Hermes'S Quarterly Revenue Grew Fastest In 4 Years, Thanks To Handbag Production.

Hermes, which was overtaken by Gucci, recorded its strongest quarterly growth in 4 years.

According to the first quarter results released by France's luxury brand Hermes, its sales rose 16% to 1 billion 610 million euros in the same period, and increased by 12% at fixed exchange rates, which was more than the 10% expected by the company. It is the largest increase in the past four years, but still lagged behind the 20% growth of the LVMH fashion department and the growth rate of Gucci 24.6% in the same period.

The picture shows Hermes's main performance data for the first quarter.

By Sector:

During the period, sales of the Hermes core handbags and harness Department increased by 16.9% to 808 million euros, accounting for 50% of the total revenue.

Sales of garment accessories Department rose 17.5% to 360 million euros, accounting for 22.3% of total revenue.

Sales of silk and textile sector increased 6% to 140 million euros, accounting for 8.6% of total revenue.

The sales volume of the perfume Department increased by 3% to 84 million 600 thousand euros under the promotion of Terre d'Herm s, accounting for 5.2% of the total revenue.

Watch sales rose 22% to 43 million 400 thousand euros, accounting for 2.7% of total revenue.

Sales of other sectors including household and jewellery products increased by 22% to 116 million euros, accounting for 7.2% of total revenue.

The picture shows Hermes's main performance data for the first quarter.

By Region:

Hermes's sales in Japan increased 16.7% to 204 million euros in the first quarter.

Sales in Asia, excluding Japan, surged 21.5% to 860 million euros.

US regional sales increased by 17.1% to 269 million euros. Hermes opened a new boutique in New York's meat processing area earlier this month, covering an area of 5330 square feet, and set up the first cafe bar to attract more new consumers.

The brand has also performed well in Europe except France, with sales rising 9.3% to 261 million euros, mainly driven by the British market.

Sales in France were affected by the "yellow vest" protest, which increased by only 1.4% to 184 million euros.

Axel Dumas, chief executive of Hermes, said that the growth of its performance was mainly due to its continued popularity of Chinese consumers, such as its iconic platinum packages and Kelly bags. During the period, the revenue of brands in Greater China increased by more than 10%.

Some analysts pointed out that this undoubtedly further eased investors' worries about the reduction of luxury consumption in China's wealthier class.

What it means is that in the second quarter of fiscal 2018, sales of hermes handbags and harness Department slowed to 3%. Since 2017, Hermes has started to build more factories to increase production capacity so as to alleviate the shortage of supply.

Fashion headlines pointed out earlier that although Hermes also owns other businesses such as garments, harness, perfume and jewellery watches, its core revenue source is still handbags, which has a very important strategic significance for Hermes. Platinum bags are located in the center of Pyramid, representing the brand luxury attributes.

At present, Hermes has a total of 52 production plants, of which more than 40 are located in France, and its production base in Guyenne and Montereau will also be completed in 2020. The brand also recently issued a statement that it plans to establish a new leather factory in Normandy and employs 250 workers.

Hermes's measures to increase production can be seen immediately.

According to fashion headline data, the sales growth of Hermes leather and harness sector accelerated again in the third quarter and the fourth quarter of fiscal 2018, and returned to 9% last year. The sector revenue increased 9.4% to 2 billion 975 million euros last year.

The figure is the main performance data of Hermes in 2018

However, blindly increasing production is not a good thing for luxury brands. For luxury brands based on scarcity, they must always be alert to the danger of dilution of brand value.

In fact, in the past 35 years, the high value of platinum bags in handbags is very important because people are still hard to get it.

Hermes's distribution system and waiting list are almost as well known as platinum bags and become well-known "secrets".

It is reported that consumers need to buy another 60 thousand to 80 thousand other products if they want to buy 80 thousand yuan handbags.

Although stores have waiting lists, the list is often hard to manage because consumers want to buy too much, and brands always give priority to VIP customers.

But in the past two years, under the environment of the global luxury industry's shuffling, the Hermes, who has always been unwavering in scarcity, has begun to waver.

According to the latest New York Times report, with the growth of the resale market and the emergence of new resale platforms, cheaper second-hand luxury goods have attracted many ordinary consumers.

Bernstein luxury analyst Luca Solca said that at present, the number of platinum packages on the global market has exceeded 1 million.

Resale business website The RealReal also has more than 300 platinum packages available for sale, including rare color matching materials such as crocodile skin and bright red.

The resale website StockX is famous for its sports shoes, and has now extended its products to handbags. At present, there are more than 230 kinds of hermes handbags available for consumers.

At the same time, Hermes's attitude towards e-commerce and digital media is becoming more open.

In October last year, Hermes opened a new version of the Chinese official website in China after six months in the official website of the European Union. It joined the Louis Vuitton, Gucci and Prada Chinese business camps, officially started selling handbags online, while CHANEL was still absent.

Despite the mystery of the brand, Hermes's core handbag products, platinum handbags and Kelly handbags, are still unable to buy online, but the industry has clearly felt the positive layout of Hermes for digitalization. There are indications that every step of Hermes is closer to selling platinum packages online.

Even more surprising to the industry is that Hermes no longer excludes the third party e-commerce platform.

Last September, Axel Dumas said in a media interview last year that it is considering selling products in China through the Jingdong platform, which means that the last fortress of the luxury goods industry refusing to enter the domestic e-commerce platform will be breached.

"We have to step back and ask ourselves, where are our consumers?" Sara Gergovich, vice president of digital and electronic commerce at Hermes, said in a forum earlier this year.

The answer to this question is obvious, online.

But in the Internet age, luxury brands have to consider the problem of consumption scenarios.

The long criticized distribution system was also denied by Hermes officially.

According to the morning post news, the customer service of the Hermes China area indicated that the store's package would be sold to consumers only if there was stock in stock. If it was not displayed, it would be sold to consumers. If the sale allowed consumers to distribute goods for the purchase of bags, consumers could complain if they violated the provisions of the company, and the brand would be seriously dealt with.

Some analysts say that in the first tier of luxury brands including Louis Vuitton, CHANEL, Prada and Gucci, the hovering between how to balance scarcity and youth has begun to alarm the industry. Since 2017, Hermes has not won the Gucci and LVMH fashion leather Department.

In addition, the Hermes's most valuable collection of rare animal skins made of platinum is also hanging on the brand "Damour Cris sword".

With the continuous improvement of the new generation of consumers' environmental protection concept, since 2017, the luxury industry has started a wave of stopping animal fur. The most mainstream luxury brands such as CHANEL, Gucci, Buberry and Versace have become members of the international zero fur alliance.

According to fashion headline data, Hermes has a high degree of dependence on handbags compared to CHANEL, Louis Vuitton and Gucci luxury goods groups, accounting for more than 50% of its revenue, and platinum accounts for about 15% of its handbag sales.

Gucci and CHANEL have abandoned animal fur for an obvious blow to Hermes. Under such circumstances, Hermes, who still insists on using rare animal skins as raw materials to earn a high profit, has been isolated and will face enormous challenges and pressure from public opinion.

According to a research report released last year by online service GreenMatch, 90% millennial consumers said they would turn to other brands because of their different values. Z generation also admits that they are more interested in brands that take the initiative to adopt sustainable development and assume moral responsibility, and believe that these values are more important than prices.

As early as 2015, 72% of the Z generation expressed willingness to spend more money on products produced in a sustainable way, compared with 55% in 2014.

In order to reduce its dependence on platinum bags and Kelly handbags, Hermes finally took a bold step in March this year, and decided to formally enter the beauty industry and plan to launch a large-scale cosmetic product in 2020.

In an interview with French media Le Monde earlier, Axel Dumas revealed that in the increasingly fierce competition in the industry, it is very necessary for the brand to fully distribute the cosmetics, perfume and personal care market, so as to enhance the competitiveness of the brand itself.

However, Estee Lauder group, L'OREAL group, LVMH beauty department and CHANEL beauty makeup have been regarded as the four largest high-end beauty retailing giants in the world. The high-end cosmetics sold each year account for about 70% of global sales. Hermes will face tough challenges when it enters the office.

To avoid conflicts of interest, Axel Dumas quit the board of L'OREAL group last week.

According to him, Hermes has begun to develop beauty products, which will be produced by third party suppliers from France and Italy. "We want to sell products instead of brands."

Hermes perfume business has gained a certain market share, with sales of 311 million euros last year.

RBC's analysts believe that while launching the beauty business, Hermes should also make bold changes in handbags so as to diversify the handbag products as much as possible so that the products can increase by about 9% to 10% a year in order to keep consumers fresh and not just rely on increased production to boost sales.

In the 2019 new autumn and winter series released by Hermes, the accessories of young consumers, such as pockets and watches, are becoming the focus.

Bloomberg analysts pointed out that compared with Louis Vuitton and CHANEL, Hermes has been more affected by the "yellow vest" protests. Chinese consumers have always preferred to buy Hermes in France due to global price differentials and scarcity of goods. However, with the downgrading of China's tariff policy and frequent public security problems in Paris, consumers will gradually return to mainland China to buy.

Since this year, Hermes shares have increased by 29%, and their market capitalization is about 65 billion 400 million euros, which is less than 67 billion 100 million euros of Kai Yun group. In 2 and a half years ago, Hermes's market value was almost 1.5 times that of Kai Yun group. The market value of LVMH rose to a record high of 174 billion 600 million euros after the first quarter results were released, and its market value has doubled, compared with that of early 2016, which is nearly 3 times that of Hermes.

Author: Zhou Huining