Once again, Hermès stands out in the luxury crowd. Along with its “exceptional” 2021 financial results – more on that later – it revealed its pricing strategy. And many customers will be quite happy. If they can get the desired merchandise – more on that later too. Shoppers will be even more gleeful if competitors follow the lead on this one.
Hermès Executive Chairman Axel Dumas announced that Hermès’ 2022 price increases are likely to be in the 3.5% range. On a $10,000 Birkin for example, that’s about $350. When you compare that to the 35% spike on the Chanel medium Classic Flap in 2021, 3.5% is downright paltry. Or look at this week’s 20% price hike on the Louis Vuitton Neverfull.
“We do not intend to use prices as a way of ratcheting up further growth . . Our price is the genuine price. There’s a real rapport of trust between us and our customer, and I wouldn’t want to put that in jeopardy.”
According to Dumas, the price increases are largely due to increasing manufacturing costs.
Dumas called 2021 an “exceptional” year, with Hermès reporting 42% revenue growth (at constant exchange rates) over 2020. As compared to 2019, the year prior to the pandemic, that growth was 33%. All geographical areas did well, but particularly Asia and America. In the Asia (excluding Japan) market, growth in China led a 45% increase over 2020 and 65% over 2019, reflecting the reopening of several stores following renovation as well as the inauguration of brand new boutiques.
Sales in America also were strong – up 57% over 2020 and 24% over 2019. Japan and Europe (not including France) saw double digit growth. France saw improvement and recovery, despite the decline in tourists.
Interestingly, and probably no surprise to anyone shopping Hermès during the holiday season, sales were not as robust in Q4. Indeed, in that time period, revenues in Leather Goods & Saddlery declined 5.4%. The Company blames that on “production constraints” and “depleted inventories.” In other words, the bare shelves witnessed by shoppers clearly affected Hermès’ bottom line!
With focus on craftsmanship, we see no promise of increased production and goods availability in Hermès’ remarks. What does that mean for anyone wanting to purchase a bag? Birkins and Kellys likely will remain difficult to obtain for most of us. After all, absent enormous price hikes, limited availability is the best way to maintain exclusivity. Not that Hermès really needs to try.
What’s your reaction to Hermès’ pricing strategy? Let us know.