Hermes Chairman Axel Dumas is considering moving into haute couture as the luxury group weathers a slump in the luxury market that has widened the gap between the strongest and weakest brands largely unscathed.
The 54-year-old Frenchman said Hermes, known for its colorful silk scarves and popular Birkin handbags, would avoid emulating rivals that have branched out into eyewear, travel and hospitality because it would mean ceding control along the way. But, he said, “couture is a possibility. I wouldn’t rule it out.”
Haute couture, the most exclusive service offered by some luxury brands such as Chanel and Christian Dior, involves making clothes to order; dresses can cost five or even six figures. Hermes has a burgeoning ready-to-wear fashion division designed by Nadège Van Hué and offers custom leather goods to select clients, but it has not yet branched out into haute couture.
While some rival brands have suffered declining sales in China, the Paris-listed brand’s ultra-wealthy customer base and tightly controlled production have helped it withstand the decline in demand for luxury goods caused by the end of the pandemic shopping boom.
That’s why Hermes shares are outperforming rivals LVMH and Kering: Hermes shares have risen 7% this year, giving the group a market capitalization of 215 billion euros, while Bernard Arnault’s LVMH is down 14%. Kering, struggling with Gucci’s poor performance, is down more than 41%.
“There is a big mathematical dispersion in the growth of our industry that was not the case before,” Dumas told the Financial Times in Paris. “The big players are holding up better and are more resilient because we still have the financial space to continue investing, to develop e-commerce and to control retail.”
Sales have slowed, particularly for brands that cater to middle-class consumers, as excess savings accumulated during the coronavirus pandemic and layoff pay dry up and China’s economy, the engine of luxury growth, stalls. HSBC cut its growth forecast for the luxury sector to 5.5% to 2.8% in 2024, from more than 10% in 2023.
However, Hermes’ leather goods and fashion divisions appear to be unaffected, with group sales up 15% in the first half of this year compared to the same period last year.
Citi analysts predict that Hermes could soon overtake Louis Vuitton as LVMH’s most profitable brand and become the luxury goods industry’s largest franchise. The U.S. bank predicts that Hermes’ sales will exceed 20 billion euros in 2027, putting it at the same level as Louis Vuitton today.
But Mr. Dumas wants to distance his family-owned label from established mainstream brands to fuel growth. “We don’t sell the same products, so it’s not our goal to surpass them in size. There’s very little to compare us to Louis Vuitton,” he said.
The accusations highlight the deep-rooted hostility toward LVMH from Bernard Arnault, who spearheaded Dumas’ appointment after his failed bid to buy Hermes nearly a decade ago.
“My uncle (the former CEO of Hermès) used to say that we weren’t a luxury company, we were a high-craftsmanship company, and that I didn’t care what other people were doing, that I might be influenced,” Dumas said. “Those words have stayed with me to this day.”
Investors seem to agree: Hermes’ market capitalization is more than 45 times its projected 2024 earnings, according to HSBC, more than double that of peers such as LVMH and Cartier-parent Richemont.
“Analysts classify us in the luxury industry, but our multiples put us outside that category,” Dumas said, “but we can’t be in a category all by ourselves. We’re like Ferrari among car makers.”
The handbag maker, whose Kelly models have a starting price of about 8,000 euros, has seen its market capitalization grow eightfold to about 215 billion euros since Dumas became chairman of the board in 2013.
All eyes are now on China as the government seeks to reignite economic growth with new stimulus measures. Luxury sales in mainland China fell an average of 10% in the first half of 2024, according to Barclays. LVMH, Richemont and Kering all suffered contractions in China’s second-largest economy, the bank estimated.
Meanwhile, Hermes sales rose an estimated 10 percent, although the group experienced weaker global demand for lower-priced items such as silk scarves and perfume.
“I’m not worried about Hermès’ structure in China. What has changed is that the aspirational customer base is no longer coming to the stores as it used to,” Dumas said.
“Walking around Shanghai today it’s interesting to see that shopping malls are much less crowded, but Chinese customers remain very picky about quality and this will work to Hermes’ advantage,” he said.
But the company is forging ahead with plans for a new store in Chengdu and aims to open one store in a new Chinese city each year.
“We are very cautious in our operations. If you look at the number of stores we have compared to other companies like Louis Vuitton or Chanel, we have a lot fewer,” Dumas said. “Of course, we’re not stupid. If a subsidiary is overspending, we pay attention to its costs. But nothing has changed in terms of our strategic budget planning.”
In France, the company continues to expand its network of ateliers employing 7,300 artisans: earlier this month, Dumas opened its newest leather goods atelier in Auvergne, in central France.
“If this is the only crisis we know, I’d be happy to be its spokesperson,” Dumas said. He noted that he has already achieved his “dream” of reaching 10-11 billion euros in sales by the time he retires. Hermes’ sales last year reached 13.4 billion euros.
The question of succession is always on his mind: “I don’t want to end up like my family predecessors, who died in office,” he says. “The risk is that you’ll fall in love with what you’ve built and not be able to change it. At some point, you need a fresh perspective.”
Mr. Arnault has appointed five of his children to leadership positions at LVMH, and earlier this year the 26-year-old grandson of Kering’s billionaire founder, François Pinault, was appointed director of the auction house Christie’s.
Hermès’ Dumas is also working on the sensitive issue, though details of the preparations and who is involved are being kept closely guarded. “We are trying to inform them, to get closer to them, to give them the opportunity to sit on the boards of some of our subsidiaries and learn from them so we can see how they react,” he said of the new generation of potential leaders, adding that he is “quite confident.”
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Dumas, the sixth generation of his family to lead Hermès, knows how difficult it can be to choose a successor. His ascension came as Hermès was battling a takeover bid by LVMH. At the time, the group was under the leadership of Patrick Thomas, who had succeeded the seriously ill Jean-Louis Dumas. When Dumas died in 2010, there was no clear successor in place, leaving the group more vulnerable as Arnault made moves.
Dumas rose to become head of LVMH’s largest division, jewellery, then leather goods. Arnault was studying at Harvard University in the US when he disclosed his Hermes stake in 2010. Dumas returned to France and became chief operating officer the following year. In 2013, LVMH was fined 8 million euros by market watchdogs for failing to properly disclose its Hermes holdings.
The crisis and the company’s rapid expansion “forced us to get organized,” Dumas said, recalling a bygone era when families would organize affairs for baptisms, weddings and funerals.
“The little company I started at is now a very big company,” he says, before adding jokingly, “But there’s still time to screw up and go back to being a small company!”
