The reason why Hermes is a “single winner” amidst the slump in luxury brands

French luxury brand Hermès

French luxury brand Hermès announced on the 25th that sales for the first quarter of 2024 (January to March) increased by 17% compared to the same period last year . In addition to strong sales of leather products, demand in China was also strong. It has achieved remarkable growth while other global luxury brands have stalled across the board.

The reason why Hermes is a “single winner” amidst the slump in luxury brands

Sales in the first quarter were 3.8 billion euros (approximately 640 billion yen, $4.1 billion), an increase of 17% year-on-year on a CER (constant exchange rate) basis, with double-digit growth in all regions. Both growth rate and sales exceeded FactSet’s average market forecast (13%, $4 billion).

The Leather Products and Horse Gear Division, which accounts for over 40% of the group’s sales and includes products such as the Birkin bag, drove overall growth with sales increasing by 20% due to the introduction of new models. The second largest category, ready-to-wear and accessories, followed with a 16% increase. Both growth exceeded market expectations.

Sales in Japan increased by 25%

Sales in the Asia-Pacific region excluding Japan rose 14%, overcoming a slump in the Chinese market that has plagued other luxury brands. The Asia-Pacific region accounts for more than half of the group’s sales. Sales in Japan were also strong, with an increase of 25%, and sales in the Americas were also up 12%.

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The reason why Hermes is a “single winner” amidst the slump in luxury brands

In contrast to Hermès’ strong performance, its two French rivals are struggling. LVMH Moët Hennessy Louis Vuitton ‘s sales in the first quarter of 2024 increased by only 3% compared to the same period last year. Additionally, Kering, which owns Gucci and other brands, is expected to see a 40-45% decline in profit in the first half of 2024 compared to the same period last year .

Hermès shares fell 4.7% on the Paris market on the afternoon of the 25th, but are up 16.3% since the beginning of the year. In terms of stock price fluctuations this year, it has trailed LVMH (up 4.5%) and Kering (down 19.1%).

Consolidate your position in the “top tier” of the luxury goods market

China, the world’s second-largest luxury goods market, has struggled recently, and major luxury brands such as LVMH and Kering have taken a hit. Meanwhile, Hermès has weathered the storm and outperformed its competitors.

China’s luxury goods market is becoming increasingly polarized. While economically squeezed and aspirational consumers are cutting back on their spending on luxury goods, the ultra-wealthy are not shying away from buying top-of-the-line goods.

Hermès’s “Cultural” and “Price-Smart” Model: A Market Analysis of the Luxury Brand

The former group of consumers is the main support group for Gucci, which ranks in the mid-range of luxury brands, while the latter group, the ultra-wealthy, are the main customers of Hermès. Barclays analysts say that in a polarized market, the leaders will be those with “a high proportion of high-end consumers” and those with “strong pricing power.” Hermès clearly meets these criteria. 

In fact, Hermès plans to raise prices by 8-9% this year. Bernstein analyst Luca Sorca said Hermès appears to have embraced Italian luxury car maker Ferrari’s brand philosophy of increasing value through “scarcity” as a “core strategic tenet,” adding that other companies “We are profiting from our advantage in being able to raise prices,” as Japan struggles to tighten consumer spending.

Birkin continues to be popular

The price of Birkin, Hermès’ standard bag, can soar to twice the retail price on the secondary market. According to Solka, this “huge premium” reflects the very strong demand for “readily available” Birkin and Kelly bags. Birkins and Kellys are not something you can easily change at a store, and they are notoriously difficult to obtain.

In 2021, the Himalayan Niloticus Crocodile Kelly , decorated with 18-carat white gold and diamonds, will be sold at Christie’s in Hong Kong for HK$4 million (approximately ¥80 million at current exchange rates), the world’s highest price for a handbag. The bid was made.

Lawsuits by consumers who can’t afford it

Hermès has solidified its position among luxury brands by targeting the wealthy. However, he has also been embroiled in a lawsuit over this strategy. In March, two California consumers sued Hermès for violating antitrust laws, accusing them of allowing Birkin purchases only to customers with a “sufficient history of purchasing ancillary products.” A lawsuit was filed .

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, making him the 124th richest person in the world. Puesch retired from Hermès’ audit committee in 2014, but still holds about 5% of the company’s stock.

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