Tariffs Overturned: Relief or False Hope? – Plus Rolex & AP Grow on Scarcity – Episode 69

A beautiful watch. It was a Code 1159 with the red dial. And I bought it from a boutique that was an AP boutique that wasn't local to me. And they wanted me to get on an airplane to go get it. And I respectfully declined because I don't have the time for that. I have a family. Yeah. And they were very confused. I mean, look, I just found that fascinating.

That was just their expectation. This is Openwork, a look inside the watch industry, a podcast from Collective Horology. I'm Gabe Reilly, co-founder of Collective. And I'm Asher Afkin, co-founder of Collective. Collective Horology is an independent watch retailer based in Southern California. We carry a wide range of independent brands, including Speak Marine, Zeitwinkel, Garrick, and more. To learn more about us and check out our available

inventory, visit collectivehorology.com. Hey, it's Gabe. So after we recorded this

week's episode, we got big news from the Supreme Court. They struck down the Trump administration's reciprocal tariffs, which of course have had a huge impact on the watch industry. So Asher and I put together a short segment, which we'll play now, getting into the details and discussing specifically what this means for the industry and what it means for watch prices.

All right, well, we've got some breaking news this morning, which is that the Supreme Court, the United States Supreme Court, that is, has overturned the Trump administration's emergency tariffs, which were used, among other things, to impose lately a 15% tariff on Swiss goods, including Swiss watches. The number had been as high as 39%. Of course,

the Swiss and American trade delegations negotiated that down. But today, the Supreme Court says no more tariffs, at least not tariffs imposed under IEPA, which is an emergency powers act from 1977. So tell us what's going on here and how this affects the watch market.

Right. So as some background, IEPA was originally created to give the executive of the United States a toolkit to deal with national emergencies that could only really be addressed through potentially economic sanctions and methods. The Trump administration interpreted that as a broad privilege where they could impose tariffs at any point for any reason that they deemed to be a national emergency. They were sued by many, many people. That was consolidated

into a lawsuit and they were shot down at every court that they went to. And now in a six to three decision, which is notable here in the United States, a six to three decision is a pretty strong rebukes from the Supreme Court and a clear statement that tariffs

imposed under IEPA were not and have never been legal. So what that means is that every reciprocal tariff, which is different than some of the tariffs that have been imposed, for example, on aluminum or on or on steel, for example, even on other manufactured goods like cars and clothes washers, those are still covered by tariffs that are more targeted

in nature and didn't use that broad IEPA act. But the blanket tariffs, the 15 percent on the EU, the 15, the 10 percent on England, the 15 percent on Switzerland are now illegal. And that's effective immediately. This is what we know. And in the past, when this case started working its way through the federal legal system, initially went to the Court of International Trade and they had given and they struck it down and they had given

the government some time to unwind it. And the Supreme Court said, no, these are illegal effective immediately. So as of today, the 20th of February 2026, these tariffs aren't in place. But that doesn't mean the Trump administration isn't making other plans or pursuing other avenues for tariffs. This challenge around tariffs hasn't gone away. So what's the Trump administration saying they're going to do about this now?

Yeah. So they've responded. They don't like this. And they're interested in and their interest in preserving these tariffs is actually quite limited right now in terms of the options they have. So they plan to lean on something called Section 122, which is another path that they have to implement tariffs on the scale that they want. So they're so we're looking at about a 10 percent global tariff being implemented as soon as Donald Trump

issues an executive order under that particular legal structure. But it's not the same as IEPA. It does not give him the same level of control. For one thing, tariffs are capped at a maximum of 15 percent. So no more, you know, 200 percent, 300 percent insanity like that. And perhaps more notably, they're also capped in their duration. So these tariffs can only sit in place for 150 days unless Congress votes to extend them. And he can't

keep renewing them when they expire. So when they get to the end there, if Congress doesn't vote on it, which is about four ish months from now, then they're gone. And I think it's notable he can't invoke them again. From what I understand, this is a one and done sort of thing. Yeah. And if we look at the timing here in the United States, that's only a few months away from when people go to the polls to vote in the midterm elections. So that's

an additional wrinkle to whatever pressure the administration may want to play. Republicans want to vote for for taxes. Yeah. So this leaves, I think, two unopened or two open

questions here. Question number one is, well, what about refunds? The Supreme Court said these are illegal and they have to stop now. What happens to the hundreds of billions of dollars that have already been paid in by citizens, businesses, foreign entities, things like that? And then, of course, the other question is, what about watch prices? Are watch prices going to come down? So let's take these one at a time. What does happen

for all these tariffs that have already been paid? Are people going to be getting checks in the mail with refunds? Yeah, probably not that. We don't yet know. The amount of money that has been collected here is it's nearly 200 billion. And just to be clear, the Supreme Court didn't actually address refunds at all. So there's they didn't elaborate

on any sort of process or even, frankly, a mandate around refunding. But they also didn't say that the refunds were not going to happen, which is something that a lot of Supreme Court watchers were looking for, which this idea that, well, IEPA tariffs are not legal, but we're just going to leave it as is. They didn't do that. And that's actually a massive amount of money, paperwork and operational effort that's going to need to go in to figuring

out what the next step is here. So it is highly likely that we'll see further litigation. It's highly likely that the government may take a significant amount of time to figure out a process for these refunds. So I think at this particular juncture, nobody knows how, if or when that's going to happen. And there's other challenges tied to customs law, for example, a set period of statutory time, at which point you can no longer dispute a

particular import. So lots of open questions there. We're not sure where we're headed. So unclear. The next question is, will do watch prices come down? Probably not. I mean, the Trump administration is saying they're going to put in effect this this new executive order with a 10 percent across the board, global tariffs and tariffs will remain in effect, at least it looks like for another. Well, presumably, I mean, we don't know what

Congress is going to do when and if that happens. Sure. But let's say, you know, they do nothing. We may have more tariffs. A.B. The dollar also weakened, further weakened on this news. And we've talked a lot on the podcast about the fact that the thing really driving up watch prices hasn't actually been tariffs. It's been currency exchange. The dollar has fallen dramatically, particularly relative to the Swiss franc, at least as of this morning.

It seems to continue to be an issue. So don't expect any relief, at least in the meantime from tariffs. Don't expect any relief from foreign currency exchange rates and expect a period of continued volatility. All of those things point to watch prices most likely staying where they are, if not continuing to move up, unfortunately. So that's where we are as of February 20th. We'll continue to watch this at noon at noon. We'll continue to watch

this, of course, and keep you guys updated. Gabe, do we ever get asked about watch accuracy?

There's a lot to talk about with watch accuracy. So we've got a bunch to chat about today. We will chat about COSC's new excellence chronometer standard and then some news out of both AP and Rolex in terms of sales growth and constraining production. But let's start with accuracy. So what's going on over at COSC? So as some folks may be familiar, about five or six years ago, the new kid on the block, Metos, which I can't, I can't get past the fact that

it just sounds like, what's the thing in the Avenger? Shield. It sounds like shield. Metos sounds like shield. It was like Metos. It's like five letters that whatever. So to me, I'm just shield has five letters. M E T A M E T A S S H I E L D. Okay. Well, you know, there you go. Whatever. So shield. Uh, anyway, so Metos was the new kid on the block and they came on board with a much higher chronometric standard for testing than what we had previously seen. This is more

than five years ago. This is 11 years ago. Cause I think the first Metos, it was the, it was the Omega that the PI, uh, the, the pipe hand constellation. Yeah. Watch you lusted after. Anyway, it was this quite significant change. And to be clear, not necessarily in the technology that makes a watch more accurate of which there are a multitude, but the standards by which we

test for that accuracy. So as everyone who is listening to this podcast likely knows a chronometer in its most official definition is a watch that has met specific testing requirements to be considered a high level, high accuracy, mechanical timepiece, thus a chronometer. And of course, there are costs is one observatory or institution who can certify chronometers. There are others horological society of New York. I believe here in the United States has their own chronometer

and testing. So just cause something is a chronometer doesn't necessarily mean it's certified specifically by cost. But of course, in the minds of many people, cost is it's synonymous with chronometers. Usually that's what was the benchmark. And of course, other companies have different standards that are higher. In some cases, Rolex of course, famously has the master chronometer, a superlative superlative chronometer. Thank you very much. The superlative chronometer,

which is supposedly even tighter than cost certification. And then, of course, now we have met us. But the fact that cost itself is sort of synonymous with chronometer speaks to their position in the industry, the strength of the institution. And that's something that theoretically you want to defend while someone like Metas is coming after it and brands are even setting their own chronometer standards like Rolex was superlative. So clearly there

was some work for cost to do and, and they've done it. So they've unveiled this new chronometer standard. They're calling it the excellence chronometer standard. And truthfully, it falls somewhere between the current cost chronometer standard and the Metas standard. It's not quite

equivalent to Metas. But before we go there, I do think there's something culturally interesting about the idea of an observatory, which I find to be somewhat counterintuitive to the way a lot of the watch industry operates, which is it's one of the few places that we ever really see a transparent third party evaluating another party's work. We've seen this with some other standards

like the Geneva seal, for example. And we've seen reactions to that where Patek Philippe, for example, famously stopped using the Geneva seal on their calibers in order to put the their own seal on. That's right. You have our own seal. Yeah, exactly. So, but and thus, if you think about it, what that also did is it pulled Patek Philippe more a bit further back into like their own, you know, cloud of mystique, which wasn't there when they had to conform to publicly

the standards of finishing of the Geneva seal. Similarly, I find it fascinating that brands at all different price points will submit to testing by that third party, where some of those movements do get rejected and have to be retested. And that's just not not something that we generally see in this industry. So that's that's one interesting thing. And then, yeah, you pointed out the other one, which is after all of the hullabaloo of Metas creating an even tighter

standard for testing. Now we have costs response to it half a decade later, plus. And it's not as good. Yeah. And that that's where it's certainly a tighter standard than the cost chronometer standard. So just to to break this all down here. So to be an excellence chronometer, there's a six second window. So minus two to plus four seconds a day. Metas is zero to plus five seconds a day. So it's a second tighter, but the watch can't can't go below zero seconds of accuracy and costs

excellence. It can go to negative two seconds a day. Cosk, the watches are in the excellent standard. They are actually cased. So you're testing a cased watch, which is similar to the to the Metas standard and the Metas standard. The movement gets tested for Cosk chronometer standard. Then it's cased and it's tested for accuracy, power reserve and water resistance. So there's some similarity there. Anti magnetism. This is probably the biggest difference. Metas is famously

15000 gauss. That's a pretty strong magnetic field. Cosk is 200 gauss for their excellence standard. So overall, what I find fascinating is, look, Cosk has every ability, I would assume, to compete head to head with Metas. And to your point, one of the interesting differences between Cosk and Metas is presumably with Cosk, the movements go out to Cosk to get certified and then sent back to the manufacturer. Metas has famously built labs within manufacturers. So

Metas has a certification lab within, say, the Tudor manufacturer. Yeah. And I would assume I don't know the details here, but with this, the cased watch goes back out to Cosk unless they're going to be building these facilities within. Well, I mean, just the the partnership structure of being able to build a lab inside of someone's like actual production line has to be game

changing for a watch manufacturer producing at scale, period. Oh, and it's game changing for the certification organization because it literally embeds them within the company. It's much harder. Yeah, exactly. You can't just cancel that contract. Yeah, exactly. You're sort of held held captive. It's like, you know, buying snacks at the movie theater while you pay the high prices because you kind of have to. And so Cosk has every ability to test at the same standard as

Metas, yet they're not deciding to. And it sort of feels like a like a half measure to me. I mean, it's sort of like why bother unless you're going to basically say, like, we're just as good as Metas or even better. And certainly Cosk has the capability, the recognition and the renown to be just as good in their in their testing criteria and the standard they'll put on a watch than Metas.

So I find this puzzling. This is one of those examples where it's obvious and it's clear to me why they're doing it from a business standpoint or an operational standpoint, which is like, look, Cosk is synonymous with Chronometer and they want to maintain and defend that position and they want to maintain and defend their testing as Metas seems to take more and more of the industry and manufacturers set their own standards. So I get why this is a defensive move, but it

feels to me like a half measure, unless there's something I'm missing here. Yeah, I share I share your your quizzical point of view on this one. I don't get it either. I mean, look, I get it in the sense that clearly Cosk had to do something. Yeah, I'm sure there's a reason why this is where it is. Yeah. Yeah. But so I have I have one sort of theory to give them the benefit of the doubt.

Yeah. So I think I'll be honest, when I saw this headline, I shuddered a bit. And the reason why, and I think maybe a lot of brand executives and retailers shuddered a bit when it's like, oh, here's a new stricter Chronometer certification, which is I don't quite get the obsession of accuracy with mechanical watches. I understand, of course, stepping out and taking a taking a big picture view of this. Of course, people want their watches to be generally accurate, right?

Makes total sense. And I totally get people who are like, you know, I love Seiko watches, but it bothers me that they're not regulated. And I do like the idea of a Cosk Chronometer watch where I know like it's going to be reasonably accurate. I get that. But one of the challenges is these watches are certified as you know, like a Metas Master Chronometer or a Cosk Excellence standard when the watch is made, cased and tested. Then it goes out into the real world and lives a life.

And I think one challenge we have is like, we'll sometimes hear from clients months or years into

the life of the watch that it's not running accurately. And two things here. One, most of the time when we get a watch back from a client who tells us the watch is not running accurately, and we test it on a proper time grapher, and we test it using proper settings on a time grapher, because there are things like lift angle, for instance, that have to be adjusted for different movements on your time grapher to make sure you're measuring it properly, we'll find that actually

the watch is running just fine. And so the customer has wrung their hands over this, they've wasted their time and money sending us the watch, and it turns out it's just fine. B, the watch is out there in the world living a life, you know, it's an object that's mechanical and it requires service and maintenance, and it's not going to be as good or as accurate, wearing it on your wrist

a year into ownership as it is the day, you know, it leaves the factory. And the idea that we're now issuing like an even higher standard, I think just sets bad expectations with collectors, and bad expectations around accuracy that creates problems for people. So my conspiracy theory here is cost can say to their clients, to the brands, look, we've got this new standard, it's better than a cost chronometer, it gives you this marketing advantage, you know, it's a superior

level of certification, all this kind of stuff. But it's not so insane that you're going to have people sending their watches back to you in droves because it's not, you know, within five seconds of accuracy per day. I don't know that that would be my one way of giving them the benefit of the doubt. I just find that a lot of these certification standards create unreasonable expectations for collectors. I see what you're saying. I would I would adjust that to say if they didn't want

the trouble, then they wouldn't print superlative chronometer on the dial. I mean, look, you can't have it both ways, right? I mean, if you're selling a mechanical object, and your justification for part of the cost of that luxury item is an insane level of accuracy mechanically delivered, because we all know that for pennies on that dollar, you could have a more accurate electronic solution. The mechanical solution like that pursuit of that level of accuracy. I mean, you've got

leader out there selling an almost $200,000 watch has been triple certified. The point of the cost of that watch finishing design aside, yeah, I think there are edge cases, I think the challenge is more, more general. And I think what? Well, another thing I'm saying, look at a more mass produced object, like if you look at a driven movement, it's going to operate within a reasonable, you know, a reasonable variance. Oh, if it's if it's a minute slow a day or 30 seconds or whatever

it is, like, of course, I would say there's a big difference in that. Yeah, yeah. But you know, if it's like, you know, if you know, you're checking on your phone, and it's 10 seconds fast today, I'm sorry, but that's not running fast. I think so. I think you could debate that because you're right. Even if you're paying $1,000 $2,000 for a cost chronometer watch, you're right. It's

sold to you and marketed to you in that way. And it comes with that expectation. Yeah. Regardless of whether it would, you know, that and I realized that you walk through magnetic fields, you bang your watch, like all sorts of things happen to it in the day to day. That's my point. The watch is out there. It lives a life. And just like everything else, it's not going to be as good as the day it was, you know, it was not as accurate as the day I was

born. Exactly. I think what ends up happening because of because of the prevalence and the success of Kask and the cost chronometer standard is a lot of people just assume that every watch with an ETA movement or a Salida movement is either a Kask chronometer or should function and be as accurate as a Kask chronometer certified movement. So like this happens

a lot with many of the brands we sell don't go through Kask certification. It's unusual for Indies, even Indies who are using ETA and Salida movements and things like that to certify them as chronometers. That's not really what you're buying when you're buying an Indy. Yeah, no, but I'll add if you did do that, like if we did, for example, certify all of the watch or the brands that manufacture the watches that utilize those movements, certified them, they'd all be

more expensive by several hundred dollars, too. So, I mean, part of the reason why folks don't do this is if you know that like an SW 300 is going to perform pretty darn well, which it does. And why would you increase the price of the watch by almost the entire cost of the eBosch just to demonstrate that it's tested? Yeah, well, and don't forget, you also have to regulate that

watch that level if that watch can even handle that level of regulation. So it kind of feels to me like buying, you know, a Toyota and then putting a better engine into it and expecting

everything to work perfectly and to really work that way. Yeah. So I don't know. I shuddered a bit when I when I saw this, but I think, look, part of the strength of cost is not only are they synonymous with chronometer certification, I think they sort of cast a very long shadow over the industry as a whole, where people basically expect that any movement that comes out of Switzerland, especially Salida and ETA movements should operate at that standard, even if they've never been

certified or tested and regulated to that to that standard. So that's why I that's why I shuddered a little bit. But, you know, let us know your comments on accuracy. And you're right. Look, I get it. If you're if you're paying that much money for a watch, even if it's a watch, it's a couple hundred dollars. It's a lot of money. And if and if part of the reason you're buying it is for accuracy, then I get it's disappointing if it's not as accurate as you're as you're hoping

it to be. So we'll see how this this plays out. I'm curious to see if brands adopt this if it makes a meaningful difference over, you know, standard chronometer status or if, you know, cost chronometer and Metas kind of still end up being the two the two kind of the ends of the barbell. We'll find out next up Audemars Piguet. The train keeps rolling. This is really interesting

to me. So Audemars Piguet recently announced that their revenues for 2025, which we know was a brutal and really difficult industry moment and year for the industry, were up 10 percent in the year. And this is amid a number of interesting changes at the brand. So, of course, they're under relatively new leadership from Alaria Resta, who took over from a longtime CEO, Francois Benihama. Benihama. How do you always say Benihama? And I think of the Benihama restaurant.

I think I think I think it's pronounced bona fides. Let the record show that the word bona fides is pronounced bona fides and not bona fides. All right. In any event, she took over for the wildly successful from the wildly successful CEO, longtime CEO, who really raised the profile of of the brand. And under her leadership, the brand continues to to to grow and do well. I think, one, it's really impressive that they're up

10 percent in revenue. We don't have the bottom line figures, but just as just for like grounding us, they're doing over two billion dollars in revenue a year. So about actually it's about two point six billion dollars in revenue a year now. That's tripled in 10 years. That is remarkable. And they're continuing to grow off of that incredibly strong.

Yeah, I mean, it's it's difficult to do, but I do think it's important to separate the sour grapes of the interactions that a lot of folks have had with the brand from the frankly indisputable financial success of that of that particular of that particular brand. And, you know, it's also somewhat indisputable when we look at it, that part

of the way that they've managed to accomplish this is through massive price increases. And I do have to wonder if, you know, I mean, look, price increases and a focus on complications. Oh, for sure. But I mean, like clearly, like they want to develop clients into multi multi unit owners, which is not different than any other brand, frankly. And they're looking at lifetime value of these clients. And they're really working hard to make sure that, you know,

if a client is in for a penny, they're in for a pound, quite literally. And, you know, and that's that's where they're trying to take them now, how they take them there, the long term viability of that. I don't know. I mean, it's interesting. You look at other brands that have tried similar strategies, gone boutique only focused on the high end, things like that.

And the one that comes to mind most of all is a long zoning and not obviously not apples to apples, very different brands, very different products like you think long is copying AP in that way. AP is now at 90 percent distribution through their own company owned and operated channels, which is remarkable. And so you think long is doing that simultaneous or they're taking a page from the AP? Not only are taking a page. I think that this is a this is something that we've

seen in the in the industry before, and it's somewhat cyclical. I mean, other brands have gone full boutique only and then chosen to work with retailers again. We've said in the past my theory about AP being at watches and wonders is that they may want to create a little bit more of a buffer for themselves and lower that number of 90 percent boutique only. However, flip side of that is 90 percent boutique only is probably how they've also massively increased their revenue

by recouping a lot of the. Oh, they're selling their watches, not at a wholesale cost, but a full retail. Yeah, exactly. And and I could see how if you were sitting in the boardroom for AP, you might see the barbarians at the gate that are really upset about, you know, the evolution of the brand and where it's gone. But then compare that to the balance sheet and say it is what it is. So, you know, it's they're telling us two things. I mean, they're telling us this success.

You're right, isn't in large part due to that 90 percent mix coming from retail that has to help top line numbers A and B. They're saying it's also coming from a focus on complication and high end watchmaking. So their their goal as they continue to grow, they apparently have ambitious growth goals as well. Not surprising is not to focus on volume, but is to focus on quality and higher end pieces and complicated watchmaking. So we're going to see more complicated watchmaking from

AP, not less of it, which is kind of cool, actually. And then three, women are a growing share of the brand. So they're telling us that right now in this this is surprising to me. It's sort of surprising and not surprising. They're saying women now make up 25 percent of their customers and their goal is to get it to 30 percent of their customers in two years, which I get. We've talked a lot about AP diversifying their client mix, and that's a really good way

to do it and expand their base and their kind of addressable population. But that's that surprises me. Yeah, I'd love to learn more about it because I could I could approach that with great respect. I could approach that with cynicism. I mean, but the reality is I just don't know enough to know what's driving that. Look, I think what we're seeing right now is probably 70 percent

to 60 percent Benihama strategy being played out under the leadership of Alaria Resta. And over the next few years, we're going to start seeing Alaria Resta strategy playing out under her leadership. So I'm very curious to see, you know, where the brand continues to grow, because, of course, she comes from a very different background. She doesn't have much watchmaking knowledge at all. She's what she's learned. She's learning on the job. I think she came from the

consumer packet. Yeah, I think it was a PNG or was a Unilever. It was one of those. So she knows how to do brand marketing. That's what I was going to say. So I mean, because if you think about it, like what is what is a big CPG company do? I mean, they manufacture industrial goo wrapped in a very valuable brand. And, you know, that's what makes, you know, Old Spice such a valuable brand. It's the product is the product. It's a commodity. But the brand is what

sells it. Yeah. So I'll be very curious to see how she takes that skill set and applies it to this and continues to develop what it what AP means. And you sort of see that a little bit in their execution of AP, you know, marketing lifestyle experiences in the AP house is a brand experience. You know, sure, you can go there and you can, you know, swipe your card if you you know, if you have been blessed by the gods there. But what it really is about is creating

a space that makes you feel like the watch is the key to this magical empire. Yes. And they're building that entire narrative where it's like there's mystique about it. And if you're an owner, you can hang out and all this. And and we again, you can approach that with respect. You approach it with cynicism, whatever. But the bottom line is people want that value proposition. A hundred percent it is. And it is still the physical manifestation of a brand in many, you know,

on the consumer level that the masters of this are Disney, you know. Yeah. You know, surrounding you with the physical manifestation of a brand with the intent of then selling you the actual manifested product. Yeah. They're locking you in. Totally. And I think AP in their own world is creating their own Disneyland. And we'll see how that goes. That is a really great comparison. Hey, it's Gabe. Openwork is proudly ad free and requires no paid subscription.

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merch at collective horology dot com. Thanks for listening and for your support. Now back to the show. One thing you said is, you know, we're we're still seeing a lot of the former CEO strategy continue to play out. And this is how things in business and in life always work. You know, the current president is always blamed for things that actually started under the previous president

and nothing to do with all that kind of stuff. This is this is famous in life or they'll take credit for something that, you know, started under someone else's administration, all that stuff. And that happens in business and in in life and life, too. Are there are there things you have

seen from Alaria Resta as CEO that are a sign of a distinctive strategy? I mean, to me, the biggest one I've seen from from her is the move back to watches and wonders, which we've talked plenty about, but like that's a major strategy change about how they show up in the industry and how they show up in media and with with ultimately with collectors. Have you seen anything else from the brand that signals an interesting change in strategy or approach? I mean, look, I'm going

to hold my my my thoughts on that until we see what they do at watches and wonders. I will tell you that just to just to kind of test the waters, I called some AP boutiques. You called Alaria Resta or you called the boutique and I called some boutiques and I just wanted to see. And, you know, I mean, look, I bought APs in the past. So technically I am an actual client, even though I haven't in years. But I called up as if I weren't a client just to see what the what the the

interaction was. And the interaction is essentially identical to what it's been for years. You know, I don't know you. Come on in and, you know, we'll we'll show you the experience and create a wish list for you and the standard, you know, the standard Mishigas. Now, whether or not that plays out differently in person, I don't know. I certainly would never want to waste the time of a salesperson doing that. But but I think you're not going to mystery shop the boutique.

No, actually, come on, man. That's not cool. Something to do. But but I think I think the I think my point is I don't see a a meaningful first interaction change. But I would also say based on what she's talking about from strategy, I'm not the target.

Well, here's one of the interesting things you pointed out to me about this strategy. So if you're interested in an AP watch, you got to call the boutique and they give you this whole, as you said, Mishigas about, well, you need to come in and we'll work with you on a wish list and get to know you. And we all know what this means. They vet their clients very,

very aggressively. One of the things I found so fascinating or the great contradiction here is the people they probably want as clients are the people who have the least time for that. Presumably, they want people, to your point, who are well, they connected. They want those people to make the time for that. Here's my point. They want people who are connected, influential, extremely wealthy, because, as you've said, they want repeat customers. They

want people who are not just going to buy the steel Royal Oak. They want people who are going to buy the complicated stuff and keep buying it and help them move, help them continue to move their average price per watch up and up and up. The people who can really do that have the least amount of time and patience for going into the boutique and sitting down for an interview.

I would imagine if I were some extremely busy, powerful, wealthy person, the last thing I would want to do is go to a boutique and be vetted by someone to determine whether or not I'm good enough to buy a watch. Maybe I just don't understand the psychology of an AP buyer. Yeah. I don't want to spin out too much on this one because it's how they want to approach it.

I think we see this with other brands, too, like Richard Mille. I'm pretty sure if you called a Longo boutique, for that matter, if you called a Vacheron boutique and you asked them, do you have X, Y, or Z in stock, they probably wouldn't answer you on the phone. Rolex isn't even allowed to tell you over the phone if they have something in stock. You have to physically go in. There's lots of legitimate reasons for why. But there are Rolex stores all over the place.

Sure. The number of AP houses and boutiques just in the United States alone is quite limited. If you were a wealthy person, let's say you lived in Seattle, Washington, I'm making this up, I don't think there's a boutique or AP house nearby. So what, you're going to get on a plane and go to Dallas or New York? So the last AP that I bought personally was a beautiful watch. It was a code 1159 with the red dial. And I bought it from a boutique that was an AP boutique that

wasn't local to me. And they wanted me to get on an airplane to go get it. And I respectfully declined because I don't have the time for that. I have a family. And they were very confused. I mean, look, and I think, you know, and to be clear. So you're telling me what that tells me is they're used to people saying, OK, yeah, they are, or at least they were at that point. And that was 2020 is when I turned 40. So it's 2022. But I just found that fascinating. Like that was just their

expectation, not that they're going to fly you there. That's, you know, which would have been ridiculous for that watch. But like, you know, that would have been my retort. Oh, are you buying my my plane ticket and putting me up? How am I supposed to do that? Yeah. But my point is like that was their expectation. And in fairness to them, too, like after I was like, I have a small

child and it's the end of covid and I'm sorry, but no, they shipped it to me. Yeah. But but my point is they want that feeling because the extra level of effort and work is in their mind, I suspect, by putting those barriers up, creating additional brand value. It's also alienating a lot of people.

But I think their calculus is, well, that's OK, because if we alienate X, Y or Z, we still have A, B and C. And if A, B and C are creating a plus 10 percent increase in our bottom line, this strategy may work for us, even if we're creating some negativity in the market, which, again, in fairness to AP, so is every other major brand that sells a desirable product. So I think, you know, let's keep watching and we'll see. We'll see what Mrusta can do.

All right. Well, speaking of limited supply and demand and all that stuff, let's talk about Rolex.

I think one of the great debates in the watch community about AP, about Rolex, Patek Philippe and others is this notion of manufactured scarcity. And it seems in the case of Rolex, that perhaps is a legitimate criticism or a legitimate phenomenon. So recently, Swiss Bank Vantobel, which does industry analysis and reporting, has estimated and again, this is based on whatever data they're looking at to determine this stuff.

But they're looking, based on the data they're looking at, they've estimated that Rolex has cut production for a second year in a row. So apparently they cut some production in 2024, according to this, according to this analysis. And then again, in 2025, they peaked in production, probably around 2022, which makes sense. Watch demand and demand for Rolex peaked around then. So let's take this reporting at face value. Let's assume they've done some analysis. There's some

rigor in here and that Rolex has, in fact, cut production. What is really interesting, however, is that even though Rolex is cutting production, they're continuing to grow share. And now that's not a good sign for the industry. That means the pie overall is smaller so that Rolex can cut production, but still gain share. So they make up in the watch market over 3,000 Swiss francs. Kind of the mid tier and high tier. Their share of sales by value went from 57% in 2023 to an

estimated 61%. Is that inclusive of CPO? Do you know? I don't think so. I believe the analysis is around new watch sales because this is of course tied to watch production and all that sort of stuff. So with CPO, yeah, you're right in terms of business flowing through Rolex. Well, it's flowing through Rolex ADs because of course the revenue for the official channels. Yeah. I actually, I think this is just good. This is just good. Good brand management. I mean,

I would agree. I don't think this is, I mean, as we've said in the past, like part of what makes Rolex so impressive is that they think in terms of decades and not in terms of quarters or even years. Well, their business structure allows them to do that in a way that the business structure of other publicly owned companies or companies that really have a profit motive. And I mean that not in any kind of way. Oh, you and I couldn't think like that because that's just not the way.

They have the luxury of being able to think in that way. Well, they've earned it. They've earned it. I mean, I think, I think with them, you know, this is, this is a recalibration for a change in the market and they are rebalancing where they are. I think Rolex is also continuing their slow methodical pace towards raising the retail value and perceived value of their watches and the CPO program. The thing about the CPO program I find really interesting is, yes, it represents a lot

of money, something like half a billion CHF. Yeah, that's the, the, the bank did do an estimate around that and they're estimating half a billion in sales. To be honest with you, I find that to be less interesting than what it really is, which is a, a method of price control. In the secondary market. Yeah. Because essentially what it's doing is them saying like, this is the floor, right?

Because if we're going to continue to increase the price of our watches, right? If a, if a base, if a no date sub is just a, is a little bit under $10,000, I think a date sub now is over $10,000. Now Starbucks certainly is. We can continue to make sure that that value is retained by building this massive program, which prices these watches very aggressively for a relatively

low amount of energy and, and cost. Because if you think about a warranty, like talked about the price difference on a previous podcast, I think with Hamza, where it's like a CPO Rolex compared to its pre-owned counterpart, that's not certified pre-owned. So a watch you'd buy from another dealer presumably can have anywhere from like a 10 to 20% price premium. Yeah. But, but this is the point I'm making, which is if you think about what a warranty is, a warranty is like

in, in essence, a form of insurance, right? Well, they do work to some of the watches to recondition them to a certain standard. It's not just the warranty. Yeah. Some of them, but not all of them. Yeah. I mean, if it was all of them, they'd never be able to do this at scale. You need. No, but my point is, it's not just, it's not just insurance. It's also confidence

that what you're buying meets a particular standard. Yeah. Yeah. But the point I'm making is effectively what Rolex is betting and reasonably so, because Rolex watches are pretty darn reliable. Is that, eh, you know what? Well, sure. I'll certify this watch and I'll test it and I'll do all these things and, and I'll return it. But, but the cost of that is relatively minimal. Sure. Every once in a while, one of these watches is going to have a problem and I'll have to do

the actual work to repair it, but most of them won't. So offering that warranty is inevitably going to be negative. It's going to be positive from a financial standpoint, just because not every Rolex is going to fail. That's in the CBO program. Well, no, it's also the quality of their watches paying a dividend over time, right? You know, Rolex can back up their, their certified pre-owned watches and provide that

warranty with a level of confidence that most other manufacturers can't. Sure. Because I'll tell you, like having owned some Rolexes and plenty of other watches, generally speaking, in terms of the initial quality that these watches come out of the, the factory, if I remember, we had a problem years ago with some watches we were selling where we were failing them. And this is not a brand that we carry or currently, but we had a very high fail rate of the

watches that were coming into our store. We QC every single watch that comes into collective before it goes out. That doesn't mean we catch everything or things don't happen, but it's an added level of, you know, quality assurance you get when you buy something from us is not only as the brand QC'd it, but it gets to us and we QC it again. And one of the, the, the brands we were working with at the time at a very high QC rate. And I remember, sorry,

QC fail rate. That's right. And I remember complaining to a guy we know who's a Rolex dealer. And he was like, I've got to be honest with you. Like, that's crazy. Like if Rolex has a fail rate on products that come into our store, it's like one in every few hundred. Yeah. And therefore, because of the quality standards that Rolex has, they can offer that, that, that CPO, that CPO warranty. And it's the quality they put in the watches paying dividends. Exactly.

So all of that to say, you know, this is, I think this is important in, in relation to the, the market share being consumed, but this is Rolex doing Rolex stuff the way that they do it, which is thoughtfully one step at a time, no major innovations blowing everything out of the water every year, no waving, you know, a flag of a major change, just one thing at a time. And does that sometimes mean that we can make jokes that like, you know, this sub is like that sub, but you know,

one millimeter. Yes. But the flip side of that is I guarantee you that part of the reason they made those choices was based on a decade of knowledge, thinking through the dimensions of a watch they execute on that. And then with a few notable exceptions of watches that had short lives, like a Sea-Dweller 40 or whatever, you know, pretty much that they're all the right

choices. Yeah. So anyway, I think that the number one question or the number one thought that goes through the mind of an executive at Rolex is a, is a bit different than the number one question that goes to the mind of an executive or a creative person at certainly at an independent watch. Oh, for sure. Generally, you know, the, the number one question going through the mind of, let's say your average independent watch brand is, am I being daring enough? Am I doing

something good enough? Is this cool enough? Is this interesting enough? Is this beautiful and relevant? We'll just keep my brain relevant. The number one thing going through the mind of a Rolex executive is don't fuck this up. And look, that, that has value. That's part of, that's part of their promise. And, and you're right. You've made this point, which is to the average person on the street, like forget Rolex as a watch brand and, and what it means to watch collectors and

enthusiasts. But Rolex is one of the few watch brands that exists out there in like the popular imagination and in culture and in the real world where like the average person kind of certainly knows about Rolex and is more likely to care about Rolex than they are almost any other watch brand. And part of the promises, these things will hold their value. They're not burning money. And you can agree with that, disagree with that. You can hate that. You can love that. There's all

sorts of different perspectives on it. But this is, as you've said, Rolex keeping that promise and doing Rolex stuff. There you go. So speaking of questions that people keep,

that keep people up at night, we have a couple of questions here that have come in. And the first actually is a collector question about Rolex in particular. And this was a question we got. Do you think Rolex is kind of ruining the industry? And I think maybe they mean also the hobby by artificial scarcity. Is this something that is bad for the industry overall? And is this something that's bad for the hobby? I would say for the industry overall, no, it's probably a good thing

because again, Rolex is one of the few brands that exists outside of watch enthusiasm. And the idea that watches are desirable and scarce in some ways is a good thing and have some mystique around them. It's an unanswerable question. It's an unanswerable question. Because if you say, sure, like release the constraints on demand so that everyone can get the watch they want. Great. And then we'll hear complaints about the fact that the secondary value of those watches are

greatly diminished because the market's been flooded. Yeah. Imagine someone who wants to trade into your point, a Submariner towards another watch. And then you go into this death spiral of like, okay, well, maybe things are too expensive and they should get cheaper. Well, okay. But the reason they cost what they cost is to support the ecosystem that builds them. So you can't just depress costs by increasing production in an industry that's rate limited by the talent

that actually makes it. So you have to look. Turns out maybe Rolex isn't rate limited if they're cutting production. Yeah, but they're cutting production. Not, not that dramatically. They're trimming around the edges. They're making choices. I mean, they're still making over a million watches for God's sake. I mean, I think the, I think this is an ecosystem just like any other, and you can't just adjust one thing or another to address

an individual problem. You have to look at the overarching market, which is what they're doing here. So I get it, but artificial scarcity in the way that, that we're talking about it here. I don't think that's a thing. Well, let's say it is a thing. Let's just play devil's advocate. Well, okay. Actually it is a thing in the sense that could, could, if, if, if, if Rolex wanted to, could they make more watches? Could they make more subs? Could they make more Daytonas?

Absolutely. They could. But, but the thing is why would they, what would that do for them? Well, forget what it would do for them. Here's how I think about this, which is as watch, and let's say the premise of the question, let's shift it a little bit. Is it ruining the hobby of collecting to have artificial scarcity? The way I would answer that would be, okay, we're watch enthusiasts. We love watches. Presumably we want this to be a thriving hobby.

Yeah. We want there to be people who care about watches the way we do, who we can become friends with and share this with. We want watch brands to, to succeed and do well in the industry to succeed and do well so we can have, continue to have watches and creativity and risk-taking and

new things to love. So the fact that one of the most powerful, one of the most desirable, one of the most recognizable brands in the world, brands in the world, not a watch brand, but one of the most desirable brands in the world, one of the strongest brands in the world is a watch brand is a good thing for this hobby. Yeah. Rolex is like the beachhead of watch enthusiasm. It's out there in the real world. It's in the, on every high street and every high-end

mall. It's on the wrists of millions of people. And it reminds people that watchmaking is a thing. It keeps watchmaking relevant. It keeps the love of watches relevant. And part of the way they do that is through this artificial scarcity and creating desirability and demand. And I do think that that's good for watches. If Rolex weren't the brand that it is out there in the real world as this beachhead of watchmaking, I don't know that this hobby would

be what it is. Good question. So we'll do one more question. This one came in last month, which was following your episode, ditching the luxury script for independent watches. That's where we had our colleague Jeff Souder on. What is the single most important factor that prevents a fast-growing micro brand from being taken seriously as a true independent watchmaker

in the industry? And I've got a thought on this. I'd love your response. I think the thing that the single thing that limits some, let's say micro brands from being perceived as independent brands. And let's say there is a distinction there. We can debate that, but let's just, let's accept the premise of this question. I think that most important factor is

this idea of value. A lot of micro brands position themselves around value, which is we're offering you so much. Look at how much watch we're offering you for your money. And I've seen time and time again when a brand, and it's usually micro brands or entry-level brands, these sort of mid-tier brands on the $5,000 and under space. When you position yourself around value, it becomes impossible to get out of that trap. And look, positioning yourself around

value is extremely compelling offering. To be able to say like, I know the thing I'm wearing on my wrist, I'm getting like this experience out of it that feels really elevated and really special from a watchmaking standpoint. And I know that is priced fairly and is offering me a compelling value. There's a role for that for sure. But when you build your brand around that as the thing your brand stands for, which is value proposition, it becomes very hard to move out of

that. So I think a great example of a brand that moved out of that micro brand space that never positioned themselves around value proposition is Ming. The early Ming watches were very much in the micro brand lane in terms of price positioning, but it was a brand that always identified and stood for thoughtful and creative design. And that allowed them to sell watches that were maybe 1,000 Swiss francs when they started up to watches that are now nearly $50,000.

We've sold some precious metal Mings that are extremely complicated and beautiful. It's because the brand never stood for value, it stood for design, and that allowed them to really stretch. The one example I've seen of a brand that's been able to move out of that trap is Christopher Ward. This is a brand that very explicitly stood for value proposition, but they had to do something so arresting to get out of that trap, which was the Belcanto.

I think the difference between a micro brand and an independent is maturity. And I think how that's defined varies brand to brand. What do you mean by maturity? It could be a commitment to an explicit design language that plays out across the entire line. It could be an ownership of unique technology. It could be a clear brand story that creates some

degree of brand equity that attracts clients. I think part of the reason people struggle to define this is because they try to do it by looking at the product and like, well, X percent of that product was touched by the watchmaker, Y percent wasn't, or this one was assembled there. And that makes you independent or not. And to me, I'm like, that's not even true of like a billion dollar corporations who have long

supply chains that make quote unquote in-house things. It's the maturity of that brand. So to answer your question, if it's a fast growing micro brand, how will I know it's become a cemented and trusted independent? Because it's got a distinct point of view that continues to execute and fire on all cylinders and a clear path forward. That's why Brew in my mind is an independent. Oh, interesting. You know, that's why Studio Underdog is an independent.

But these are also brands that never stood for value. Now, is a Brew watch an incredible value? They never define themselves by that. They define themselves around like a design aesthetic and creativity, not, hey, look how much of a value this is. And that's why Richard Benz was able to like, you know, market, you know, whether you liked it or you didn't, you know, a $60,000 Studio Underdog in partnership with Moser, a $20,000 Studio Underdog in partnership with Sartori Biard.

So, you know, same thing with Sartori, you know, like I, you know, there's a clear point of view about what that brand represents. Garrick, there's a clear point of view about what that represents. By volume, Garrick, you know, produces 100 watches a year. Are they an independent? Absolutely. Because they are mature in the way that they present themselves. So I think that's the core definition.

I think where we struggle is, and when I, when I see someone, I'm like, I think you're still a micro brander in that space is when you see almost like a chaotic bouncing back and forth of ideas around like, what if we try this? Or, hey, how about this? Like, hey, we invented that. Like, here's a new technology. Or like, blah, and then, you know, special Christmas sale, 40% off. That, that to me is, is a lack of maturity and therefore hasn't graduated yet. Hmm. All right.

You have to, who knew you have to graduate from? I don't think you do. I don't think, no, no, no. I don't think you do. But I think if, if that's where you aspire to be, you know, then, then you have to, you have to make some choices and commit to them. You can't, you know, you can't oscillate as, as, as much as we sometimes see a brand in, in, in their early days doing. Yeah. I think we're saying the same thing, which is you have to own a point of view.

Yes. And that you can't be all over the map on product and you can't fall into the value trap. Nope. Because once you're there, it's, it's hard to get out of that. And there's a, and by the way, if you aspire to be more than a value brand, if you just want to be a value brand, that's great too. And there, there's a role for that, but I think you have to acknowledge that, that has its, comes with its limitations. A hundred percent. All right. Well, should we leave it there? Let's do it.

All right.

Well, thanks so much for listening. Openwork is of course a production of Collective Virology. You can find us online at collectivevirology.com. And while you're at it, get in touch with your questions, your comments, your feedback, suggestions, send those to us, please. And to do that, you can email podcast at collectivevirology.com. So Christmas sale, 40% off.