Hermes Stands Strong in a Declining Luxury Economy

On the occasion of the opening of Hermes’s new flagship store in Miami, Florida, Lauren Sherman from Business of Fashion did a great interview with CEO Axel Dumas and write-up on the company’s strategy for growth despite a slowdown in the luxury sector. In short, Hermes has a decades-long plan centered around three pillars: retail, digital and consumer-driven product mixes. In some of these areas Hermes plans to do more of what it’s done for a century, while in others, it’s forging new ground. Despite a 1-2% slowdown in the global luxury sector, Hermes has maintained growth across every category, or metier, in 2015 except for watches which declined by 1%.

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Hermes CEO Axel Dumas

Hermes First-Half Sales Growth, by metier (2015)

CategoryMetier
Leather Goods/Saddlery+ 14%
Ready-To-Wear/Accesories+ 8%
Silk/Textiles+ 5%
Perfumes+ 4%
Other (Jewelry, Home)+ 12%

The Miami opening reflects the company’s renewed emphasis on the retail experience According to Dumas, Hermes hopes the new store will serve as a stepping stone into the growing elite sectors of Latin American economies. Miami is one of the top tourist destinations for travelers from the southern hemisphere. But beyond Miami, the opening reflects a renewed emphasis on the retail experience. In the past three years, Hermes has remodelled eight of its 28 standalone stores and opened a new parfumerie at Brookfield Place in downtown Manhattan.

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New Hermes Flagship Store in Miami, FL

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Interior of Hermes Miami Flagship Store

Apart from enhancing the consumer’s retail experience, Hermes is in engaged in a long-term retail strategy focused on geographical balance. The company’s commitment to investing early in markets like Japan has allowed it to reap benefits from international macroeconomic trends while others have struggled to stay afloat. In the first half of the year, Japan sales are up 20%. While some of this growth can be attributed to increased Chinese tourism, Dumas argues the foundation the company has been building for years is the main factor:

“There is the groundwork that has been done, which is to become relevant and very different to the Japanese clientele. When people weren’t investing, we were there. We made a statement to the Japanese community.”

The second main component of the company’s long-term plan is to build-out its digital presence. While other luxury retailers have been online for years, Hermes has been slow to adopt a full consumer retail platform. We can assume, as they often do, that they’re playing the long game here. In anticipation of a possible re-launch of the main Hermes website in mid 2016, the brand has this year experimented with smaller projects. We’ve discussed Le MANifeste d’Hermès and the watch partnership with Apple here on the site before. And just this month, Hermes launched a playful online dictionary called Hermesistible. The website showcases a range of gifts and accessories in the run up to the holiday season. The new Hermes “lexicon” includes words like Impulcie (“a fleeting guilt when indulging a whim of childlike pleasure”), Jalousele (“a spark of envy in a shade of green”), and Escapitude (“the joy of planning an impromptu escape”). PurseBop has definitely experienced all of these intimately!

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Interactive game from  Hermes Manifeste

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Hermesistible

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One of the many bold graphics from Hermesistible

As we can see, these digital projects are about more than just retail. According to Dumas, “E-commerce is important, but also it’s about communication, telling your value.” He makes a very interesting parallel between the company’s decision to begin investing in international markets in the 1970s and their upcoming foray into digital:

“There was a discussion in the 1970s, should we go international or should we not? People were saying, you don’t need to go international because everyone is coming to Paris. Going international will be risky and costly. Fortunately for us, we took the step to go international. I think it’s the same subject about digital now.”

The last critical component to the company’s historical success and prospects for growth going forward is its emphasis on tailoring product offerings to the specific demands of consumers. Unlike other luxury giants, Hermes doesn’t have a marketing department. Instead of trying to respond to trends on a quarterly basis, Hermes takes a multi-year approach. One of the main reasons I think we all love Hermes so much is the responsiveness the company exhibits towards us, the customer. When we walk into a boutique, we see how important our feedback is. This is a very intentional strategy. Dumas:

“There is this profusion of offer and we let the customer decide and then we see where the transaction is coming from…it’s one of our specialties to be balanced in our product offering.”

While luxury is indeed slowing down, it seems like Hermes at least has a long-term plan to ensure it holds onto its preeminent status for generations to come. Now it’s all about execution. What do you think? Is Hermes succeeding on the three fronts we’ve outlined here – retail, digital and product mix? What sorts of things do you expect from the new digital platform in 2016?

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Hermes window display in Mumbai, India the night of the Hermes Horse Exhibition.

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PurseBop’s Hermes stack from France. All yet to be revealed.

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Hermes Trifecta.

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Rose Jaipur Kelly Cut enroute to Hermes Horse Exhibition, Oct 30th Mumbai, India.

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Hermes Miami Flagship.