 "How luxury brand Hermès has seen sales soar in China amid economic slowdown")
Despite a global slowdown in the sales of luxury goods, Hermès’ sales and profits are surging.
And it’s all thanks to China.
The company reported its revenue rose to $4.1 billion in the first quarter – a 17 per cent increase from last year.
So, what happened? How did Hermès defy expectations?
Let’s take a closer look:
According to Forbes, the company’ leather goods and saddlery division witnessed a 20 per cent increase in sales.
The unit accounts for over 40 per cent of Hermès’ income.
Hermès’ ready-to-wear and accessories unit, the company’s second-biggest line, witnessed a 16 per cent increase in revenue.
The company’s Asia-Pacific region, which does not include Japan, increased 14 per cent.
This region accounts for over half of the company’s income.
Hermès vastly outperformed its two biggest French competitors LVMH and Kering.
The former posted a meagre three per cent increase in first-quarter sales, while Kering (which owns Gucci) reported that its profits fell 40 to 45 per cent.
Impact Shorts
More ShortsThe company’s perfume and beauty and silk divisions also spiked 4.3 per cent and 7.9 per cent respectively during the quarter.
Fortune.com quoted the company’s Chief Financial Officer Eric du Halgouet as saying that the company witnessed lower traffic in Greater China in March after the Chinese New Year with a “slight erosion” of customers buying more affordable products such as its silk scarves.
However, shoppers spending on expensive leather, ready-to-wear and jewellery goods made up for that.
What do experts say?
Forbes reported that while China’s economic struggles have put a damper on things, Hermès has defied the odds.
“While economic pressures have dampened the spending of aspirational consumers—previously the main supporters of the middle-positioned Gucci—Hermès’ ultra-wealthy clientele remains undeterred in their demand for its exclusive products,” the piece noted.
It quoted Barclays analysts as saying that in a polarised market, the leaders will be those with “a higher exposure to high-end consumers” or “a higher level of pricing power”—criteria that Hermès, the maker of Birkin, clearly meets.
Fortune similarly noted how Hermès usually services the richest customers – thus allowing it to hold up better than its rivals during turbulent times for the luxury goods market.
“Its fortunes contrast with the challenges at Kering, which is seeking to turn around its biggest brand Gucci — efforts that are taking time to bear fruit,” the piece noted.
The slowdown in sales of more affordable products, such as perfumes, is being taken by some investors as a sign that Hermès may yet suffer from pressure on the middle-income consumer globally, Morgan Stanley analyst Edouard Aubin wrote in a note.
Forbes quoted Bernstein analyst Luca Solca as saying Hermès seems to have taken to heart Ferrari’s philosophy of scarcity as “core strategic tenet.”
It “benefits from the ability to increase prices” when others rather “suffer a consumer spend swing back,” Solca added.
WPIC Marketing and Technologies CEO Jacob Cooke wrote in WARC.com, “The Hermès brand continues to focus on ‘carefully crafted essentials’, featuring elegant designs with balanced yet vibrant creative directions. Text and brand tonality are more graceful and understated than those of their competitors, and the brand has typically avoided the use of flamboyant popular athletes, pop musicians, and top actors.”
The piece noted how Hermès’ social media campaigns centre around product quality, luxurious natural beauty, unique design elements, and charming expressions of contemporary quiet luxury.
“Hermès often combines hand-drawn illustrations and simple, clever animations with exquisitely art-directed photos and simple, clever videos,” the piece noted.
With inputs from agencies
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