(Sharecast News) – Watches of Switzerland tanked on Friday after it emerged that Rolex was buying one of its key rivals, Bucherer, for an undisclosed sum.
In a brief statement, Watches noted that Bucherer is a long-standing retail partner of Rolex, and insisted that the acquisition is not a strategic move into retail by Rolex.
“This is the best-judged reaction to the succession challenges of Bucherer,” it said. It pointed out that there will be no operational involvement by Rolex in the Bucherer business and that Rolex will appoint non-executive board members.
“There will be no change in the Rolex processes of product allocation or distribution developments as a consequence of this acquisition,” said Watches of Switzerland.
At 0940 BST, the shares were down 28% at 501.50p.
Victoria Scholar, head of investment at Interactive Investor, noted that Bucherer will continue to sell other watch brands.
“This could cause issues for other Rolex official retailers like Watches of Switzerland and The Hour Glass,” she said.
“The tie-up between Burcherer and Rolex could solidify its ties at the expense of Watches of Switzerland, potentially diminishing its relevance in the market for sales of second-hand Rolex watches.
“Rolex is a highly popular brand with demand sharply outweighing supply. High-end customers and the luxury market have proven to be highly resilient to the broader macroeconomic and cost-of-living pressures this year.”
Russ Mould, investment director at AJ Bell, said: “Investors seem to fear the tie-up will mean Bucherer gets preferential treatment including better access to the watches that consumers are desperate to buy.
“Watches of Switzerland’s efforts to reassure the market that there will be no change in how Rolex allocates stock have fallen on deaf ears. This is what Rolex might have promised now, but that could easily change in the future.
“There has been a trend among various product manufacturers including the big trainer companies to sell direct to the consumer. In doing so, they learn more about customer preferences and make more margin as they can cut out the middleman for these direct sales.
“Imagine that happening with Rolex. Theoretically, it could use Bucherer as its channel to sell and not have to bother with other authorised dealers such as Watches of Switzerland.
“It’s worth noting that Watches of Switzerland has been a favourite stock among many mid-cap fund managers. They will have to look hard at the Bucherer announcement and decide if it radically changes the investment case.”