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Just how much profit are watch companies making?

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The thread on cheap vs high-end watches reminded my of a topic that has been swilling around my head lately.

Given our own JohnnyOldBoy managed to make a 'swiss made' watch on his own, not too long ago, for under £200.

And some companies, like Braithwait, are open about their costs -- stating their Swiss auto costs them about $330 to produce (remember that next time you're looking at those microbrands, and if it has a Miyota movement you can basically halve that).

And that it's estimated (I stress estimated) that a SS Rolex costs under $1,000 to make (one benefit of having models that last).

At what point are you paying for the brand?

A Patek Nautlius, three-hander in SS, is going to set you back north of £20k new (and likely more pre-owned). They have development costs, they spend a lot of time hand-engraving the movement (which will largely be ignored), but they're not spending more than a few thousand to make each one.

Obviously the retaillers take a nice chunk out of that end figures as well.

I know it's the way of business, and luxury especially, but it still feels a little galling.

No wonder Seiko think they should up their prices!

Anyway, food for thought.

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Seem to remember back in the day when I was repairing video recorders and Televisions the cost in making a Video recorder was £45 and at the time they were selling for £800.

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You will always pay top for brand .How much do you think people would pay for a Ferrari if it had fiat written all over it .

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1 minute ago, A2orry said:

You will always pay top for brand .How much do you think people would pay for a Ferrari if it had fiat written all over it .

£2.99p

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The high end makes will make a lot more gross profit per unit, but their development,  tooling, manufacturing and sales costs will spread across a lot less units sold.

Same goes for any high end item be it watches, hifi or cars.

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Question who is ripping us off .probly costs Seiko 10% of the asking price of a skx to produce. Probly costs rolex 10% of the price of a submariner to produce. Is this the wrong thing to do as a company with overheads. 

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I wonder whether @JonnyOldBoy was costing his own time (at the rate he would charge others) into his £200 Swiss watch.

And, we need to remember that gross profit is very different from EBIT. I bet JOB was not charging himself for his research, rent, etc.

I wouldn’t mind a small wager that Rolex advertising and promotion budget rivals its total manufacturing cost.

All of this is academic however whilst we have an industry comprising manufacturers producing hundreds of thousands of watches each year, and companies turning out product by the tens, we are never going to be able to truly compare the cost of the quality you buy. It’s all about buying mystique.

Let’s face it, a Seiko 5 is probably as high a quality of mechanical watch as anyone really needs. After that we are simply buying jewellery.

Nice though, isn’t it. :whistle:

 

.

 

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I remember people used to be shocked to find that the average item in a jewellers shop window has a three times mark up (watches usually doubled but gold tripled and silver sometimes 4 or 5 times)  Even so jewellers don't make a great deal of money really in the grand scheme of things, by the time insurance, rates, staff, bills and taxes are settled there isn't a lot left for the effort.

When you are high end I guess all that leather and marble needs to be paid for too... 

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Shop around.....I’ve been looking at a watch that retails from 350 to 791. I’d be ticked if I paid 791.

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I can't find it,but there was an interesting article regarding how CW pitched their prices into the market when they started. Then there is always that "round the table talk" regarding how much the market will stand. There are of course evil men lurking at all corners who force you to buy expensive items against your will, and in some cases, it depends on how stupid you are. From personal experience, a huge chunk of money will go on marketing. Then there's the "let's look busy with a clipboard" brigade that need paid. Buying Range Rovers in Belgium used to be a whole different experience to buying at home, no " men in suits" and flagship multi million pound showrooms, but then the experience wouldn't be the same, would it ? When asking how much does it cost to manufacture something, the cost of materials is often the least, it's the overheads that are often greater. Ferrari ?

hayek-nicolas-swatch-auto.jpg

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51 minutes ago, JonnyOldBoy said:

Hmmmm....the car companies that are not loosing money.... are only making about 5% Net after tax and before dividends...

I wouldn't have thought that 5% net is hardly enough to sustain development of future models yet they're pumping them out, 10 a penny.

I'll take Ford as a simple example. Have you seen how much you need to pay for say, a base model Fiesta nowadays ? 13.5K and up to than 20.5K for the top dog one.

I'd imagine most people, myself included, either PCH or PCP their vehicles nowadays, it makes sense for me.

Personally, using my example, I'd say that was overpriced and that there's more than 5% net in there for the manufacturer. Of course, I don't know 100% but they surely couldn't continue with such small margins.

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18 hours ago, A2orry said:

You will always pay top for brand .How much do you think people would pay for a Ferrari if it had fiat written all over it .

A lot of money, it'd be very rare after all!

  • Haha 1

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17 minutes ago, longplay said:

A lot of money, it'd be very rare after all!

Fiat own Ferrari. Same as swatch group own nearly all the big names in watches. 

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2 hours ago, JonnyOldBoy said:

People underestimate the number of companies worldwide that operate on the same cost model fractions as the watch companies.....

Watch companies are nothing special. Take Tropicana Brand oranges juice as just one random example , about 1/3 of the trade price cost is taken up with branding, marketing and advertising. About the same as Omega,Breitling and Longines..... ( Breitling is a little less , but still significant ).

Its nothing out of the ordinary to be paying about 15% purely for the advertising spent getting you to buy it ....

:thumbsup: 

And you know all this, how ??

My take on the OP's question was fairly speculative, yours, both to me and the OP seem quite definitive.

Edited by reggie747

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1 minute ago, reggie747 said:

And you know all this, how ??

Because business models are fairly standard the world over. Some may be more or less volatile depending on the product, but the watch industry is nothing special.

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1 minute ago, Wheelnut69 said:

Because business models are fairly standard the world over. Some may be more or less volatile depending on the product, but the watch industry is nothing special.

Well I must be a completely thick barsteward then. I've had my own business for 33 yrs, since I was 18 yrs old and if I had made 5% as johhny says and/or 15% as he says again, I would be living under a cardboard box in my city centre.

You're telling me then that global trade and business high and mighty are making such small margins ? We've talked about watches, car manufacturers and Orange juice so far.

Colour me confused....?

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Richemont 2017/18 sales €10.98 billion, operating profit €1.84 billion, 16.7% of sales, net profit would be less

Swatch Group sales CHF7.960 billion, operating profit CHF1.002 billion, net profit CHF755 billion

In Swatch's case net profit is 9.5% of net sales  

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6 minutes ago, reggie747 said:

Well I must be a completely thick barsteward then. I've had my own business for 33 yrs, since I was 18 yrs old and if I had made 5% as johhny says and/or 15% as he says again, I would be living under a cardboard box in my city centre.

You're telling me then that global trade and business high and mighty are making such small margins ? We've talked about watches, car manufacturers and Orange juice so far.

Colour me confused....?

How much profit are you leaving in the business? Your wages/divvies/drawings are still a cost .....

Edited by Wheelnut69
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12 minutes ago, reggie747 said:

You're telling me then that global trade and business high and mighty are making such small margins ? 

giphy.gif

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I forget what it’s called but isn’t there a theory about pricing along the lines that the more something costs, the higher its perceived value?

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