PARIS — As the world’s leading luxury houses steam ahead with blockbuster brands like Gucci and Louis Vuitton leading the charge, Hermès International has emerged as a quieter but steady force in an increasingly polarized industry.
“There can be a real disparity between companies doing well, like us, and companies doing very badly,” said Hermès chief executive officer Axel Dumas, speaking to shareholders Tuesday.
“There is real polarization and one has to be careful to be on the right side of the fence, and this is what we’re trying to do, humbly,” Dumas added. The executive noted that while the sector as a whole grew at a similar rate as recently as 2010, a gap in the performances of different luxury companies has since emerged and is widening.
Groups like Kering, which owns Gucci, are enjoying a spectacular pace of business, with a nearly 30 percent rise in revenue on a comparable basis last year. Hermès, with 9 percent revenue growth at constant exchange rates last year, is still considered by analysts as one of the sector’s more solid performers.
Analysts at HSBC called the company one of the most reliable business models in the sector but lowered their rating to ‘reduce’ after a recent surge in the share price.
Hermès’ share value has risen 35 percent since the start of the year amid speculation Euronext could decide to include add it to the Paris stock market’s CAC-40 index this week.
Sales at Hermès “tend to outperform the sector in good times (with non-leather products accelerating) as well as in tougher times (the company benefiting from waiting lists on leather products),” HSBC said in its note, sent to clients this week.
Famous for its waiting lists for coveted items like its Birkin or Kelly handbags, the company is nonetheless doing as much as it can to ramp up production, Dumas said.
“We are doing the maximum when it comes to production,” he said, rattling off constraints like finding the right materials and training people.
“If we don’t have the right materials, we don’t produce — we use the best materials,” he said, noting this is why Hermès has invested in tanneries.
The company can train around 250 people as leather goods artisans a year, but it takes a few years for them to increase productivity, he estimated. Further slowing down the process, craftsmen at Hermès produce a product from beginning to end. Birkin and Kelly bags take 16 hours of manual sewing work, he said.
“All these constraints, they are not artificial, but rather, I would say quasi-ethical,” asserted Dumas.
In response to a question from the audience, Dumas said that Hermès doesn’t intend to invest in animal feed but that the industrialization of cattle raising results in lower quality skins.
“I lobby for the most natural cattle raising possible,” he noted.
In addition to investing in production, Hermès seeks growth by maintaining a balance between regions and its products.
“We live in a very uncertain world, every two years there is unfortunately a tragic event,” he said, citing things such as terrorist attacks, SARS in Hong Kong and the Fukushima nuclear accident in Japan.
In terms of products, Hermès also seeks to maintain a balanced mix.
“It’s very important for us to invest strongly today in the products of tomorrow, too, those that have big potential,” he added, rattling off perfume, shoes and jewelry as examples.
As for investments in digital avenues, “It’s obvious, this is essential,” he added.
The company launched new Internet sites in the U.S. and Europe in recent months, with a focus on richer content, like films. Touting the success and potential of the new sites, Dumas said that a large long couch was one of the first items sold on the new Internet site, to a new client.
Hermès continues to work on making Shang Xia, its Chinese label, profitable.
As for acquisitions, Dumas stressed that the company has a lot of potential for internal growth, which is the priority for the house.
Shareholders overwhelmingly approved measures including Dumas’ salary of 2.77 million euros for 2017 as well as a resolution allowing the company to buy back and cancel shares representing up to 10 percent of the capital.
Heirs of Émile Hermès, which owned 66 percent of the company last year, recently raised their share.
“This year the family raised its share again in the company,” noted board president Éric de Seynes, in his opening remarks.
Guillaume de Seynes, another Hermès executive, said at a separate event that the family had recently passed the two-thirds ownership after obtaining an additional 1 percent to 1.5 percent share.
Shareholders also voted for an exceptional dividend of five euros per share on top of the regular dividend of 4.10 euros — a move welcomed by one shareholder who said he was approaching 92 years old.
“We have made the case for a while that if investors have a long enough time frame, Hermès shares could be a ‘buy and hold forever’ stock and we remain convinced of the compounding nature of the business,” noted HSBC.