Apple Watch and Hermès: a Match Made for China

As Apple continues on its quest to up the fashion quotient of its Apple Watch, the brand’s newly announced partnership with luxury brand Hermès could give the wearable gadget what it needs to take off Apple's most important market for the future—China. This week, Apple unveiled that its new Apple Watch collection will feature bands crafted by Hermès in a move that marks the first instance the electronics brand has ever collaborated with a luxury label. The watch will be available starting October 5 at both Apple stores and Hermès boutiques across the world, including in China. The partnership was described as “a great marketing coup” by Luca Solca, the head of luxury goods at Exane BNP Paribas, who wrote in an investor note that the new watch “attracts consumer interest, and provides a ‘cool’ spin on what was so far a ‘geek’ product.” Chinese consumers’ take on the watch will be crucial for the brand, as China has already become the world’s biggest market for iPhones and is expected to surpass the Americas as Apple’s biggest market overall in the future. China has reportedly already become one of the largest markets for Apple Watch, according to outside estimates that say over one-fifth of the devices are sold to Chinese customers. Research firm RedTech Advisors/TalkingData estimates that over 1 million of the devices have been sold in China since the product launch last May, making up 22 percent of all global Apple Watch sales. The firm also estimates that many purchases elsewhere end up on the Chinese gray market, with a calculation that only 68 percent of Apple Watches purchased by Chinese consumers were bought either in China’s Apple stores or through Apple’s website. While the new Hermès version will be available globally, the partnership will be especially beneficial in China given Apple’s status as a “luxury” brand in the China market. A survey by the Hurun Report found that China’s rich now consider Apple to be the top luxury gifting brand—outranking the likes of Louis Vuitton, Chanel, Gucci, and Dior. As a result of Apple’s brand status in China, the brand’s Apple Watch marketing has focused heavily on presenting the device as a fashion item in China. That’s why the watch was found on the wrist of supermodel Liu Wen on the cover of Vogue China last fall while being featured in several other Chinese fashion magazines. The choice of Hermès in particular as a partner was an especially smart move for the China market. While luxury heavy-hitters like Louis Vuitton and Gucci have faced struggles amidst China’s luxury slowdown, Hermès has proven to be a stalwart with significant Chinese consumer-driven sales growth. The company recently reported that Chinese consumers contributed to its 22 percent global sales growth in the second quarter, thanks to 33 percent growth in Japan driven in large part by Chinese tourists. Hermès likely hopes that the partnership will also be a boost for its own watch department, which has been an “ailing category,” according to Solca. This has coincided with an unrelenting China slump for Swiss luxury watch sales brought on by the ongoing anti-corruption campaign. The decidedly high-tech partnership marks a turning point for Hermès, which has been able to maintain sales success in uncertain times for luxury thanks to a heavily cultivated exclusivity factor (including, paradoxically, a low digital presence). Given the low number of Apple’s smartwatch sales compared to the brand’s other devices, the jury is still out on whether or not the Apple Watch will be considered a “success” both in China and globally. Apple Watch faces many challenges in the years ahead—competition from new NFC-enabled watches and “smart” bands by traditional watch brands, the problem of quick obsolescence, the need to own an accompanying iPhone, and screen-size limitations could all hinder future sales growth. The fashionable marketing and brand status certainly haven’t hurt, however—Apple Watch has already taken up 19 percent of the global wearable market share, surpassing Chinese competitor Xiaomi. The question now is if Hermès' exclusivity combined with Apple's mass appeal can convince a large enough portion of China's luxury consumers that the Apple Watch is a worthy status symbol just like their Birkins and iPhones.

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Apple Watch and Hermès: a Match Made for China