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Legacy of Craftsmanship

“The idea is always the same at Hermès. To make tradition live by shaking it up”

– Jean-Louis Dumas, former CEO of Hermès

arvy’s teaser: From its humble beginnings crafting saddles to its status as a global icon of exclusivity. Hermès, a bastion of quiet luxury and family tradition.


Quiet luxury.

Not a trend, but a fashionable way of life.

It is not the typical coveted branded clothing or accessories, which you can tell from afar that it is this or that brand and must be something expensive. No bling-bling, no fancy colors or logos, no shiny, hyped pieces. Rather, these are high-quality items of clothing or products that the buyer appreciates and is prepared to pay a hefty price for.

There is one luxury goods brand that trumps all in this area. It manufactures and sells high-quality fashion items such as leather goods, scarves and clothing, as well as furnishings, fragrances and other luxury items. It successfully manages to sell high-priced, understated products due to its unwavering commitment to quality, craftsmanship and exclusivity – for decades (chart 1).

A brand that has earned an almost unassailable reputation for luxury and quality.

The ultimate status symbol.

Hermès.

Chart 1: Two decades of Hermès, Revenue and EBIT growth

Source: Quartr

Family tradition

67%.

This is the percentage of Hermès owned by the Hermès-Dumas family, one of the richest families in the Europe. A net worth of EUR 163 billion.

Hermès is the epitome of a family-run business and a prime example of why these companies outperform over the long term (chart 2). Ownership structures, attractive incentives and long-term thinking are a key feature of these companies. Details that we focus on when analyzing a “Good Story”.

The story began in 1837, when Thierry Hermès founded the family business. He began as a skilled manufacturer of saddles and leather goods, mainly supplying European royalty.

His grandson Emile-Maurice was appointed president of Hermès in 1902. He diversified the company into furniture, belts and exclusive fashion, establishing a broad and impressive presence in several product areas. Over time, the family branch of his son-in-law Robert Dumas took over the reigns and today Axel Dumas is the sixth generation to run the company.

Each heir to Hermès begins his or her career as an apprentice in production and dedicates at least a decade to producing some of the finest handmade accessories in the world before assuming a leadership position.

A remarkable family tradition built on a legacy of craftsmanship.

C’est magnifique n’est-ce pas?

Chart 2: Family-owned vs non-family-owned companies

Source: Credit Suisse Research Institute


Product portfolio leads to brand strength

Kelly and Birkin.

These two surnames mark a milestone in the fashion industry.

Hermès produced two women’s handbags in homage to the Monégasque princess Grace Kelly and the actress Jane Birkin. They are the two most famous women’s handbag models ever and stand for noblesse and discreet good taste. You can find a Birkin bag in chart 3.

Almost everyone today associates the brand with its fashion and leather products, which now account for 70% of sales. However, it is not widely known that just three decades ago, “silk and textiles” accounted for 55% of sales, while leather goods contributed less than 10%.

This shows that the company’s product focus and general consumer behavior have changed significantly. In the fashion industry, even Hermès cannot rest on its laurels, but must innovate and move with the trends, albeit in the company’s typical way of “quiet luxury”. The idea is always the same at Hermès. Bringing tradition to life by shaking it up.

The uniqueness of the Hermès product portfolio is remarkable. The company has only a very small proportion of products in the “lower price segment”. Products under €5,000 account for less than 20% of Hermès’ leather goods business.

This is reflected in the resilience of Hermès – the customer does not care whether the bag costs €15,000 or €20,000. As long as they get one because it is exclusive. Despite being a fashion company, it is characterized by a stable and resilient business and share price development, such as in times of turbulence with DotCom, the Global Financial Crisis or Covid.

After all, luxury knows no crisis.

Chart 3: Growth by segment, 2003 – 2023

Source: Quartr


Blessing and Curse

Globalization was an important growth factor for luxury companies, whether L’Oréal, LVMH or Ferrari.

In the 1980s, France accounted for almost 100% of business. And today? It’s 10%.

Today, the majority of sales are generated in Asia.

An important factor to consider when investing in the luxury market is the following rule of thumb: 1/3 of sales come from Asia (in the case of Hermès it is a remarkable 56%), mainly from China, and 2/3 of the company’s growth is driven by this region. A key factor is the rising disposable income of consumers in these emerging markets. Asia is crucial for this sector and we need to keep a close eye on it. It is a blessing and a curse as it gains more and more importance.

All told, Hermès’ unwavering and relentless commitment to quality and craftsmanship has cemented its status as one of the most prestigious luxury brands in the world.

If not the most prestigious.

Chart 4: Hermès over 10 years

Source: TradingView

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