Hermès: a history of pride and luxury

Hermès holds a very special position in the luxury world: hugely popular (it ranks #32 in Interbrand’s’ 100 Top Brands List, second only to Louis Vuitton which ranks #19, and way above Gucci at #51, Cartier at #65, Tiffany at #81 and Prada at #91), yet under distributed and able to sustain a price point that makes it affordable only to a small percentage of luxury buyers.

A LITTLE BIT OF HISTORY
Hermès Frères advertisement, 1923

The history of the maison Hermès began in Paris in 1837 when the founding father, Thierry Hermès inaugurated a harness and saddle workshop, providing equestrian riding supplies to European noble houses. The family officially started to operate in the “fashion industry” in the first 1900’s, when Adolphe and Emile-Maurice Hermès took over the business and began to offer haut à courroies bag (designed to store saddles) and, by the 20’s, their first leather handbags equipped with their patented zipper and leather garments for the Prince of Wales (the future King Edward VIII, who was allegedly a lover of golfing jackets). In the same years, Hermès established its presence in New York and opened two stores in French resorts.

In the early 1950’s the company began to use the famous logo (a duc-carriage-with-a-horse) based on a drawing by the French painter Alfred de Dreux and their iconic orange boxes.

 

THE PHILOSOPHY BEHIND THE SUCCESS
Axel Dumas, CEO Hermès / WSJ Interview

 “The luxury industry is built on a paradox: the more desirable the brand becomes, the more it sells but the more it sells, the less desirable it becomes” – Patrick Thomas, CEO of Hermès from 2003 to 2014.

Hermès, despite being listed since 1993, has always been a family business: the leadership of the company has passed through multiple generations of the owning family, and the DNA of the brand has never been compromised nor have its values, amongst which Integrity and Quality emerge, have never been diluted.

In 2007, Jean Louis Dumas, the group’s iconic chairman from 1978 to 2006, told Vanity Fair: “We don’t have a policy of image; we have a policy of product”.

In a world where image has been the driving force of many businesses since at least the 80’s, such an approach works as a differentiator for Hermès.

In fact, despite having hired designers of the caliber of Martin Margiela (from 1997 to 2003) and Jean Paul Gaultier (from 2003 to 2010), among others – Hermès has never pursued a strategy of  ‘celebrity designers’ for the sake of publicity.

Marketing is another area where Hermes takes an approach that is quite different from the industry’s standards.

In an interview with Miroslava Duma (founder of the website Buro 24/7), Axel Dumas, CEO of the Company since 2014 said:

“Let’s look at things in perspective. I’m the sixth generation of the family. Hermès has been a family business for almost 180 years. It’s important for the brand to be a family-owned company because we want to keep the values of the brand alive and true to its craftsmanship, quality and spirit that makes Hermès what it is. There is no marketing department, there’s freedom of buying and there are a lot of things, which are a little bit crazy. That’s why we were fighting for Hermès independence in terms of shareholding” (2016).

While talking about independence, Dumas referred to the “take over” attempted by LVMH in 2010, and resolved in court on December 17, 2014 when LVMH officially relinquished its Hermès shares and distributed its 23 percent stake – which was worth $7.5 billion at the time – to its shareholders and institutional investors.

LVMH’s Bernard Arnault and his family now own less than 10 percent of Hermès.

 

PRODUCT PHILOSOPHY
Hermès, Festival des Metiers

“The rule of one bag, one artisan, is part of our DNA” – Axel Dumas, current CEO of Hermès

Hermès would not be what it is today without its iconic models bags “Kelly ” (created in 1930 and renamed in 1956 after Grace Kelly who carried a crocodile handbag to hide her pregnancy) and the “Birkin” (inspired by actress Jane Birkin after Jean-Louis Dumas had a casual conversation with her), which boasts one of the longest waiting list for an accessory.

One Birkin or Kelly takes approximately 48 hours to make and only about five units are manufactured each week.

It takes two years of training for a newly hired artisan to learn how to work leather “the Hermès” way, and six years of training when it comes to precious leather.

One of Hermès’ core principles is that each bag is made by the same artisan, from start to finish.

FINANCIALS

At the end of 2017, the revenue of the brand was €5.5 billion (of which leather goods and saddlery account for about 50% and ready-to-wear and accessories about 21%).

The company employs 13 thousand employees, makes its products available through a global network of 304 exclusive stores and airport duty-free stores, and its shares, listed in the Paris’ Bourse, have shown a 20% yearly growth over the past five years

Although Hermès is definitely not the largest luxury brand in the world, it is certainly one of the most profitable: the 2017 financial report shows a stunning operating margin at 34%, versus a little over 19% of competitors LVMH (home to Luis Vuitton, Fendi, Celine, Bulgari and many more) and Kering (home to Gucci, Bottega Veneta, Saint Laurent and many more).

KEY TAKEAWAYS

  • Hermes has always sustained a very high market positioning pursuing a “product-centric” strategy, and uncompromised quality of its products.
  • Despite consistent growth in turnover, profits and price of shares, the brand is still largely under distributed, and all products, with the exception of fragrances, are sold exclusively in Hermes’ boutique across the world.
  • Unlike many other luxury brands, Hermes has a strict “no-licensed products” policy.
  • Hermes ranks #42 in Interbrands Top 100 List (second to LVMH at #19)
  • The brand is certainly under-distributed, being available in only 304 POS across the globe, out of which only 42 are concessions, which shows extreme care in keeping full control of distribution and client experience.
  • The only products available outside their boutiques and corners are Hermès watches, perfumes, and tableware which are sold through networks of specialized stores and in airport duty-free stores.
  • Hermes doesn’t have a formal marketing department, and its marketing spending is lower than the industry’s standards.

 

If I were to find a keyword to describe or summarize Hermès heritage, I’d chose PRIDE (when it defines a sense of the respect that other people have for you and that you have for yourself)

The pride of a family trying to always protect the name of their Company, its integrity and quality standards, at all costs.

“Pride, then, seems to be a sort of crown of the virtues, for it makes them greater, and it is not found without them.” – Aristotle, Nicomachean Ethics, c.350 B.C.

 

 

carlo pignataro

carlo

Author of "Sell With Style, The Ultimate Guide To Luxury Selling" - Luxury Sales & Client Experience Training.

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