Today, we are running a special episode from our show Business Breakdowns. In this conversation, Ben Clymer does an incredible job breaking down what makes Rolex so special. If you enjoy this episode, follow Business Breakdowns for more discussions like this.

Founded in the UK in 1905 under the name Wilsdorf & Davis, Rolex has become the leading name in luxury watches. But, while the company’s products are iconic, the business itself is highly secretive. Owned by a Foundation and run as a non-profit entity, little is known about Rolex. To unlock the secrets, we are joined by Ben Clymer, founder of HODINKEE, and an expert on all things luxury watches. Ben has had rare access to Rolex and the people behind the manufacturer, making him the perfect person to dissect this business with us. Please enjoy this excellent Breakdown of Rolex.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes
[00:03:01] - [First question] - His favorite Rolex watch ever
[00:04:24] - What makes the Rolex Daytona such a special watch 
[00:07:19] - The job-to-be-done for high-end watches beyond just telling them the time
[00:12:18] - The strategy behind marketing luxury products: The Luxury Strategy
[00:14:34] - An overview of the Rolex business
[00:19:38] - The history of Rolex 
[00:38:45] - Their genius in marketing and distribution 
[00:41:55] - How they make decisions and what others can learn from them
[00:47:14] - The financials of Rolex and other luxury watch brands
[00:49:02} - Most important business lessons others can learn from Rolex
[00:52:54] - Other luxury brands worth studying 
[00:57:26] - Negative lessons gleaned from Rolex

This is Matt Russell, CEO of Colossus, and for today's Invest Like the Best, we are running a special replay from our show, Business Breakdowns.

Earlier this year, we started to talk about what we call forever episodes.

This is a small collection of episodes that we think will be as popular in a decade as they are today.

This business breakdown on Rolex, it might be the epitome of this classification.

I still remember the message we received from Patrick as he was recording this episode.

It was the first and only time I've seen Patrick use the letters OMG.

Many years ago, the New York Times labeled Ben Clymer as the high priest of horology.

And if there was a single guest made for a Rolex breakdown, Ben Clymer is that guest.

Ben does an incredible job explaining just what makes Rolex such a special brand.

Whether it's your first time listening or a very worthy re-listen, please enjoy this breakdown of Rolex and make sure to subscribe to the Business Breakdowns feed.

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TGIS offers the ability to schedule 30-minute meetings, an offer you won't find anywhere else.

With white-glove custom sourcing for every project and robust compliance measures, including a dedicated 50 plus person analyst team that vets every call transcript, TGIS ensures your privacy and protection.

As the industry innovator for qualitative insights, TGIS helps you find the right experts you need at a quality and speed that can't be matched.

For a limited time as a listener, you can trial Tegus for free by visiting tegus.co slash Patrick.

Business Breakdowns is a series of conversations with investors and operators diving deep into a single business.

For each business, we explore its history, its business model, its competitive advantages, and what makes it tick.

We believe every business has lessons and secrets that investors and operators can learn from and we are here to bring them to you.

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All opinions expressed by hosts and podcast guests are solely their own opinions.

Hosts and podcast guests may maintain positions in the securities discussed in this podcast.

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

Today, we're breaking down 1 of the strongest brands in the world, Rolex.

Founded in the UK in 1905 under the name Wilsdorf and Davis, Rolex has become the leading name in luxury watches.

But while the company's products are iconic, the business itself is highly secretive.

Owned by a foundation and run as a nonprofit entity, little is known about Rolex.

To unlock the secrets, we're delighted to be joined by Ben Clymer, the founder of Hodinkee and an expert on all things luxury watches.

Ben has had rare access to Rolex and the people behind the manufacturer, making him the perfect person to dissect the business with us.

Please enjoy this excellent breakdown of Rolex.

So Ben, I was trying to think of an appropriate first question to break down Rolex.

I think it has to be, what is your favorite Rolex watch ever?

Oh man, that's a really complex question for a gentleman such as myself.

The Daytona is probably my favorite Rolex as an object.

There are Rolexes that mean a lot to me from a sentimental point of view, being my grandfathers, my fathers, etc.

But the Daytona as a thing has always been the peak of my fascination from the early 6239s, which is first generation Daytona, back before it even said Daytona on the dial.

I wrote a story probably 10 years ago plus at this point on Hodinkee about those.

There was some curiosity within Rolex about what they should call it.

And this was before they sponsored Daytona.

And the original name of the cosmograph, the chronograph for racing was Le Mans.

It's called Rolex for a variety of reasons, but 1 of which is Rolex is Rolex in any language.

And Le Mans, with that silent S, the Rolex marketing department, as small as it was in 1963, said, you know what, that could turn off the American market.

And if you've ever tried to pronounce Audemars Piguet as Audemars Piaget, which is about 50% of humanity, you realize how uncomfortable that can be.

So the Daytona as an object is probably my favorite.

I will say that The watch that I'm actually wearing right now, which was actually the first modern Rolex ever bought, which is the Pepsi GMT in white gold.

I actually just realized I bought 2 months after we published the inside the Rolex story that I wrote 2015 is probably the 1 that means the most to me, because I've just had it the longest and it was to celebrate something personal at the time.

So say we have more about the Daytona, like what is it about it as a physical object that you think makes it special?

First of all, like I'm a very serious car guy or I shouldn't say I'm a serious car guy, but I love cars a lot.

And the Daytona, not just with Rolex, but with all watches, that is about cosplay and the idea of you can be whoever you wanna be.

I'm this like quiet dork from upstate New York.

In my mind, I'm Paul Newman, and I'm driving a vintage Ferrari or a vintage Porsche or Le Mans or something super badass.

And the Daytona is the quickest way in my mind to get in there.

And then As somebody who is obsessive about things, as you can imagine, being that I started a blog about watches and now here we are, the Daytona has the most interesting history in the sense that it is and it was not produced.

The movement was not produced by Rolex until relatively recently, in the 2000s, whereas everything else, almost from day 1, was produced by Rolex.

So the Datejust, the Day-Date, the Submariner, GMP, those were all Rolex movements.

Daytona was not, which I think is just fascinating.

So in younger years, when I was taking the subway, I would time how long my subway ride was or how long it took to cook the chicken in the oven, et cetera.

But ultimately the idea of a professional watch, which is Rolex sports watches with a dial that didn't have to be black.

It was also smaller than most of the sports watches with the exception of the Explorer, which is the 36 millimeter watch.

And it just had a lot of story that went with it.

1 of which of course being the fact that Paul Newman himself wore 1, and that's of course the most expensive wristwatch ever sold, not for charity.

There's just so much about the Daytona, but on a personal level, it came down to the aesthetics, the connection to motorsport, and then just simply the story behind it, that it was really not a success at all.

And chronographs, whether it was Rolex, Heuer, Patek, anybody, these were really engineering focused or motorsport focused watches.

They were not for guys like you and me, unless we were driving at tracks on the weekend.

And similarly with the Submariner, which I have right here, this was not for me.

The idea of a desk diver, which is somebody that sits at a desk but pretends to dive, is really a very, very modern, very recent introduction.

And back then, you bought a Submariner if you were actually diving.

It wasn't because I'm going to my pool in upstate New York on the weekend.

Otherwise, you were buying a small dress watch.

And whether it's Rolex or Patek or any other Vacheron AP, mega, the most expensive watches, historically speaking, in the mid century of last century, were not sports watches are not even complicated watches, they were ultra slim watches.

So if you look at Patek or AP or Vacheron being the 3 big boys at high end, the most expensive watches were not the perpetual calendars with chronographs.

And that represented the highest end version of watchmaking at the time.

We're starting to see that a little bit now, actually Richard Mille just this past week introduced the thinnest mechanical watch ever made, and it's $2 million.

And Bvlgari released 1 earlier this year that was up until last week, the finest watch ever made.

And that was about $500, 000, where the standard Bvlgari would be say 15.

You said something interesting, which is 1 of the jobs to be done for buying a Rolex is this cosplay idea of transporting you to a more interesting or fanciful lifestyle.

Maybe you could describe before we get to Rolex specifically, the brand, all the jobs that you think high-end watches do for people.

I don't want to take for granted that 1 of them is tell the time, but you can buy a Casio for 10 bucks that can tell the time.

There's lots of ways to know what time it is.

So describe to me through history, and especially today, all the reasons, the main reasons you think people buy high-end watches.

Historically speaking, digital time telling didn't exist before 1969.

When they were going to the moon, it wasn't like they could buy a Cassie or use an iPhone.

They needed a mechanical watch to strap on the outside of the flight suit.

When you were racing Le Mans or the Mille Emilia in the 1950s, again, there was no such things that were timekeeping, so you wore a watch to do that.

The functionality of it is obvious, but I think it's worth repeating here because a lot of people don't remember that 100 years ago, 50 years ago, 60 years ago, there was no option.

You were wearing a watch and it was a mechanical watch to do everything in your life.

And so the idea of me looking at my Rolex now and then comparing it to my MacBook here, there was no option to do that.

I set this watch once with probably an hourly bell on the TV or the radio, and that was it.

And then you would just assume that this would be accurate for basically in perpetuity.

And then beyond that, going back to the earliest, earliest watches, the Marie Antoinette days, And she was 1 of the first or the first supporters of what we call hot horology, also an American accent, which is high-end, really beyond basic time-telling devices.

And what I mean by that is you can buy a mechanical watch and Hodinkee sells mechanical watch for about $150.

So that's probably a Timex or it might be a Swatch, System 51, which are not battery powered.

You throw them out when they're broken, you don't fix them.

There's no, what we call finishing or finisage, which is effectively aesthetic flourishes that differentiate those type of watches from, say, Rolex or Omega, which I would classify as mass-market luxury, but the most long-lasting of anything out there, and then what we call haute horology, which is slightly more artistic.

You get complications, you get finishing of movements.

I don't have any here with me, but something like a Patek, an AP, a Vacheron, a Ilan, etc.

I would classify those as a category, frankly, significantly higher in terms of finishing and significantly higher in terms of human touch than Rolex or Omega.

There are no Rolexes with open case backs, but there are some Omegas, which is so Rolex is the number 1 brand in the world.

Omega is the number 2 brand in the world historically speaking by sales.

Omegas will have some open case backs on the new Speedmaster, for example, which went to the moon, you can see the movement.

So a lot of nerds and now more of the nerds want to see what's actually inside this watch.

And it's simply because you're paying 6 or 7 grand for this thing.

And that is why a lot of people are interested in high-end watchmaking today.

More recently, and this is very recent, really over the past 2 or 3 years, you get people that are buying on speculation, on the idea that these are safe investments, which they remain to this day.

So Houdinki, our business is 15 years old, they're approaching 15 years old.

And really nobody thought of watches as investment vehicles in 2008, 2009.

I should say very few, some people at the very high end.

And I do interviews with the Bloombergs of the world and Wall Street journals of the world almost weekly at this point, talking about the ROI of not just Rolex, but AP and Omega and McGuire, et cetera.

There are several reasons why somebody might buy a watch.

And frankly, that's why it was always so compelling to me as an ex-finance guy and why I wanted to get in this space was it could be interesting, we'll say, to somebody that works in finance from an ROI perspective.

It could be interesting to somebody in design from an aesthetic perspective, an engineer from a manufacturing perspective, for somebody like me who's an ex-journalist from a storytelling perspective.

There's so many reasons why you could be interested in it, but the reasons why that people continue to buy is that they are so forever lasting.

This watch I've had for 7 years, I've never had it serviced, and frankly, I probably won't need to service it for another 7 years.

And when my daughter, who was just born 6 months ago, is my age 40 years from now, she'll be able to wear this watch that I'm showing to you on the Zoom call right now.

There's something so wonderful about the longevity of these things in a way that frankly nothing can replicate.

Even a great car, we'll say a Mercedes or a Porsche or something like that.

And frankly, the internal combustion engine 50 years from now will probably not even be serviceable.

Jewelry is a different thing because there's craftsmanship there.

And I have a lot of respect for great artisans jewelry but there's no engineering, there's no motion there.

And I think what's so remarkable about Rolex as the archetype, but all mechanical watches is that I can put this on my wrist.

And if I decided to sell all my other watches, I can wear this every day while I sleep, while I shower, while I work out.

And it would continue to tell time for me and it would rely on me as much as I rely on it.

I think there's something beautiful in that, that kind of symbiotic relationship between the device and the man.

And it's just a wonderful kind of totem to a different way of living.

It's such a fascinating set of different things and considerations.

I'm also curious how you think about the luxury strategy itself from a marketing standpoint behind watches.

I remember reading this called luxury strategy, which I recommend anyone interested in this topic.

And 1 of the ideas that stands out from that book is that when marketing a luxury product, you want the ratio of the number of people aware of something to those that actually have it to be as wide as possible.

Because 1 of the jobs you're doing when you buy a really fancy watch is you want other people to know that it's a marker of success, sort of like a signaling function to watches.

How do you think that piece of this has evolved over time?

And I think more so now than ever before, just speaking of my own experience, 15 years ago, when I started Hoding Key, nobody knew what a vintage Rolex was.

We were, if I may say, we were the first people to give any attention at scale to vintage Rolex and collectible Rolexes.

Basically, if you went to an auction, Christie Sotheby's auction in New York, there would be about 7 dealers in there and they would just be buying and selling amongst themselves.

Now you go and it's a black tie affair with champagne and several well-known personalities from entertainment and sports are sitting in the audience.

Again, we can talk about the origins of Rolex and how they were at the forefront of this.

They were effectively the first people to have real marketing dollars put behind a watch.

There were people that ran ads here and there.

Longines was a big 1 with Charles Lindbergh, But Rolex did it in a concerted way.

And they have continued to do that in a way that is simply just unmatched by others.

And I think what's so remarkable, Rolex was always the number 1 brand in the United States, historically speaking, from the 1950s to today.

So pre-2008, so the financial crisis of 2008, which is actually how I started 13 when this all kind of came to be, was a real turning point for Rolex in the US because when all the other brands, their competitors being Omega, which is a huge, huge brand, Tag Heuer, which is a good size brand.

The folks that you would think, they were there.

They were present in the conversation with Rolex.

They pulled back on marketing when people stopped buying after 2008 when Lehman collapsed.

which really elevated Rolex in the United States to a level that it is today.

If you speak to them directly, they'll credit with that period as kind of a turning point for them in the US.

Maybe before we go into the history, which is so interesting and really important, We could just do a level set for the audience on Rolex, the business, and just some basics.

Like how many watches do they produce a year?

The revenue that they produce a year, maybe say a little bit about their very unique business structure, which I think would certainly shocking to me.

And I think will shock some people too, that aren't familiar with it.

Just level set us on the size and type of the Rolex as a business.

And I want to be completely clear, and I'm sure Rolex will listen to this.

So I want to be clear for them and for the audience is that they don't communicate any.

The information that I'll provide, and that I'm sure you read is completely speculative.

We have a good idea of what they might produce and what the revenue might be.

The assumption is that Rolex is making just north of around a million watches per year with an average wholesale price of around $7, 000.

So you can do the math there to kind of give you an idea of size and revenue.

And a million watches per year is a lot, but it's not the biggest by quantity.

Apple, of course, would be bigger than that.

Arguably, if you included Apple, they would be an even bigger watch brand than Rolex, but different thing, obviously.

But if you were to combine, for example, the entire Swatch group, which ranges from Swatch to Breguet, including Omega, it would be a larger business than Rolex in theory.

But again, Swatch is a publicly traded company.

You can see exactly what their revenue is.

Whereas Rolex is, that I think you've alluded to, Rolex is quite the opposite.

Rolex is in fact run by something called the Hans Wilsdorf Foundation, which was founded in 1945 when the founder, Hans Wilsdorf, set it up to basically be effectively a nonprofit run by a group of families that are still highly involved with business today.

They have, I would say, effectively 0 public interaction.

I'm pretty close with Rolex and I'm pretty close with the watch industry, you could say.

And I have met, I think, 1 board member 1 time.

These people are, in fact, the most powerful people in watches.

But most people have no clue who's really kind of playing the strings at Rolex.

And there's a wonderful CEO named Jean-Fred Dufour, who used to be the president of Zenith, which is an LVMH brand.

And he is absolutely the face and brain behind much of Rolex.

And like any board, they have a different kind of influence over the brand.

But yeah, Rolex is effectively a nonprofit.

Some say 1 of the largest nonprofits in the world, which I would believe.

There are dozens and dozens of rumors that you may have heard, such as like, they've got the largest private art collection next to the Vatican, or they own more real estate, they make more money in real estate than they do in watches.

All I can say with the utmost certainty is that they will never reveal any of that to be true, even if it is.

They're not the type of brand, type of company that will ever stand on the rooftop and shout about anything.

And I mentioned this in the story that I wrote in 2015, whereas most brands, they're trying to create stories where there aren't any.

A lot of brands will say a watch is in-house and you manufacture it in-house when it's not.

In fact, what's so remarkable, and I found this out on my own doing my own research for that story

they will make several updates to products at some significant cost to themselves and not change the retail price and not even tell anybody about it.

And the only reason that I found out is when doing research for that story, I spoke to an independent watchmaker who is in New York City and is 1 of the best watchmakers in the country, if not the world.

And he said, he works on Rolex as well as other brands.

These are the changes that they made to their movements without anybody knowing.

And by the way, you know, these other brands that are communicating about Liga, which is a manufacturing technique that allows you to have frictionless gears.

A brand sent out a press release about that.

And then he came to find out that Rolex had been doing that for 5 years.

That's what's so kind of wonderful about Rolex is they just are so remarkably Swiss.

They are so kind of conservative and thoughtful in the way that they communicate.

When I wrote that story in 2015, I was 1 of the first journalists to ever be invited inside Rolex manufacturing headquarters in Vienna, Switzerland, which is where movements are made.

They just are not out there to talk about themselves really ever.

The luxury world is so much about Instagram and influencers and people touting how prestigious any brand might be.

And Rolex is just quietly the most prestigious.

I cannot think of another example of a company that I want to come to vertical integration and quality and some of these key brand elements and real elements of a Rolex in the absence of a profit motive over such a long period of time.

There just aren't other stories like this where there's such dominance?

The only other 2 that come to my mind, or 2 brands that I know of, 1 of which would be Patek Philippe, which is another family, like it's owned by the Stearns completely, there's not any outside capital.

Again, family run, Geneva, very, very close to the Rolex group, obviously, physically and emotionally, I should say.

They continue to just do things in a way that is different than everybody else.

They have some outside capital, but effectively controlled by 1 family has been for a hundred years.

Hermes is part of the fashion life cycle.

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Rolex: Timeless Excellence