French luxury brand Hermès

French luxury brand Hermès reported a remarkable 17% surge in sales for the first quarter of 2024 (January to March) compared to the previous year. This growth, driven by robust demand for leather goods and strong sales in China, stands out amidst a global luxury market that has largely stagnated.

In the first quarter, Hermès reported sales of 3.8 billion euros (approximately 640 billion yen or $4.1 billion), marking a significant 17% year-on-year increase on a constant exchange rate (CER) basis. This growth was driven by double-digit increases across all regions, surpassing FactSet’s average market forecast of 13% growth to $4 billion.

The Leather Products and Horse Gear Division, representing over 40% of Hermès Group’s sales and including iconic items like the Birkin bag, spearheaded the company’s growth with a 20% increase in sales, driven by the launch of new models. The second largest category, ready-to-wear and accessories, also saw strong growth with a 16% increase. Both segments surpassed market expectations.

Sales in Japan increased by 25%

Sales in the Asia-Pacific region excluding Japan increased by 14%, rebounding strongly despite a downturn in the Chinese market that has affected other luxury brands. The Asia-Pacific region represents over half of the group’s sales. In Japan, sales surged by 25%, while the Americas also saw a notable increase of 12%.

In contrast to Hermès’ robust performance, its two French rivals are facing challenges. LVMH Moët Hennessy Louis Vuitton reported a modest 3% increase in sales for the first quarter of 2024 compared to the previous year. Meanwhile, Kering, the parent company of Gucci and other brands, anticipates a significant decline of 40-45% in first-half profits for 2024 compared to the same period in 2023. Despite a 4.7% drop in Hermès’ shares on the Paris market on the afternoon of the 25th, the stock has gained 16.3% since the beginning of the year. In terms of stock price performance this year, Hermès has trailed LVMH, which is up 4.5%, but outperformed Kering, down 19.1%.

To consolidate its position in the “top tier” of the luxury goods market

China, as the world’s second-largest luxury goods market, has faced recent challenges, impacting major players like LVMH and Kering. In contrast, Hermès has weathered these challenges and emerged as a strong performer, surpassing its competitors in the luxury sector.

China’s luxury goods market is undergoing polarization. While economically strained and aspirational consumers are reducing their expenditure on luxury items, the ultra-wealthy continue to invest in top-tier products without hesitation.

Hermès’s “Cultural” and “Price-Smart” Approach: Analyzing the Luxury Brand’s Market Strategy

The former group of consumers constitutes the primary support base for Gucci, positioned in the mid-range of luxury brands. Conversely, the ultra-wealthy form the main customer base for Hermès. According to Barclays analysts, in a polarized market, leaders are characterized by having “a high concentration of high-end consumers” and demonstrating “strong pricing power.” Hermès clearly fulfills these criteria.

In fact, Hermès plans to increase prices by 8-9% this year. According to Bernstein analyst Luca Sorca, Hermès seems to have adopted the brand philosophy of Ferrari, the Italian luxury car maker, which emphasizes increasing value through “scarcity,” as a core strategic principle. Sorca added that other companies are also benefiting from their ability to raise prices, especially as Japan grapples with tightening consumer spending.

The Birkin bag continues to enjoy enduring popularity.

The price of the Birkin, Hermès’ iconic bag, can skyrocket to twice its retail price on the secondary market. According to Solka, this “huge premium” reflects the extremely high demand for these sought-after Birkin and Kelly bags. Birkins and Kellys are not readily available in stores and are notoriously difficult to acquire.

In 2021, a Himalayan Niloticus Crocodile Kelly adorned with 18-carat white gold and diamonds fetched HK$4 million (approximately ¥80 million at current exchange rates) at Christie’s auction in Hong Kong, setting the world record for the highest price ever paid for a handbag.

Lawsuits by consumers who can’t afford it

Hermès has cemented its status among luxury brands by focusing on wealthy clientele. However, it has also faced legal challenges regarding this strategy. In March, two California consumers filed a lawsuit against Hermès, alleging violations of antitrust laws. They accused the company of restricting purchases of Birkin bags to customers with a “sufficient history of buying other products,” sparking the legal action.

Forbes estimates that Nicolas Puech, a fifth-generation descendant of Hermès founder Thierry Hermès, has a net worth of $15.2 billion (approximately 2.37 trillion yen) as of the 26th, ranking him as the 124th richest person in the world. Puech retired from Hermès’ audit committee in 2014 but retains about 5% ownership of the company’s stock.

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