For nearly 200 years, French luxury brand Hermès has been emphasizing the quality, scarcity, and allure of its products, a strategy that has led it to dominate the luxury goods industry, surpassing even larger competitors.
Hermès’ highly coveted products such as the Birkin and Kelly bags, named after English-French idol Jane Birkin and Princess Grace Kelly of Monaco, continue to drive demand even as most consumers reduce spending.
Last Thursday, Hermès reported a significant increase in third-quarter sales, unaffected by the severe economic downturn in China, as wealthy consumers remain attracted to their platinum bags priced above $10,000.
Analysts point out that the Birkin and Kelly handbags account for 25% to 28% of Hermès’ total revenue. The value of these handbags in the second-hand market typically doubles or triples.
According to CNBC, Luca Solca, a global luxury goods senior analyst at the international asset management firm Bernstein, stated, “I think these bags are unattainable, which enhances the brand’s reputation and allure. They are a distinctive symbol, hence the desire for them increases.”
In the fiscal year 2023, Hermès ranked fourth in revenue among major luxury fashion brands, following LVMH, Richemont, and Kering.
Despite having fewer than 300 stores, Hermès can compete with larger rivals. In the last quarter, Hermès saw double-digit revenue growth, while competitors LVMH and Kering reported sales declines exceeding expectations. Additionally, since the beginning of 2024, Hermès’ stock price has risen over 10%, while LVMH and Kering have fallen by approximately 15% and 40% respectively.
Globally, many luxury consumers have reduced spending, especially in the continually struggling economy of China. Experts predict this trend will continue.
Although Hermès performed well in the third quarter, they were not completely immune, as the sales growth in all regions slowed compared to the previous year. The company noted during its financial conference call that despite a decrease in foot traffic, the average transaction amount per customer increased.
Solca stated, “High-end consumers have become more of a focus in the industry, as they show a strong tendency to spend when provided with products they deem valuable and unique.”
“As far as uniqueness goes, Hermès has a lot of advantages,” he added.
The slowest growth for the company was in the Asia-Pacific region (excluding Japan), where sales only grew by 1%. Hermès’ Deputy Chief Financial Officer Eric du Halgouet told reporters over the phone that the entire region showed consistency in performance.
“In China, the trend has not been disrupted. We are still facing a decrease in foot traffic post-Chinese New Year, but it has not further declined,” du Halgouet said.
Luxury industry leader LVMH, when announcing its recent quarterly performance, stated that consumer confidence in China had dropped to its lowest point since the pandemic, leading to a deterioration in demand for fashion items this season.