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What is the premium on a Rolex for being made in Geneva?

1K views 11 replies 7 participants last post by  BundyBear 
#1 ·
By my rough estimate, about 9%. Or about $650 on that $8,000 Datejust! If made in Le Chinit like Audemars Piguet, it would only cost about $7,300. (IE: $7,300 + 9% = $7950.) On a $3,900 Tudor Black Bay, the Geneva premium would come to about $325. So, not an insignificant amount.

In doing a little research, it seems that Swiss companies are taxed according to what region they are located in. Geneva (Patek Phillipe, Vacheron Constantin, Piaget) is the highest at about 24% or about 70% higher that of say, Vallee de Joux (Audemars Piguet, Brequet, Blancpain) at 14%. La Chaux-De-Fonds (Cartier, Girard Perregaux, Tag Heuer), LeLocle (Tisssot, Mont Blanc) or Fleurier (Movements), are all about 15%. Complicating this, is that for watchmakers that are part of a group, the tax rate seems to ultimately get rolled into the holding companies' HQ location. Now, some may argue that the tax is based on the watches' wholesale price. However, that cost gets doubled as part of the customary retail mark up.

Wholesale price: $3200
Geneva price with tax: $3200 + 24.2% ($775) = $3975. (Retail = $7950)
Le Chinit price with tax = $3200 + 14% ($450) = $3650. (Retail = $7300)

Incidentally, the Geneva corporate tax rate is about the same as the US tax rate @ 27%. The lower taxed Swiss areas are closer to Hong Kong's @ 16.5%
 
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#3 · (Edited)
I was really just trying give readers an idea of what the “Geneva Origin" of their watch may be costing them! I believe that the Canton taxes are based on sales volumes, not net profits. Kind of like business or sales taxes in the US. But, I would imagine that since ROLEX SA is organized as a for-profit company, that it would be subject to the same taxes as any other company, regardless of the tax status of the A.s.b.l. Trust that owns them. I doubt that the Swiss government would let over a €1 Bil a year slip through their fingers!
 
#4 · (Edited)
It`s a bit more complex than that. You`re taxed at the community, the cantonal and the federational level (on net profits). The first two vary from each community/canton. The federal taxes are of course the same everywhere. But the big factor you missed is the capital tax on the capital/wealth/belongings of a company. And Rolex has much more capital than most other single watch companies mentioned. So I think this whole explanation is pointless. Also the prices are increasing faster than inflation/taxes...so the different tax foots don`t explain the the prices imho. Also the labouring costs differ significantly.
 
#6 ·
While interesting, I'm not sure I grasp what the objective of this thread is. It smells like a Rolex criticism thread, but that may just be my lunch repeating on me.

I mean, what's the premium on paying for Rolex to move to a region with a lower tax rate? I'm going to guess it's higher than what we're paying now.

Regards,
Alysandir
 
#8 ·
While interesting, I'm not sure I grasp what the objective of this thread is. It smells like a Rolex criticism thread, but that may just be my lunch repeating on me.

I mean, what's the premium on paying for Rolex to move to a region with a lower tax rate? I'm going to guess it's higher than what we're paying now.

Regards,
Alysandir
Yes, I don't think Rolex is moving anytime soon! But, Tudor, on the other hand may be moving to Le Locle...
 
#7 ·
It makes no difference what Canton the 4 main factories are located, nor what is produced there....
I'm pretty sure Rolex charges "Market Pricing" for their product....

If their product was produced in Lugano, St.Gallen, or Lucerne for example; do you actually think they would pass tax-rate-per-Canton savings onto the buyer?

Maybe I don't understand the question....but I work for a Swiss company and have for decades and have a fair understanding of how they price their products.
They are very good at capturing costing. But just because they understand their cost basis doesn't mean they offer it to market in some simple linear formula.
These are luxury items and for what they specifically do, they have very little competition.
 
#9 · (Edited)
Yes, I don't doubt that the prestige brands take full advantage of their brand equity and market position, regardless of where they are based! However, I would argue that where they are based has a lot to do with “market rate” and how much they can charge, even more so for prestige brands. I don’t think even Rolex is immune to this. I think the decision to locate manufacture in Geneva for brands like Rolex, Philippe Patek and Vancheron Constantin was part of a larger plan to build their prestige through association with this historic watchmaking region. While it may not seem as important now, continuing to base them there is a sign of strength. Geneva has become synonymous with these brands, much like Cartier or Chanel with Paris. So I think if they moved to Ticino just to save costs, it would diminish their brand equity and ability to command a premium and ultimately cost them more. This is similar to wine produced in champagne or napa carrying a premium over wine from other regions in France or California. It could be argued that the association with Geneva as opposed merely to Switzerland, is responsible for some amount of the “brand equity” markup they have enjoyed. In this sense, this may be as much or more than any markup attributed to the canton tax. But there are also some equally fine brands like Audemars Piguet that didn't go this route. Hopefully, some of the more value oriented Brands may pass more of their cost savings on to the consumer, since low pricing is their competitive strength.
 
#10 · (Edited)
Also, another aspect that wasn't in the original post is that of labor cost as one reader pointed out. In the outlying areas labor rates are significantly less. in the Canton of Ticino, for example near the Southeast border of Switzerland near Italy, labor is less expensive. This is where a lot of less expensive watches like Tissot get made. For a long time, I assumed that they were made in Tissot's large Complex in LeLocle. Turns out it's a big warehouse and distribution center with executive offices! They receive parts there (cases and bracelets actually from Hong Kong) and movements from ETA, QC them, then ship them out to get assembled in Ticino (probably Manno). Then the watches get shipped back to the warehouse, tested and put into stock. I think they also do this for Certina and Mido in order to keep prices low. At over 3 million watches a year, Tissot is the biggest producer of Swiss Watches, thanks to their value proposition.
 
#11 ·
Also, another aspect that wasn't in the original post is that of labor cost. In the outlying areas labor costs are significantly less. in the Canton of Ticino, for example near the Southeast border of Switzerland near Italy, labor is less expensive. This is where a lot of less expensive watches like Tissot get made. For a long time I assumed that they were made in Tissot's Complex in LeLocle. Turns out it's a big warehouse and distribution center with executive offices! They receive parts there (cases and bracelets actually from Hong Kong) and movements from ETA, QC them, then ship them out to get assembled in Ticino (probably Manno). Then the watches get shipped back to the warehouse, tested and put into stock.
Yes, and a Tissot is still Swiss Made because it meets the threshold to be called Swiss Made.
 
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