Hermes tells Swiss to stop selling luxury watches in abundance

Photographer: Michele Limina / Bloomberg

Swiss watchmakers are still overproducing timepieces, despite production cuts following a Covid-caused drop in sales, the head of The Hermes International watch unit.

Brands like Hermes, Rolex and Audemars Piguet temporarily halted production last year amid the pandemic, which has helped cut supplies somewhat. Still, some producers are failing to address the issue, Laurent Dordet, chief executive officer of the Hermes watch unit, said in an interview.

After Switzerland has exported more than 1 billion watches over the past four decades, luxury watchmakers grapple with the paradox that they need to sell more, but make their products even more exclusive. Some Swiss watchmakers reward sales managers too much for marketing too many products, according to the Hermes watch chief.

“This remains a major illness of that company, at least with some brands,” said Dordet. “It may be less now, but as long as commercial people are stimulated by key performance indicators, you have overstock in the market.”

A slew of websites selling pre-owned watches have popped up as consumers trim their collections and interest in vintage pieces grows. Meanwhile Apple Inc. now produces more than twice as many watches as all of Switzerland exports, decreasing the demand for lower timepieces.

Read more: Patek Philippe chairman tells the Swiss watch industry to slow down

Swiss watch exports fell 22% in 2020 as tourism stalled and Covid-19 stopped social venues where big spenders could show off their latest purchases. Demand is increasingly concentrated on the biggest brands: Rolex, Patek Philippe, Audemars Piguet, Cartier and Omega, according to Dordet.

“It’s difficult if you aren’t one of the five leaders,” he said. “The watch industry is polarizing strongly. We will have more and more winners and losers. “

Hermes Watches posted a 2% increase in sales last year, surpassing all its main rivals in luxury timepieces, according to Bank Vontobel analyst Rene Weber. Meanwhile, sales fell by 40% Swatch Group AG’s namesake label, which retails for $ 50 and under, the analyst estimates.

Last year, RJ Watches, a small independent brand known for its Pac-Man and Spider-Man pieces, filed for bankruptcy.

The healthiest segment was the most expensive end. While Hermes costs about $ 6,000 on average, some price tags exceed $ 800,000.

“For us there is absolutely no overproduction of watches, no waste at the end of the year,” said Dordet. Hermes limits third-party distribution and, as a result, has better control over sales, he added. “The advantage is that it is more profitable and you have less stock.”