By  on October 4, 2007

PARIS — If you thought clothing was an afterthought or just an image vehicle for leather goods powerhouse Hermès International, think again.

Ready-to-wear and fashion accessories already rank as Hermès' second-largest business, and the house is gunning to build the category to 30 percent of sales in the next five years, said Patrick Thomas, chief executive officer.

Citing rapid sales growth in belts, fashion jewelry, footwear, leather apparel and men's wear, the house plans to devote more floor space to those categories in its boutiques worldwide as they are built or renovated.

For example, when the company's expanded flagship at 24 Faubourg Saint-Honoré here opens later this month — making it the largest Hermès store in the world — it will have doubled the space devoted to these categories, more than 3,000 square feet each for women's wear and men's wear.

The new store in the Midosuji district of Osaka, Japan, which bowed in April, also boasts a significant space for fashion, indicative of the new priority.

"Not everyone knows Hermès is also a ready-to-wear company and we have to make it known," Thomas said in an interview, joined by executive vice president Guillaume de Seynes and men's wear designer Veronique Nichanian. "For us, ready-to-wear and fashion accessories are essential to show the creative part of the company. The idea is to have a very balanced world."

Sales of rtw and fashion accessories accounted for 19 percent of group sales last year, rising 1 percent to 294 million euros, or $369.4 million at average exchange rates. Leather goods, including saddlery, remain the dominant category, generating 44 percent of Hermès' sales.

Growth in leather goods is limited by production constraints, even though the number of craftsmen at Hermès has vaulted to 1,800 from only about 300 in 1989, Thomas noted.

In fashion, the arrival three years ago of couturier Jean Paul Gaultier as women's designer brought Hermès torrents of press attention, and plenty of new customers, especially in the U.S., Thomas said, while acknowledging the designer switch likely scared off some old-guard customers or those loyal to the previous designer, Martin Margiela.

At the same time, Hermès had logistical wobbles in rtw that caused late deliveries, denting sell-through and profitability, but those have largely been remedied, Thomas said, stressing, "Today we are in a position where ladies fashion is growing nicely.""What Jean Paul has added to the business is giving us more strength in exceptional pieces, and in silks and leather," de Seynes added, noting leather clothing accounts for some 20 percent of the company's women's apparel business.

Among bestsellers of Gaultier's acclaimed fall-winter collection are a calfskin caban and a crocodile trench made from 17 skins, de Seynes said. Gaultier is scheduled to show his spring-summer collection for Hermès on Saturday.

Hermès also added two women's pre-collections this season to feed its sales floor and had a "very strong response," de Seynes said, noting pre-fall arrivals were on racks in June, giving a boost to summer business.

Last year Hermès posted strong sales of lambskin capes and trenchcoats, along with ponchos in fringed cashmere, mink or sable, according to its annual report.

Men's wear has been a particularly explosive business for the fashion house, logging sales gains of between 10 and 15 percent every year to the point where it almost rivals women's wear, Thomas said.

Nichanian, a petite brunette who launched the category practically from scratch 18 years ago, said she attributes the success in men's to Hermès' conviction to "timeless" design.

"It's not fashion I do at Hermès; it's clothing," she said. "It's the success of a style."

Hermès plans to make men's products a focus next year in its communications and store events. Thomas said he's mulling stand-alone Hermès men's stores to test his conviction that demand is largely untapped, including in America.

"We have a big potential. We should be twice as big as we are in the U.S.," he said of the men's wear category. The new flagship on Wall Street in Manhattan is considered a step in that direction, with a strong focus on men's products.

Thomas also cited a large potential for men's wear in greater China, where luxury spending is still concentrated in male categories. To be sure, Hermès has shunned many of the tactics used by luxury peers, including celebrity placement and endorsements. As Thomas pointed out, in Hermès advertising, "you find the handbag. There is no Sharon Stone. The hero is the object."Analysts have often faulted Hermès for slower growth than its luxury competitors, but Thomas countered that the company has outperformed the sector with consistent profitability and strong value creation.

He stressed that high quality standards are paramount. "The result is our growth rate is not the same as people who are in masstige, not true luxury," he said. "We are much more in a business model of value growth rather than volume growth. We want to grow better rather than faster."

He also countered the stereotype of Hermès being a purveyor of classics. Although the company's best-selling and most iconic products — the Kelly and Birkin bags — are decades old, some 80 percent of its 50,000 stockkeeping units are renewed seasonally, Thomas said. These include fashion accessories, which are gaining more square footage in Hermès boutiques, with sales rising in tandem.

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