文|Hyunsoo Rim
Hermès reported last Thursday that its first-quarter sales rose 17% year-on-year, thanks to strong leather goods sales and demand from the Chinese market, despite a cooling global luxury sector. Hermès is a well-known luggage manufacturer, and its Birkin and Kelly bags are highly sought after by consumers.
The French luxury goods company achieved rapid quarterly sales growth in all sales regions, including China.
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Key facts
Hermès' first-quarter revenue of $4.1 billion (3.8 billion euros) increased 17 percent year-on-year, with double-digit growth in all sales regions, beating FactSet's forecast of 13 percent growth and $4 billion in revenue (earnings figures were not included in Thursday's report).
Thanks to the hot sales of new models, sales in the leather goods and harness division increased by 20 percent, accounting for more than 40 percent of the Group's total revenue. Sales of ready-to-wear and accessories, its second-largest line, rose 16%, both of which exceeded the FactSet consensus forecast.
Sales in the Asia-Pacific region, excluding Japan, which accounts for more than half of the Group's total revenue, increased by 14%, overcoming the dilemma caused by China's economic slowdown in the luxury sector. Sales in Japan and the Americas also increased significantly, by 25 percent and 12 percent, respectively.
In stark contrast to Hermès' performance, the group's two French conglomerate rivals are facing challenges: LVMH reported a 3% increase in first-quarter sales, while Gucci's parent company, Kering, posted a 40% to 45% profit plunge.
On the day, Hermès shares fell 4.7% in the afternoon trading session of the Paris Stock Exchange, but have risen 16.3% year-to-date, outperforming LVMH (up 4.5%) and Kering (down 19.1%).
Forbes named Nicolas Puech, a fifth-generation descendant of Hermès founder Thierry Hermès, the 126th richest person in the world, with an estimated net worth of $14.9 billion. Piesch resigned from the supervisory board of Hermès in 2014, but still holds about 5% of the company's shares.
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Key Context
As the world's second-largest luxury market, China's economic woes in recent years have undoubtedly dealt a blow to luxury giants such as LVMH and Kering. Hermès, however, has survived this hurdle and emerged as a leader in an increasingly polarized Chinese market. As a mid-range luxury brand, Gucci's customer base is mostly limited by economic pressures and has reduced spending, but Hermès' ultra-wealthy customers are enthusiastic about the brand's products that are difficult for ordinary people to achieve. Analysts at Barclays pointed out that in a polarized market, the winners tend to be companies that have better access to a "high-end consumer audience" or "hold higher pricing power" – all of which are true portrayals of Hermès.
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Related circumstances
Hermès' scarcity strategy targeting the affluent has cemented its position among premium brands, but it has also embroiled itself in legal battles. In March, two California residents filed an antitrust class-action lawsuit against Hermès. They accused Hermès of allowing only customers who were "qualified to shop" to buy its signature product, the "platinum bag," and that the product was not displayed in the window but only in private. Despite the controversy, the group still plans to raise prices by 8%-9% this year.
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Important comments
Bernstein analyst Luca Solca pointed out that Hermès appears to have enshrined Ferrari's concept of "scarcity" as a "core strategic principle", and that while other brands "suffer from a pullback caused by consumers compressing spending", Hermès "benefits from its ability to raise prices".
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Big numbers
At US$513,000 (HK$4 million) – the highest ever price ever paid for a Hermès handbag – sold by Christie's in 2021 – it is a Himalayan Nile crocodile leather Kelly bag set with 18-carat white gold and diamonds – the highest price ever paid for a handbag in the world. But that's not even counting the limited-edition jewel-encrusted platinum bags with a price tag of around $2 million. Platinum bags are sometimes sold at a much higher price than counter prices, sometimes up to twice the counter price. According to Solka, this "significant premium" reflects the strong demand for "right away" platinum or kelly bags in the face of a hard-to-find bag – after all, it's not as easy as walking into a store and buying a bag in the window.
This article is translated from
https://www.forbes.com/sites/hyunsoorim/2024/04/25/herms-sales-surge-amid-exclusive-birkin-wave-despite-global-luxury-slump/?sh=701fc48e10c5
Forbes China exclusive manuscript, please do not reprint without permission
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