In our last breaking article we covered the filed Complaint against a Rolex Authorized Dealer. It touched upon the topic of Authorized Dealers allegedly selling ‘hot’ watches into the gray market (also see here for a past explanation covering the gray market). Now, as a bona fide customer, hearing of such alleged practices can be rather nauseating. But what is Rolex’ official opinion on this alleged practice in the industry?
Well, luckily it is not a matter of opinion. Any Rolex Authorized Dealer needs to wrap up a contract with Rolex and also signs a Rolex Distribution Agreement that stipulates what a dealer can do and – perhaps just as important – can not do. But what is written in this mysterious Agreement anyway? Let’s take the guesswork out of this topic.
No romanticising what goes into these mysterious contracts, what follows below are direct quotes from a real life agreement. The agreement we are quoting from is on the older side, but we also link to a more recent case. Analyzing the most recent case indicates that the text may have changed but the spirit of this type of agreement appears to have remained pretty much the same. To be clear, we are working with publicly available documentation (links at the bottom of the article).
OFFICIAL ROLEX JEWELER
- Rolex appoints Jeweler as an Official Rolex Jeweler (“ORJ”) and grants to Jeweler and non-exclusive right to purchase Rolex products and resell them at retail. Rolex may appoint additional ORJ’s at its sole discretion, regardless of their location.
- Jeweler agrees to sell the Rolex products in a manner consistent with the high standards, goodwill and prestigious reputation of the Rolex name. Jewelers agrees to acquire new Rolex products exclusively from Rolex. Rolex may discontinue the authorized status of one or more locations, in accord with the terms of this Agreement, without changing the status of Jeweler’s remaining authorized locations (if any).
Note: How does your local AD place an order at the mothership?
- All orders are subject to review and acceptance by Rolex, and the approval of quantities and selection of Rolex products sold to Jeweler by Rolex shall be left to Rolex’s sole discretion. Orders are deemed accepted only upon shipment of merchandise by Rolex. The price charged to Jeweler will be set in accord with the prevailing price list as of the shipment date. Rolex does not guarantee any delivery schedule, and shall not incur any liability for a delay or cancellation in shipping any order.
- Rolex may cancel back orders at its discretion, and all back orders will be canceled automatically if Jeweler’s status as an ORJ ends, or if this Agreement terminates. Rolex will not be liable for any damages that might result.
Note: Rolex basically ships what they want and when they want. In general, your AD can not predict which watches will be sent to them exactly. Whatever Rolex sends, the AD has to buy and it is then their business to try and sell the stock. This process repeats itself at regular intervals throughout the year.
Additional note: Other points noted in a case (see link below) on the order process indicated an additional point “collection of deposits by the authorized distributor from the consumer does not commit Rolex to fulfill the order, but is the sole responsibility of the authorized distributor”. Reason I highlight it here is that we are currently in a climate where customers are in fact making deposits to their AD in order to secure their watch. This is between customer and AD only, Rolex itself doesn’t deal with this at all.
Jeweler agrees to stock a designated basic stock plan at all times year-round. Rolex, after consultation with Jeweler, will select a basic stock plan (commensurate with Jeweler’s sale potential) drawn from all current Rolex lines for each authorized location. It is expressly understood that compliance with this provision is mandatory to retain continued status as an ORJ. Jeweler agrees to allow Rolex personnel to take a complete inventory of all Rolex products in Jeweler’s possession, and to review Rolex sales and warranty records, on reasonable oral notice.
Note: This ‘take it or leave it’ type order and stock process is what at worst can lead to this topic previously explained, i.e. the gray market…
Other Note: If this standard clause is indeed still applied today, Rolex can pass by their AD to check on inventory. In that case, should Rolex really want to see if its Authorized Dealers were filling their vaults with rare models, according to the clause above, Rolex would be contractually allowed to go and have a look at the stock at the dealers. In the above quoted example, they also foresee the option to review the sales and warranty records. One could assume this offers plenty of firepower here to combat malpractices that are allegedly plaguing the industry today.
RETAIL SALES ONLY
- Jewelers will sell Rolex products only to ultimate consumers, at the retail level, in transactions that originate over-the-counter at its authorized location(s). All other methods of the sale (except for Rolex-approved corporate/presentation sales) are considered transshipping. Rolex is the sole distributor of Rolex watches in the United States. Rolex has not authorized any ORJ or any other person to act as a wholesaler or subdistributor; therefore, any transshipment of Rolex watches, even if unintentional, is prohibited.
- ORJs may not sell watches to customers referred from outside their local market area (unless the sale is transacted in person at an authorized location), nor may they pay a feel for any referrals.
RIGHT TO REPURCHASE
If Jeweler’s status as an Official Rolex Jeweler ends for any reason, or if Jeweler terminates its business, liquidates its inventory, or in any manner attempts to make a bulk sale of its inventory, Rolex reserves the absolute right, in its sole discretion, to repurchase all or part of Jeweler’s Rolex inventory at the invoiced price. Rolex shall have the right of first refusal to repurchase such inventory and Jeweler shall not sell, or offer to sell, or transfer possession or ownership of such inventory to any third party unless it has first offered to sell the inventory to Rolex at the price specified herein and Rolex has refused such offer.
Note: This is the reason you don’t see big supplies of Rolex watches flood your local market when a big AD goes bankrupt.
Jeweler agrees to ship all such merchandise to Rolex on request. Jeweler has the right to sell Rolex inventory that is not repurchased by Rolex. If Jeweler sells the above-described Rolex inventory to any third party in violation of Rolex’s rights, Jeweler agrees to pay Rolex an amount equal to the originally invoiced price for such merchandise as liquidated damages. Any third party purchaser shall take possession of the inventory subject to Rolex’s rights as specified in this Agreement. Jeweler agrees to execute such documents as Rolex may request to effectuate the terms of this Paragraph.
TERM AND TERMINATION
In the event of a breach of this Agreement, or of any Rolex policy or procedure, or for any other just cause, either party may terminate the Agreement effective immediately, upon giving written notice of termination to the other party.
“Just cause” shall include, but not be limited to, the following examples:
- Failure to pay any sum when due;
- Transshipping (both intentional and unintentional);
- Failure to comply with any applicable federal, state or local law or regulation in connection with a party’s obligations under this Agreement or in connection with the operation of its business;
- Involvement by a party, or its owners or employees, in any activity that could damage the other party’s reputation, or that is generally considered immoral, illegal, or contrary to public notice;
- The sale, distribution or any other disposition of substantially all of a party’s assets or any material change in its control;
- The closing of a party’s business, the liquidation of its inventory, or the attempted bulk sale of its inventory;
- The filing of a petition in bankruptcy by or against either party, or if either party is adjudicated or become bankrupt or insolvent, or the appointment or the application for appointment of a receive for a party’s business, or an assignment or attempted assignment for the benefit or creditors.
The above are some of the key points raised in such a Rolex distribution agreement also known as Official Rolex Jeweler Agreement or ORJ Agreement.
Please note that there is more to this story than just this ORJ type of agreement. Rolex also asks your Authorized Dealer to read and accept the conditions stipulated in other policy statements such as the Co-op Advertising Policy. For additional insights in what is stipulated in these policies, you can have a peak at a past dispute with the Justice Department right here.
Hopefully this helps clarify this topic a tiny little bit and if at all possible – may it help separate truth from fiction. Point of this overview is to indicate that a Rolex AD has a rulebook to follow. It is not a free-for-all. Please keep in mind the documents that served as basis of the above are not the latest and greatest and may possibly be outdated to a certain extent.
NOTE: Sample Rolex Distribution Agreement can be accessed at the SEC here. In addition, Interesting past cases providing additional insight in these Agreements can be found here and here. Policy insights also found here.