The results for the first half of 2014 published by the Swatch Group on 22 July made for sobering reading. Despite a modest increase in sales, the Swatch Group recorded an 8.8% drop in operating profit in the first half of this year. Tellingly, the group cited the “high level of marketing expenses for the Olympic Games in Sochi” as one of the factors that had contributed to the decline that saw its operating margin for the first six months drop to 20.2%. Although this figure is in line with those of competitors such as Richemont and LVMH, Hermès stands head and shoulders above the crowd with a margin in excess of 30% that the company looks set to maintain this year.
Worldtempus asked Luc Perramond, CEO of La Montre Hermès, how Hermès manages to maintain such higher margins and above-average growth at the company.
If you look at other big groups, margins are becoming more and more important because sales growth is slowing and cutting costs therefore becomes important. How do you keep the profit margin so high at Hermès?
We have EBIT margins of over 30 per cent, which is quite incredible and makes us the envy of the other big groups. This is the result of a strict management of costs. One good example of this is in our use of alligator skins. Although there is a lot of waste, we used to only cut two straps from a skin from the part where the large scales are, but we have since started cutting from the flanks as well, where the scales are smaller, and we can now get four or five straps from a single skin, which makes a big difference.
We also don’t do marketing like the other brands. We are a house of creativity and we try to reflect the values of the house and offer these in beautiful products to our customers in the hope that they will like them. We don’t produce articles based on market research.
The reintroduction of silver into the watch collection is a good example of this…
Exactly. If we followed market research, we would never have done this. Our attitude is more to develop something that is in line with the tradition of the brand and we found a legitimate benefit for the customer with the prevention of tarnishing. So it was logical for us to launch this almost in spite of the market trends.
It was the same with the Faubourg watch because we launched a very small watch at a time when everyone else was offering ever bigger watches for ladies. This is what gives us an edge over other brands. We do the unexpected, we surprise.
Can we expect more such surprises in your Temps Imaginaire collection?
Definitely! This is a collection that appeals to both men and women because the concept is universal. It is also why we launched the Temps Suspendu in 38mm in addition to the original 43mm, because we had a lot of demand from women.
The saga will continue because for us this is a strategic area for us that is more poetic and philosophical. It’s not something that you find at other brands, so we will continue to introduce new concepts. We have two or three in the pipeline and I think you will see one in the next 18 months to two years.