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How does an orphan with no money or connections build the most famous watch brand in the world? A lot of Rolex's history is shrouded in mystery and secrets, but today we're looking deeper into the incredible rags-to-riches story of Rolex and answering the question: Why are Rolexes really so expensive?
The story of Rolex begins with Hans Wilsdorf, the company's innovative and mysterious founder. Hans was born in Germany in 1881 to parents Anna and Jonah Wilsdorf, and his early childhood was filled with love, laughter, and happiness. But that was cut tragically short when, at age 12, both his mother and father passed away unexpectedly just a few months apart. Hans suddenly went from having two loving parents to being an orphan, and he had to go live with his uncles, who sent him off to boarding school. Initially, Hans became very depressed by all this, but eventually decided to throw himself into his schoolwork as an escape. He seemed to particularly enjoy learning different languages, which would later pave the way for him to move abroad once he'd finished school.
After graduating, Hans went to work in Switzerland at a company called Kuno Corton, a large exporter of a variety of different pocket watches. Since Hans spoke German, English, and French, he worked as a clerk and correspondent for the firm. However, the company also manufactured some of their own watches, and so this role gave Hans a great opportunity to understand watch construction and study the watchmaking industry closely. Whilst a lot of Hans's job involved repetitive tasks like winding hundreds of watches each day, during his time there, Hans developed a deep appreciation for the craft and became obsessed with the idea of creating perfect watches.
Then, in 1903, Hans moved to London to work for another company where he had a bigger role, as he was involved in getting new sales and clients. This gave him a good understanding of what made one watch brand stand out from another, and also how crucial marketing was to a brand's success. Was these different jobs were quite enjoyable, Hans was already dreaming much bigger and wanting to implement the skills he learned for himself. And in 1905, at the age of 24, Hans decided to start his own watchmaking firm. He had a small amount of money he'd saved up, which he invested in the business, but most of the funding came from his brother-in-law, Alfred Davis, who became his co-founder. Together, they created the Wilsdorf and Davis company and began importing watches from Switzerland to sell in the UK.
However, in those days, wristwatches were nowhere near as popular as they are today and were mostly regarded as women's jewelry. In fact, Hans's friends even tried telling him a watch with such a small and delicate mechanism would be flimsy and break too easily, and that a watch so small wouldn't be accurate. Instead, pocket watches were strongly preferred. But Hans felt wristwatches were much more convenient and elegant, and is quoted as saying, "My personal opinion is that pocket watches will almost completely disappear and that wristwatches will replace them definitively." Hans felt men needed to be higher quality, so Hans ignored all his critics and took all of the company's money to make one of the largest orders of wristwatches ever booked at the time. He was buying everything that wristwatches would become the future of the watch market. Everyone thought he was crazy, and even his business partner wasn't sure it was a great idea. But it was Hans reportedly met with many different watchmakers who were considered masters of the craft and tried to learn at least one new lesson from each of them. Hans then used an old connection from when he'd worked in Switzerland to import Swiss-made mechanisms so they could begin creating high-quality wristwatches.
Of course, Hans knew quality alone wasn't going to be enough, and that brand recognition was going to be the most crucial element of all. And that all began with having a memorable name. Now, the origin of Rolex's name is slightly curious. Hans's claim that he initially tried combining random letters of the alphabet in every possible way to come up with hundreds of unique names, but none of them felt quite right. But then Hans said, while he was riding to work one day, a genie whispered in his ear: "The name Rolex." Now, regardless of where the name really came from, it was perfect. Rolex is short and memorable, but also easy to pronounce in any language. Plus, Rolex felt like it had style and authority to it. And this Hans started printing it on the dials of all his watches, which also helped build up brand recognition. In fact, a few years later, they changed the entire company name to Rolex Watch Co. Limited.
Very quickly, their new wristwatches began to sell well. In 1910, Rolex became the first wristwatch to be awarded the Swiss Certificate of Precision, and then in 1914, the British Kew Observatory awarded a Rolex watch a Class A rating, which no other watch of that kind had been given before. Rolex was starting to develop an association with quality, which helped attract even more sales.
But then, in 1914, the First World War broke out. By this point, Rolex headquarters in London had more than 60 employees on its payroll and had become the export center to every market the company sold to. However, during the war, Germany became Britain's enemy, and since Hans was of German descent, with a German name and a German accent, tensions began to rise. Not just that, but the British government imposed a wartime import duty of 33% on all luxury goods. So, to avoid any conflict and to get some major tax benefits, Hans decided to move Rolex headquarters from England to Switzerland, which was neutral during the war. And thus, whilst many watch companies went bankrupt during World War One, for Rolex, it was actually a very successful time because their wristwatches became a favorite amongst the military for their reliability and convenience over pocket watches.
But undoubtedly, the real rapid growth of Rolex can be attributed to Hans's marketing instincts. As early as the 1920s, Hans was putting his watches on explorers, athletes, racers, aviators, and countless other successful people, which created a connection in consumers' minds between high achievers and Rolex. Hans also ran hundreds of expertly placed ads on the radio and in newspapers, as he understood the value of product placement decades before most of his competitors would catch up.
Then, in 1926, Rolex created the world's first commercial, fully waterproof watch under the name "Oyster," and Hans had the perfect idea of how to market that too. As he'd heard about a woman who was going to swim in the English Channel, and Hans convinced her to do so wearing Rolex's new waterproof watch. After over 10 long hours in the cold water, she emerged with the Rolex Oyster completely intact, generating lots of headlines about Rolex's new product. Hans then told Rolex dealers to display the waterproof Oyster watches in fish tanks in their windows with real fish swimming around the watch, which inevitably caught the eye of people walking past.
The next big groundbreaking milestone in Rolex's history came just five years later when Rolex's engineers developed the Perpetual rotor, which automatically wound a watch, something that had been previously considered impossible. Hans also made it his mission to ensure the most popular people in the world wore a Rolex, especially those involved in daring challenges. For example, the first flight to Everest was performed by a crew wearing a Rolex Oyster, and Malcolm Campbell wore a Rolex watch when he set a land speed record in Utah back in 1935. And so, it was really this combined strategy of great marketing mixed with new innovations that allowed Rolex to keep rapidly expanding and become more and more popular.
Like how, in 1945, on the 40th anniversary of the company, Rolex released another new model called the Datejust, the world's first automatic watch to feature a date window on its dial. However, shortly before the ceremony to announce this, Hans was struck by another tragedy when he lost his beloved wife, Florence, who passed away due to an illness. His wife had been with him through thick and thin, and this was obviously a devastating period for him. He'd been orphaned at 12 and was now widowed at 63 with no children. Hans was a master of watches, but not a master of time, and it was beginning to think more about his own mortality.
And thus, Hans spent the next few years developing a way to ensure the future of his empire that he'd built from scratch would be kept in good hands. That's why, in 1946, he established the Hans Wilsdorf Foundation and transferred his 100% ownership stake in Rolex to the foundation. To this day, this organization still maintains full ownership and control of Rolex, and since it's a foundation and not a company, there are no corporation taxes on any profits. Instead, a large percentage of the money goes towards charitable causes, including education grants and the training of watchmakers. Although it's reported not all of the money goes to charitable causes. But since Rolex is owned by the trust, there are no shareholders and no requirements to disclose its financial activities. This structure allows Rolex to maintain a very high level of secrecy. So, despite being the most well-known watch brand in the world, very little is known about the internal affairs of the company, including how the company is being managed, who exactly manages it, how much money the company is making, or what they're doing with that money. And so, some might say the foundation is merely a clever way to protect the wealth and power of Rolex and its subsidiaries. Rolex's employees also have strict non-disclosure agreements, and it's reported no photos are even allowed inside the Rolex building. And thus, Rolex operates from the shadows, making it nearly impossible to critique anything Rolex does because no one really knows what we do.
What we do know is that when Hans died in 1960, the new owners of Rolex continued to help the company go from strength to strength. However, there was one major road bump in the 1970s when the quartz revolution came, which was the introduction of battery-operated watches that were more accurate and much easier and cheaper to mass-produce. As a result of this, these quartz watches flooded the market, and many mechanical watch manufacturers went bankrupt. Between 1970 and 1988, Swiss watch employment fell from 90,000 to 28,000. And yet, despite this, Rolex was fine. So the question is, what makes Rolex different? Why can they continue to charge so much for their watches?
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In 2017, a Daytona Rolex that once belonged to late Hollywood star Paul Newman shattered records when it was sold at auction for an astonishing price of $17.7 million. Whilst you definitely don't need to spend that much money to get a Rolex, even the most entry-level model would set you back many thousands of dollars. So why are people willing to spend so much to buy a Rolex when this similar watch is so much cheaper, and we've all got the time on our smartphones anyway? Well, when you Google this, the answer seems fairly straightforward: that basically says Rolexes are just really well-made. That's ultimately why they're so expensive because you, you're buying something that will last you a lifetime, presumably. This is a nice sentiment that Rolex charge so much because their watches will stand the test of time, but of course, that's certainly not the full story. You don't need to drop tens of thousands of dollars just to get a watch that'll last a long time.
So, firstly, let's state the obvious: Rolex is not just a watch, it's a status symbol. In fact, it seems to be a fairly universal symbol of wealth. From rappers on the streets of New York to members of the British Royal Family, countless iconic figures have worn Rolexes, including John F. Kennedy, Winston Churchill, Steve McQueen, Elvis Presley, Martin Luther King, and many more. And this level of status is clearly thanks to Rolex's high-visibility marketing strategy, where it associates itself with success. For example, Rolex is the official timekeeper for both Wimbledon and Formula One, and they sponsor many prestigious events that wealthy people watch or attend, such as equestrian and golf championships. You'll also see Rolexes in movies, like James Bond wearing a Rolex, and the company pays big stars to endorse the product, like Roger Federer reportedly earning $8 million per year from Rolex.
Now, of course, a Rolex is not just all hype and marketing. Rolex does use very premium materials, which are rigorously tested to a high standard, which of course comes with a higher price tag. And clearly, there is manual work required by hand to create high-quality mechanical watches, and so salaries are some of the highest in the world. Plus, the company also invests heavily in its own scientific labs to research and create new watches. However, an interesting post from someone who spoke with a watchmaker estimated that a Rolex that sells for around $7K could only be around $700 to make. And some other estimates put their profit margins as up to 20 times the cost of making the watch, with the rest of the profits being spent on Rolex's advertising and sponsorships to keep the brand exclusive and desirable. Of course, if Rolex didn't do that, it wouldn't have the same status, which is why most people want a Rolex in the first place. And admittedly, because of Rolex's secrecy, we don't know the exact cost for sure. But what is clear is that even though Rolex watches are high quality, a lot of watch enthusiasts say there are higher quality watches at cheaper prices. Rolex are not the rarest or most expensive watches in the world, and the extremely wealthy or die-hard watch enthusiasts are much less likely to get a Rolex, as there are other luxury watch brands they'd likely prefer. The difference with those other brands is that they spend much, much less on marketing, which is why most people outside of a watch community have no idea they even exist. Instead, Rolex is an upper-middle-class aspirational brand because whilst they are relatively expensive, they are obtainable to the middle class. A Rolex is affordable if someone really saved up. So with Rolex, you're evidently paying a lot for the brand and its prestige.
There's even a rumor that Hans once said, "Only great marketing is needed to make a company successful." Because of course, high prices enable Rolex to pay more influential people to wear their products or sponsor prestigious events, which creates more demand, which allows them to charge higher prices. However, in order to still maintain this image of prestige and exclusivity, Rolex only sells their watches through authorized dealers, and there are generally no special offers or sales. In fact, Rolex reportedly even repurchases old stock from stores to make sure no excess stock is sold at discounts, because being perceived as a discount product would be bad for the brand image, and they don't want to make their products seem easy to obtain.
A great example of this is when Hans realized they were missing out on a lot of sales from people who couldn't afford a Rolex. But rather than make a cheaper Rolex model, they introduced a separate brand called Tudor. The watches are very similar, but they were made under a different brand name so they didn't risk diluting Rolex's brand by making it too accessible and affordable, and thus damaging Rolex's position as a status symbol.
But this goes even further, as it's believed that Rolex artificially creates scarcity for their products. You see, Rolex makes about 800,000 to 1 million watches per year, which is way less than the demand for their watches. But the reason for the shortages is likely that they deliberately limit the supply to keep the demand high, which allows them to keep pricing high. As the wait time can range from 6 months to 3 years, authorized dealers have sometimes claimed that the company is under-supplying the market to drive the price up and engaging in price fixing worldwide to maintain the value of their watches. Because what's it's true, their watches do take time to make, it's unlikely to be as much time as some say, because there are reports that a single watch takes a whole year to produce, as Rolex doesn't outsource production. When in reality, there are conflicting reports that question that and suggest some small parts of the watches are outsourced, and that contrary to popular belief, Rolex watches are not entirely made by hand, with machines being used at some stages. Again, this doesn't mean Rolexes aren't high quality. There's clearly a lot of work and precision goes into each one, but what it does mean is that if Rolex really wanted to produce more watches, they probably could, but they prefer there to be some unfulfilled demand and a waiting list. That's not a limitation because of how long each watch takes to make, it's just a smart business strategy.
What's perhaps most interesting about this is that Rolex can be described as a Veblen good, which is a product that contradicts normal supply and demand. Because when you're normally buying something, let's say a pint of beer, the lower the price, the more the demand. If a bar cut their price to $1 per pint, people will be queuing up and buying loads. But on the flip side, the more that the price increases, the less people would want to buy it. However, with a Veblen good, when the price increases, the demand increases too. In other words, higher prices lead to more people wanting it. That's because Veblen goods are often purchased for signaling status. For example, if Rolex started slashing their prices, passively, there'd likely be less demand, as Rolex would lose its premium perception. If everyone had one.
The good news is, even though a lot of Rolex's price doesn't just come from the quality of the watch, that doesn't mean it's not worth it. Thanks to Rolex's rich heritage and reputation, they generally hold their value or can even increase in value if well-maintained, thus allowing people to view it as an investment. There will still be worth a similar price even years after use, something with very few other watch brands have achieved. The crazy part is, Rolex was initially considered more of a tool watch for its utility than a fine watch or collector's item, but through its marketing and sales strategy, the brand has moved towards luxury instead and subsequently become one of the most valuable brands in the world.
Given the huge adversity Hans faced from an early age, it truly is incredible what he managed to build. And this story of Rolex undoubtedly has some useful business lessons for all of us. But now, if you want to see an even more insane entrepreneurial success story, check out my video on the controversial life of Cornelius Vanderbilt. I think you'll really like this one. But either way, thanks for watching this video to the end. You are a legend, and I'll see you in the next video. Cheers.
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