Hermès CEO Shares Business Philosophy, Insights into the China Market, Future Growth Points

2月 26, 2024

On February 9th, local time, the French luxury brand Hermès announced its full-year performance for 2023: revenue increased by 16% year-over-year to 13.4 billion euros, with a 21% increase at constant exchange rates.

Compared to the earlier disclosed performance of LVMH and Kering, two French luxury giants, Hermès performed exceptionally well:

  • LVMH: In 2023, revenue increased by 9% year-over-year to 86.2 billion euros, with a 13% growth on an organic basis.
  • Kering: In 2023, revenue decreased by 4% year-over-year to 19.6 billion euros, with a 2% decline on a comparable basis.

At the subsequent analyst conference, Hermès CEO (the sixth-generation family member) Axel Dumas and CFO Eric du Halgouët attended. Compared to the analyst conference after the third-quarter financial report, which was mainly communicated by Eric du Halgouët, this time, Axel Dumas, who has been in charge of Hermès for ten years, generously shared his latest views on the entire luxury goods industry and the China market, as well as a detailed analysis of the company’s long-term development strategy, allowing us to better understand why this “luxury goods  trend indicator” is so resilient and evergreen.

Luxeplace.com carefully studied the communication content of Axel Dumas with analysts and will interpret it from the following four perspectives:

  • Hermès Has Never Been a Profit-Oriented Company
  • Axel Dumas Sees New Growth Points in Categories and Regions
  • “Chinese Customers Have a Fascination with Hermès”
  • Opportunistic Movements in Quality Commercial Real Estate

Hermès CEO Axel Dumas

Hermès Has Never Been a Profit-Oriented Company

Beyond steady revenue growth, Hermès’ profitability improved further in 2023 — recurring operating profit reached 5.7 billion euros, a 20% increase at constant exchange rates year-over-year; net profit reached 4.3 billion euros, a 28% increase at constant exchange rates year-over-year.

Axel Dumas frankly stated, We are not steering the group with margin in mind. We’ve never done  this on purpose. We have costs and we were able to overshoot our targets, but we try and manage and steer the group in a conservative financial manner. But we never think about the margin rates..”

Axel Dumas revealed that since the beginning of 2024, Hermès has increased prices by 8%-9% to offset a 6% increase in production costs and a certain impact of exchange rates, “Currently, 95% of Hermès’ production is carried out in the Eurozone.

Moreover, Axel Dumas specifically mentioned communication costs, which account for 4.5% of revenue. “Before and after the pandemic, our revenue doubled, but we’ve kept the same ratio.

“What is specific with compared to other players is that we invest a lot in tried events and much less present media,” Axel Dumas added.

Axel Dumas pointed out that, in fact, 2023 was not a good year for many luxury companies. Our industry seems to be polarized, with some groups being very successful and others not so much.

“Being an attractive and desirable brand is very important. People come here and excitedly purchase our products. This desire is not something you can measure or predict in the coming years.”

Axel Dumas gave an example on-site: He is a Hermès customer who went to a store intending to buy some pants. He tried them on in the store and then told the sales staff he wasn’t sure if he needed them. The sales staff then told him, “If you’re not sure, then don’t buy it.” We’re not here to sell you what you need, but what you want.

” We excite people’s desire and that’s what we try to do. At the same time, I believe one of the ways to succeed is to  also bear in mind the fact that it might not work out. People who have known me for a long time know that I’m not stubborn at all; I’m also a great optimist at heart. I never think that said before the battle that started for me. The lessons we learned in 2023 will help us better understand 2024,” Axel Dumas added.

Axel Dumas Sees New Growth Points in Categories and Regions

In terms of categories, leather goods and saddlery are currently the largest department of the group, contributing over 40% of the revenue in 2023. Axel Dumas said, “In 1988, during my first internship at Hermès, 53% of sales were contributed by the silk and textiles department, and leather goods only accounted for 9%. Fortunately, Hermès continues to recruit artisans to make handbags.

Axel Dumas revealed that Hermès’ jewelry sales exceeded 1 billion euros in 2023, reinterpreting the Chaîne d’ancre jewelry collection in various shapes and materials, which was showcased at an exhibition held in July at the Paris Faubourg store. “I used to lead the jewelry department, but since I no longer lead, the department has achieved rapid development, and I salute the current management team.”

Moreover, perfumes and beauty are currently one of the smallest departments of the group, accounting for 3.7% of revenue in 2023. However, Axel Dumas is ambitious about this category, “I can now be sure that we want to have more ‘beauty’ customers than Hermès customers. Due to the distribution network, perfumes and beauty can be distributed to more stores than other categories, reaching more new customers.”

In terms of regions, the Asia-Pacific region’s revenue increased by 20.2% year-over-year to 7.533 billion euros in 2023, accounting for 56.1% of the group’s revenue, making it the largest market. Axel Dumas said, “Asia is overall prosperous, not just China, which is incredible.”

Axel Dumas also mentioned the Indian market, “We have been operating there for a long time, and we will open our third store in India. We are waiting for the increase in local customers, and we know it takes time to achieve the desired results.”

Moreover, at the analyst conference, Axel Dumas specially mentioned the Middle East market, “Hermès has been very active in the Middle East for a long time, and we have cooperated with local partners through joint ventures. Of course, we only hold a minority stake, mainly because policies do not allow us to have a majority stake.

“However, the policy has now changed, especially in Dubai and Abu Dhabi, where we can hold a majority stake. In the future, we will continue to cooperate with these excellent partners, and we will have greater control, but overall, there is not much change because we have already achieved a very good balance between partners and teams.”

Hermès has always been cautious about opening stores. Speaking of the opening strategy, Axel Dumas revealed, “Whether it is necessary to open a store in a country/region, we need to first determine whether there is a certain middle class, very wealthy class, and we can find them in Miami, Milan, London, Paris. Today, we indeed see the growth of the middle class in India and other Asian countries, which allows us to explore the huge vitality and momentum with local customers through opening stores there.”

“Chinese Customers Have a Fascination With Hermès”

In terms of regions, except for Japan, the rest of Asia (led by the Chinese market) continued to maintain strong growth, with sales increasing by 19% at constant exchange rates year-over-year, and all countries in the region saw significant sales growth. Following the opening of a store in Tianjin in July, Hermès also welcomed the opening of a new store in Chengdu in October, which is the brand’s 33rd store in mainland China.

Axel Dumas said, “I think there are more and more middle-class people globally, they are younger and wealthier, which is why we can achieve such excellent performance. We always hear people talking about economic difficulties. In fact, in the more than 20 years I have worked at Hermès, we have experienced more difficult years than today, 2008 was a tough year.”

“Having said that, we are confident in the performance of the Chinese market in both the short and long term, although it is difficult to make specific judgments today. We indeed see a decrease in foot traffic in Chinese malls, but Hermès’ foot traffic is up to standard, and I haven’t seen any major infrastructure projects in the Chinese market being halted, and our projects in Shanghai and other cities are progressing steadily.”

Axel Dumas further stated, “We are between two truly fair things: how things continue to develop and in which direction they will develop. I must say that so far, the results show that Chinese customers have a fascination with Hermès.

However, Axel Dumas still revealed some concerns, “One of the structural differences in our industry for the past 15 years is that customer consumption is no longer determined by income but by wealth.”

“Therefore, when the real estate market rises, it will promote the luxury goods industry, and we can feel this in China. The current real estate market in the region is still facing some difficulties, which will have a certain impact on the luxury goods industry.

Speaking of the latest performance of the Chinese market, Axel Dumas said, “This year’s Chinese New Year is different from previous years (after the analyst conference), and it is currently impossible to provide the latest data.”

Opportunistic Movements in Quality Commercial Real Estate

Since 2023, luxury giants led by the LVMH Group have been frequently laying out commercial real estate and iconic flagship stores. When asked whether there is currently a commercial real estate race in the luxury goods industry, Axel Dumas said, “We indeed see many luxury groups buying real estate everywhere, and they have a lot of layouts on Fifth Avenue, but we like to be different. In Paris, we have three stores, and we own commercial real estate on Faubourg Avenue and George V Avenue. In addition, there are many places for external reception of distinguished guests, and we are the owners.”

“There are no absolute rules in the real estate industry, and Florian Craen (Executive Vice Chairman of Hermès Sales and Distribution) and I are also on the lookout. Currently, we have our own stores in iconic locations around the world, such as Rodeo Drive in Los Angeles and Dosan Park in Seoul, South Korea. The key is to find the right opportunity.”

Axel Dumas specially mentioned the outstanding performance of the American market, “What we are seeing now is that there is a lot of foot traffic in our stores. Although the areas where we are located may not necessarily have many potential customers, we seem to be able to attract them to our location through the Madison store, which is indeed a huge investment for us, and through this store, we see the healthy vitality of New York.”

 | Source: Hermès analyst conference

 | Image Credit: Brand official website

丨Reporter:Wang Jiaqi

 | Editor: LeZhi