In our original Post Most valuable watch brands Part I we introduced the most valuable Swiss watch brands in the world.
But how is this ranking calculated? Is it based on enterprise value? Or based on purely the value of the brand power of each watch brand and thus simply on the intangible asset value? Looking at the values it is clear that only the intangible part of the asset is calculated i.e ‘The earnings’ power of each brand’.
To understand the valuation methodology used as well as find out why Rolex is gaining ground, as opposed to Patek, which is slightly losing ground, we talked to creator of this list, BV4 , to find out more about the most valuable Swiss watch brands. For the first time in compiling this list BV4 included the ‘Digital’ strength of the brands, i.e. their presence on Social Media, their Internet presence and website strength.
(main picture credit: Christies)
LME: Rolex is Nr 1 on the list of the valuable watch companies. How did you value Rolex? Its sales or not known as it is a foundation and releases no financial figures. What figures did you rely on?
BV4: It is said that financial information is the most protected secret in the watch industry! As a result it is quite challenging to derive such figures, especially for brands like Rolex that aren’t market-listed and therefore do not release any financial figures. In order to estimate the relevant information, we consulted financial analysts, led interviews with industry experts, analyzed market research studies and accessed financial databases of comparable watch manufacturers.
Did it surprise you that Rolex is Nr 1? What makes Rolex so valuable?
BV4: Not really. First of all, Rolex has a very strong financial base and generates high revenue growth year after year. Secondly, the Rolex name has a strong brand power. Rolex fulfills brand critical factors such as global awareness, consistent brand perception, image and loyalty with highest values. Furthermore, Rolex has the highest quality standard of the industry as they test each and every watch based on the “Contrôle officiel suisse des chronomètres (COSC)”. This quality requirement has a direct impact on Rolex’ brand promise and therefore on its perceived power. Finally, the most valuable Swiss watch brand did always have a very good sense in choosing brand ambassadors that were able to transmit their positive image values to the brand.
If Rolex was listed in the Swiss market, I think it would be worth more than Swatch group and even possibly more than Richemont group. Do you agree with me?
BV4: That is hard to say. Rolex’s market value would certainly be high. However, compared to Rolex, luxury goods conglomerates such as Richemont and LVMH have a vast, diversified portfolio of well-known brands that generate high brand-specific income.
Can you describe in two short sentences how you came up with the values of the watch brands?
BV4: Our ISO-certified valuation method determines brand value as the earnings of a watch manufacturer that are solely attributable to the brand. In practice, brand value corresponds to the sum of future brand-specific earnings discounted to the present value.
Can you comment more on the valuation methodology used to come up with, as an example, the CHF 5bn value for Rolex?
BV4: Our valuation methodology aims to isolate and value the financial value of the intangible asset of a brand. As the results show, those values are relatively high compared to the economic values of the watch manufacturers. Hence, a powerful brand is one of the most important value drivers that every watch manufacturer should define, understand and financially manage in order to fully exploit its financial potential.
What surprised me is that Richard Mille and Blancpain (both powerful and strong brands) are not on your list?!
BV4: In simple terms the financial value of a brand depends on (1) financial figures (e.g., turnover) and (2) qualitative factors such as brand awareness and brand perception. Even though both brands achieved high scores on the qualitative strength, they weren’t able to financially compete with stronger watch manufacturers.
The top 3 brands are all super brands with billions of dollars of sales. Patek is a much smaller brand in terms of units sold. Why did Patek rank right behind them?
BV4: The brand Patek Philippe is a very inspiring example of a still independent, family run watch manufacturer that was able to build a strong brand based on their heritage, their consistent brand management and their unconditional commitment and passion for high quality master pieces. Finally, also Patek Philippe’s financial strength should not be underestimated. However, in the actual ranking of the most valuable Swiss watch brands Patek lost 1% in comparison to the last year’s edition. The marginal value loss is based on the fact that Patek did not (yet) consistently implement its online brand strategy compared to its competitors.
Do you think the brands that are all owned by big conglomerates (swatch group or Richmont group) helps them in the rankings? Do they have an advantage over family run firms like Patek or Audemars? Do economies of scale help in watchmaking?
BV4: I think the backing of big conglomerates can only bring advantages, if they fully understand the individual “personality” of each brand they are managing. Family run firms are able to concentrate all their resources on one single brand and build on a rich and long tradition of “their” brand. This enforces the brand culture that is lived inside a company and is successfully transferred to consumers’ brand perception. Big conglomerates’ economies of scale can only support brand management if they recognize the individual brand character and the respective value drivers. In doing so, they can efficiently allocate their often very high marketing budget and actively manage the brand portfolio very efficiently.
What is your favorite watch personally?
BV4: Heuer. I especially appreciate their timeless design, their spirit for innovation, their unconditional commitment to racing and their wise choice of brand ambassadors. Finally I hold Jack Heu in high esteem for his achievements and as the best ambassador the brand ever had.
LME would like to thank Arrigo Cimarosti of BV4 who was responsible for calculating the rankings.
