By June 2023, the French luxury goods company Hermès reported a total revenue of €6.698 billion (equivalent to approximately 529.36 billion yuan) for the first half of 2023, a 29% surge when adjusted for fixed exchange rates.
During this period, all business segments of Hermès saw double-digit growth. Notably, its watch division reported a 24.3% year-on-year increase, amounting to €317 million (about 25.05 billion yuan). The company noted its outstanding performance in both complex function and classic timepieces.
If this growth pace is maintained in the upcoming two years, Hermès watch sales might break the €600 million mark by 2023 and potentially approach or even surpass €1 billion by 2025. As of the end of 2022, only seven watch brands globally reported sales figures near or above €1 billion, including Rolex, Cartier, Omega, Audemars Piguet, Patek Philippe, Richard Mille, and Longines.
Shift in Hermès' Watch Strategy Pays Off
The sustained growth can be traced back to the brand's remarkable performance in the watch market over the past three years, showcasing an effective and adjusted watch business strategy.
Recently, Hermès has significantly shifted its watch product positioning. Instead of viewing watches as accessory goods to attract customers, the brand now emphasizes watches as high-end products that showcase brand quality and craftsmanship, similar to their iconic leather goods and scarves. Hermès revamped its watch product line, introducing the new H08 luxury sports watches and other premium timepieces highlighting advanced watchmaking techniques.
Accompanying this strategic adjustment, Hermès has also clarified the pricing structure for its various watch collections. According to an analysis by Morgan Stanley, the average price of Hermès' premium watches is around €300,000 (approximately 236.59 million yuan), with a limited yearly production of about 100 pieces.
In addition, Hermès has discontinued most of its entry-level watches, focusing instead on launching more iconic pieces from classic collections such as the Cape Cod, Heure H, and Arceau for women, and Hermès H08, Arceau, Carré H, and Slim for men. Pricing for these classic products now starts at €2,100, whereas a decade ago, consumers could acquire a Hermès watch for as low as €900.
Between 2016 and 2018, Hermès further integrated its watch supply chain, laying the groundwork for its current business strategy. This strategy shift, combined with expanded production capabilities, resulted in soaring performance for Hermès watches: sales increased by 10.1%, 72.5%, and 43.1% in 2019, 2021, and 2022, respectively. Only in 2020 did the pandemic cause a slight dip, with a decrease of 1.8%.
These developments allowed Hermès watches to enter the top 20 global watch brands from 2021 onward. Morgan Stanley's report indicated that in 2022, Hermès even surpassed long-standing premium brands like Blancpain and Chopard, ranking 17th globally. In 2022, Hermès watch sales accounted for 5% of the company's total revenue, amounting to €519 million.
Morgan Stanley's data suggests that in 2022, Hermès sold 80,000 watches, with an average retail price (excluding VAT) estimated at €9,206 per watch. This represents a 60% increase in sales volume compared to 2021. Despite this, demand for popular Hermès models remains high, especially for the limited-production premium watches and the H08 men's watches, which have only been on the market for two years.
Given this robust demand, Hermès continues to invest in production expansion. Laurent Dordet, CEO of Hermès watches, revealed in an interview at the beginning of 2022 that based on their growth rate in 2021 and projected future growth, they have plans to increase watch production capacity in their Swiss workshops by 2 to 3 times by 2025.
This means that Hermès aims to produce between 100,000 and 150,000 watches by 2025. If the 2022 production growth rate continues, they might surpass the 100,000 sales mark by 2023.
Asia: A Crucial Market for Hermès
Asia, including Japan and Greater China, remains vital for Hermès, contributing 58.7% of the company's sales. According to Hermès' financial report, with the Greater China market completely recovering from the pandemic's impact, Hermès' growth in the Asian region during the first half of 2023 was particularly noteworthy, reflecting robust consumer demand.
This robust demand in Asia is beneficial for Hermès watches to maintain its impressive growth. In fact, Dordet previously disclosed that Hermès watch buyers are not only loyal brand customers but also include professional watch collectors, especially in the Asian market.
