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Hermès International (France)

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Hermès (pronounced "air-mez" and never "her-mees") is one of the world's most prestigious luxury brands, and one of the very few that has successfully retained its independence despite widespread consolidation in the sector. So far at least, although in 2010 the group received an unwelcome approach from larger rival LVMH, which accumulated a 22% shareholding in Hermès through the open market, much to the founding family's dismay. Hermès is perhaps best-known for that quintessential French fashion accessory, the silk scarf. However it also produces a wide range of other accessories, including what are arguably the world's most desirable handbags, as well as ready-to-wear clothing for both men and women. Parent group Hermès International also has a small collection of other interests, including British shoemaker John Lobb.

Advertising

Who handles advertising? Click here for Agency Account Assignments. The group declared advertising expenses of €207m in 2014.

Competitors

See Clothing & Fashion Accessories Sector index for other companies

Brands & Activities

The silk carré scarf is the most visible and widely known incarnation of the Hermès brand. The company sells an awe-inspiring range of these beautifully designed printed squares. Priced upwards of €265 (or $375), each design has its own name and comes packaged in the company's iconic orange box wrapped in printed brown ribbon. Shoppers with deeper pockets might join the waiting list for one of the company's hand-made leather bags, each of which is made from start to finish by a single artisan. The most prestigious of these has become known as the Kelly Bag. Originally launched in the 1930s as the Hermès Sac a Depeches (or "mail bag"), it earned its nickname in 1956 after actress Grace Kelly was photographed for the cover of Life magazine holding one of the bags over her pregnant stomach. Demand soared.

Now even more sought-after is the Birkin bag. It originated in the 1980s when former Hermès chairman Jean-Louis Dumas found himself sitting on a plane beside celebrated actress and singer Jane Birkin, who was complaining about the design of her own bag. He promptly commissioned the design of a new product according to Birkin's comments. The waiting list for new Birkin bags can be as long as three years, and pricing ranges from around €4,800 to more than €40,000 depending on colour and materials. The company's latest signature bag is the Lindy, introduced in 2007. There are also more affordable "bi-material" bags made from leather in combination with other materials.

In addition, the group produces a wide variety of other luxury goods, including men's and women's apparel, riding clothes and saddles, jewellery, watches, fragrances (all produced inhouse rather than sub-licensed) and accessories for the table and bathroom, wallpaper, christening gifts for babies and more. In 2008, it even oversaw the creation by aircraft manufacturer Eurocopter of six Hermès-branded helicopters, arguably the ultimate in designer toys. Like other luxury goods manufacturers it is a favourite target of counterfeiters, but has fought back aggressively through the law courts against intermediaries who assist with the sale of faked products. In 2008 it successfully sued eBay for allowing the sale of counterfeit Hermès bags through its French site.

Despite its reputation for conservative designs, the company acquired a 45% shareholding in the business of flamboyant fashion designer Jean-Paul Gaultier in 1999, and five years later appointed Gaultier as the creative director for the core Hermès women's ready-to-wear collection. Gaultier surrendered that role in 2010 to concentrate on his own label, and was replaced by Christophe Lemaire. Hermès sold its stake in the Gaultier label in Spring 2011 to Puig of Spain. Lemaire departed the group in 2014, succeeded as artistic director by Pierre-Alexis Dumas, a member of the group's founding family.

Veronique Nichanian is responsible for the Hermès menswear collection; Nadège Vanhée-Cybulski for women's ready-to-wear. In 2010, the group launched a new fashion accessories and houseware line for the Chinese market under the name Shang Xia, using traditional materials or techniques. It also has a controlling stake in British shoemaker John Lobb and several specialist ateliers including Cristalleries de Saint-Louis, silver and goldsmiths Puiforcat, fabric weavers Perrin & Fils, watchmaker Vaucher Manufacture Fleurier, and leather workshop Soficuir. The group's 36% stake in camera company Leica was sold in 2006.

Hermès directly controls a chain of 210 branded stores and outlets in the world's most exclusive shopping locations. Another 100 or so outlets are operated by licensees. Sales through other outlets are strictly controlled, with only 40 or so non-exclusive outlets granted permission to sell the group's main products.

Financials

Performance has increased steadily in recent years, although the rate of growth has slowed somewhat, with revenues rising by 25% in 2010, 18% in 2011, 23% in 2012 but a little under 8% in 2013 to a record €3.76bn. Currency fluctuation took some of the shine off 2013's revenues; at constant rates the increase would have been 13%. Sales tend to surge dramatically in the final quarter of each year, fuelled by present-buying. Net profits rose by 7% in 2013 to €790m.

There was little sign of the malaise affecting some other luxury groups in 2014, with full year revenues rising by 10% to a record €4.12bn, and net profits up 9% to €859m.

Despite the terrorist attacks in Paris during 2015 the group reported another increase in 2015 to a record €4.84bn. Even at constant exchange rates the increase was around 8%. Net income surged 13% to €973m. The group's biggest individual market is now China, accounting for around 20% of sales. The group calculated that additional sales to Chinese tourists in other regional markets account for a further 10% of revenues. France accounted for 14% of sales in 2015, and Japan 12%.

There was another surge in performance for 2016, with preliminary revenues topping €5bn for the first time, at €5.20bn. Net profit rose 13% to €1.1bn. Leather goods (including bags and saddles) accounted for sales of €2.6bn or exactly 50% of revenues. Ready-to-wear fashion and accessories contributed €1.1bn (21%), silk scarves & ties €515m (10%) and fragrances €262m (5%).

Management

The Guerrand and Dumas families, direct descendants of founder Thierry Hermès, continue to play an intrinsic part in the day-to-day activities of the group. Patrick Thomas was appointed in 2004 as the company's first and only non-family CEO, but retired in early 2014 in favour of family member Axel Dumas, now executive chairman. Wilfried Guerrand is EVP in charge of digital development. Pierre-Alexis Dumas is artistic director, assisted by his cousin Pascale Mussard. Another family member, Henri-Louis Bauer, succeeded his uncle Bertrand Puech in 2012 as executive chairman of the family holding company and a member of the Hermès management board. Another cousin, Guillaume de Seynes, is EVP, manufacturing, while Eric de Seynes is chairman of the supervisory board. Jean-Louis Dumas, regarded as the patriarch of the business, and responsible for resurrecting it during the 1980s, died in 2010 at the age of 72.

The group is controlled by descendants of Thierry Hermès. More than 70 family members share just over 71% of the company's equity. The remaining shares are publicly traded. However, in a move which caused shock within the family, luxury predator Bernard Arnault of LVMH covertly accumulated an initial stake of around 17% of the company towards the end of 2010 through various low-profile trades within the market. Wary of an attempted takeover, the family voted to create a holding company which would have a 50.2% majority in Hermès International as well as right of first refusal to acquire the family's remaining stock in order to prevent its acquisition by LVMH. However, before those plans could be put in place, LVMH increased its holding to just over 21% in summer 2011.

Permission for creation of the holding company was granted by a French court in Sept 2011. That new entity, dubbed H51, was created in December. Only a few days later, however, LVMH announced that it had acquired additional shares from an undisclosed buyer, increasing its stake to 22.3% of total equity and 16% of voting shares. In 2013, LVMH was fined €8m for failing disclose the deals with which it accumulated its initial 17% holding, but was not barred from holding onto the shares, and took the opportunity to increase its holding further to 23%.

In September 2014, once it became clear that it would not be able to win over the founding family, LVMH accepted an effective defeat in this dispute. In a court-mediated truce, it agreed to spin off its entire stake to its own individual shareholders. Bernard Arnault's private investment vehicle ended up with a reduced stake of around 8.5% of Hermès.

Background

Thierry Hermès first established the firm in 1837 in Paris's Champs-Elysées to make fine riding saddles and harnesses for European nobility. In the early years of the 20th century, the company diversified into other travel accessories, such as luggage, and during the 1920s it was the first company to introduce France to what was then a revolutionary new fastening device, the zipper, originally on a pair of gloves. Under the founder's grandson Emile Hermès, the company began producing other travel accessories and wristwatches, as well as apparel for men and women. Its famed silk headscarves were first introduced in 1936. These too were travel themed, designed to protect the hair of elegant ladies when travelling in new-fangled open-topped automobiles. In keeping with the group's equestrian heritage, all the designs of its scarves maintained the theme of horses and carriages until the 1970s, when other designs began to be introduced for the first time (although the group logo and many of its scarf designs still hark back to its founder's principal trade).

During the 1950s, management of the company passed to Emile's sons-in-law, Robert Dumas and Jean-René Guerrand. Hermès launched its first fragrance for men in 1951, the first for women, Calèche, ten years later. Jean-Louis Dumas, the grandson of Emile Hermès, joined the family firm in the 1960s, and took control in 1978 after the death of his own father. He began to expand its presence internationally, always maintaining its prestige and strictly avoiding the temptation to water it down through licensing. In 1993, the group floated around 20% of its shares. The remainder still belong to the founding family. Despite many approaches from would-be acquirers, they have firmly rebuffed any talk of a sale.

Last full revision 4th July 2016

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