watches worth tens of thousands of dollars to a discerning, wealthy clientele. Owning $WOSG is partly a play on high net worth tailwinds, which are significant considering the global population of ultra-high net worth individuals increased ~8% last year, with their collective wealth growing ~7% to $49 trillion.
The business
Selling luxury watches is a really, really good business, and is not like retailing other goods. Let’s discuss the relationship between $WOSG and Rolex, specifically. Rolex does not sell its watches direct-to-consumer, instead controlling physical distribution among a handful of third-party “Authorized Dealers.” Industry participants have described the right to be an AD as a “license to print money.” $WOSG is the largest Rolex AD - and the two companies have had a relationship spanning ~105 years.
Rolex ADs have long customer waitlists, limited (if any) inventory risk, and negative working capital dynamics (ADs have to pay Rolex 60 days after inventory arrives in the store, and they usually sell inventory within several days of arrival). Inventory turns across all of $WOSG’s products is ~3.0x, but reaches as high as ~10.0x for Rolex and other marquee brands. This is not traditional retail. Rolex and marquee brands like Patek Philippe or Audemars Piguet never discount their inventory, which faces zero risk of obsolescence. Luxury watches are arguably what is defined as a Veblen good: demand for them (counter-intuitively) grows as their price increases.
There are extremely high barriers to entry for being a Rolex AD - it is near impossible for a store to become an official distributor of the brand. Not only that, but Rolex and other brands have been rationalizing their store base, cutting out smaller ADs in favor of those that can adequately invest in their stores to elevate the client experience. In the UK, Rolex cut the number of ADs from 130 to 93 from 2014 to 2023, while in the U.S. they had ~2,300 dealers in the 1990s but today have less than 400 doors.