Image courtesy @rinkys
Birkin and Kelly handbag purveyor Hermès remains in a class by itself, from a financial and luxury standpoint. Announcing its half-year results for 2023, Hermès stood out not just for its “outstanding” results, but also for succeeding where other top brands struggled. Revenue increased by 25% at constant rates (22% at current rates) over the same six months of 2022, with accelerating growth in Q2.
Moreover, in direct contrast to recent releases by LVMH, Hermès did not caution about a softening in the U.S. market. U.S. revenues experienced 20% growth in Q2 as well as the first half of 2023.
Overall, in the Hermès press release Axel Dumas, Executive Chairman of Hermès, said:
“The 2023 first half results reflect the strength of the pillars of the artisanal model of the house: quality of materials, exceptional know-how and abundant creativity. To support this growth, we continue to invest in our production capacities, in the expansion of our network, while accelerating job creation and training in all of the group’s métiers.”
Image courtesy: finance.hermes.com
Image courtesy: finance.hermes.com
According to the financial report, sales in all geographic regions grew 20% or more. Asia (excluding Japan) posted a 28% increase. Recall that the numbers for the first half of 2022 were somewhat depressed due to China’s imposed health measures in April and May 2022. As a result China’s 2023 results show a more favorable comparison.
For the semester, sales in Japan rose 26%. In Europe (excluding France) and France they increased 22% and 24%, respectively, attributed to local and tourist sales. These results were relatively consistent in Q2 as well.
Customers waiting outside Hermes George V in Paris
Hermès’ data shows no reallocation of revenues geographically. The China region (Asia-Pacific excluding Japan) remains responsible for nearly half (49%) of the company revenue. The Americas are the next largest area at 18%.
Dumas said that Hermès’ main source of growth is its local customers, who have remained loyal. Even with a rebound in tourism, he reports no strategy change. Customers are buying at their home country boutiques, whether at home or during domestic travel.
And if you’re wondering what is selling, you likely won’t be surprised that the Leather Goods & Saddlery division continues its upward trend. Responsible for the largest share of Hermès revenue, its domination (as a percent of revenue) actually declined slightly, from 43% to 41%. The Ready-to-Wear and Accessories line grew as a percentage of Hermès overall sales from 26 to 28%. Whether this minor shift is due to the growing popularity and chic factor of Hermès’ clothing and/or a lack of handbag availability, is only speculation.
Specifically, Leather Goods & Saddlery recorded “exceptional growth” at 21%. Hermès attributes this in part to sustained demand, especially in China. Ready-to-Wear and Accessories experienced 35% growth. The Other Hermès Business lines, which include homeware (like that couch you have your eye on) grew 32%.
However, some interesting notes. As bag lovers well know, despite the inauguration of two new leather production facilities with more on the way over the next four years, there never seem to be enough handbags. The imbalance between supply and demand, whether intentional or not, no doubt helps maintain the exclusivity of the products.
And the brand’s 3.5% price increase early in the year did not seem to have any effect on demand. Dumas pointedly said that the main driver of price for Hermès products is the cost of production and “not the desirability of product.” That suggests that Hermès will not be hiking prices of its most popular items beyond what accounts for increases in labor and materials.
Moreover, Dumas said that the company is still making up for sales that did not occur during COVID, and that the catch up should be done by 2025.
Clearly though, the big news is that Hermès does not see a declining U.S. market, unlike other luxury brands. Whereas LVMH pointed to purchasing hesitation among the “aspirational customer” – those who purchase the entry point products for example – Hermès does not.
Dumas did note that the big boutiques in large markets, like New York City and Los Angeles, performed particularly well (perhaps in contrast to the smaller city stores) but could not comment on the disconnect between luxury brands. However, he did say that in tough times, there is a “flight to quality” . . . a shift that certainly benefits Hermès. We also note that Hermès revenue from its lower end product line, i.e. the Perfume and Beauty line, represents only 4% of Hermès revenues.
For now, Hermès “continues the year 2023 with confidence . . . the group confirms and ambitious goal for revenue growth at constant exchange rates.” Further,
“Thanks to its unique business model, Hermès is pursuing its long-term development strategy based on creativity, maintaining control over know-how and singular communication.”
In the last few months, as another measure of success, Hermès has risen to become the second most valuable fashion company in the world. Bumping Nike from that spot, it now trails only the larger multi brand conglomerate LVMH. Lest anyone wonder about Hermès’ ever-increasing value, in 1993, Hermès stock sold for under €6 per share. As of this writing (with a bump from today’s financial news) it stands at €2017.5.
We have to ask whether anyone is surprised by Hermès’ continued success. Does anything stand in your way of purchasing a Birkin or Kelly other than the lack of opportunity?
And importantly, given Dumas’ comments about the importance of Hermès local customers, is Hermès urging us to shop at our home boutiques. Let us know your thoughts.
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Updated: July 28th, 2023
Comments
3 Responses to “Hermès Revenues Rise 22% in First Half of 2023 With No Decline in United States”
In Palm Beach I was told that I could not purchase a bag unless I was at my home boutique, Greenwich, CT. They said they would have to check my license and would only sell to in-state customers. They said this was to protect against resale.