PARIS — The idea of Hermès embracing social shopping could not be further removed from the ivory tower many luxury brands sheltered in when the online realm first encroached.
But with deep-pocketed, digital-influenced Chinese Millennials among the house’s growing customer base, it could soon become a reality, Hermès chief executive officer Axel Dumas told analysts and journalists gathered at the company’s headquarters here on Wednesday.
The house, as it gears up for the rollout of its new web site in Europe and China, is positioning hermes.com as one of the group’s most important stores. With its “mobile-first” dimension, it’s also a point of entry for broadening the brand’s reach, with 75 percent of clients ordering from the site new to Hermès, according to the house.
“We are already in omnichannel, to use the catch-all term,” said Dumas during the presentation of Hermès International’s full-year results. He predicted that over the next three-to-five years 80 percent of purchases will involve a visit to the site, citing a “porosity” between the real and virtual worlds.
“What we have observed is that our best clients buy both online and in the physical stores,” Dumas said.
With 78 percent of connections made via mobile devices, and some 75 million visitors so far to the new site, which is already up-and-running in Canada and the U.S., the conversion — to sales — has grown significantly, Dumas said. He confirmed — without talking numbers — the house’s “ambitious” goal for revenue growth at constant exchange rates in the medium term, despite growing economic, geopolitical and monetary volatility worldwide. This includes an annual growth target in production capacity for leather goods of more than 10 percent in the medium term.
Commenting on the outlook for 2018, Dumas cited a true polarization in the industry in the five-odd years he’s been in the house’s driving seat. “Some are very successful; others are faring less well,” he said of luxury goods players overall. “We may have the same means as before, but the gap has widened.”
Other projects under way at the house include the addition of three new leather goods manufacturing sites to its French network by 2020, starting this year with the Manufacture d’Allan workshop in Allenjoie, near Montbéliard, in the Burgundy-Franche-Comté region in eastern France. A makeup line is also in the works, though it’s early days.
The brand has seven new store openings planned, including two in China.
The maker of Birkin bags and silk scarves saw net profits climb 11 percent last year to 1.22 billion euros, up from 1.1 billion euros in 2016, with recurring operating income rising 13 percent to 1.92 billion euros in the period.
Bolstered by growth in all geographical areas, company revenues totaled 5.55 billion euros, an increase of 6.7 percent versus 5.2 billion euros in 2016. At constant exchange, revenues gained 8.6 percent.
In terms of categories, leather goods saw a 9.7 percent uptick in sales, with the Bolide Shark, Hermès Cinhetic and Opli among bestsellers; clothing and accessories grew 9.4 percent; silk and textiles were up 5.7 percent, and perfumes rose 10.1 percent, boosted by the launch of the Twilly d’Hermès scent.
Showing a slight rise in sales, Hermès is still seeing a lack of traction in watches, with its ongoing hook-up with Apple failing to reignite the category. “We could do better,” admitted Dumas, describing it as “work in progress.”
The French luxury firm trumpeted that its operating margin improved two points to 34.6 percent of sales — an all-time high — driven mainly by the success of the collections, high level of productivity at the production sites and positive impact of foreign-exchange hedges from 2016.
Hermès will propose an exceptional dividend of five euros a share at its annual general meeting, in addition to a proposed regular dividend of 4.10 euros.
The luxury firm, which until recently ranked the online business as its fourth store in terms of size, does not break out digital sales. “We do not set [sales] objectives internally as I believe it creates rigidity,” Dumas said.
Were the house to experiment with social buying, it would start with the Chinese market, “where it is already widespread and has the most potential,” he said.
“At Hermès, we invest so much in the quality of the product, the craftsmanship, the primary materials, that touching the client — by whichever means possible — is what counts,” Dumas said.
“We are not snobs,” he added, citing “all the comments that were made” when Hermès opened its first airport store decades ago. “The aim is to give them the best experience possible, and when it comes to how a customer chooses to shop, it is not my place to make that decision for them.”
Dumas also reminded the audience of the debate back in the Seventies around whether or not to expand internationally.
“There were all these questions — what’s the point when the world comes to Paris? It’s risky, expensive — but we did it,” he said.
The same went for the house’s move online, continued Dumas, as one of the luxury industry’s pioneers to enter the game back in 2002, kicking off with its hermes.com site geared to the U.S. market. France was next in 2005, followed by other key European countries, Australia and Japan, with offshoot sites including Ailes d’Hermès, which launched in 2007, and La Maison des Carrés in 2014.
“There were all these arguments — but they all come in the stores, and whether it fits or doesn’t fit with luxury — but we need to do it, despite the cost and the risks involved,” the ceo said. “But just as we controlled our international expansion, unlike other brands that chose to partner with department stores or licensees, say, we chose to do it ourselves. It’s a slower and more elaborate process, but our aim is to have the best platform that we can.”
The house, which has no marketing or merchandising department and instead allows store directors to tailor collections to their respective local markets, set out to do “something original,” mixing e-commerce with communication, for its online flagship.
“You can shop or watch a seven-minute film, which tests limits of concentration in the digital world,” Dumas said of the new site, which will roll out to 18 European countries this spring, followed by China by end of year.
On the social-media front, Hermès is present on Twitter, Facebook, Instagram, WeChat, Weibo, LinkedIn and Youku. The number of fans reflects the brand’s niche positioning, with 6.3 million followers on Instagram versus 22.4 million for competitor Louis Vuitton.
The aim is to launch in China and make sure everything is in place, “and then we’ll see about the Tmalls and the Alibabas,” Dumas said.
The Asia-Pacific region makes up 35 percent of the company’s overall sales, led by China. But with Chinese consumers increasingly making luxury purchases at home, taking advantage of narrowing price differentials and domestic government initiatives to streamline customs procedures for e-commerce, Hermès has never yet had a local site there.
Among Western brands also moving in on the action, Louis Vuitton, which has been present in China since 1992, activated its site, louisvuitton.cn, there last July, joining the likes of Burberry, Gucci and Michael Kors in a market dominated by local giants, including Tmall and JD.com.
As reported, Chinese consumers account for one in three luxury purchases globally, and are also at the forefront of digital development, reflected by the demise of physical retail formats such as hypermarkets, the broad acceptance of digital payment solutions and the high e-commerce penetration in fast-moving consumer goods.
Digital payment penetration in China is 50-times higher than in the U.S., which still relies largely on plastic, Exane noted in its recent report “China Online Boom:…Yet to Come for Ostrich Luxury Brands.”
“The Chinese have been super quick in recognizing true quality and craftsmanship, and are moving to new houses; our sales there are exceptional,” said Dumas, who cautioned against forming preconceptions around Millennials. “If you look at China, it’s a young market. Only these Chinese Millennials are very wealthy. They’re the ones buying the expensive ready-to-wear and the bags, so it’s important not to impose a Western vision of things,” Dumas said.
“I was with Florian Craen [Hermès’ vice president of sales and distribution] at one of the China stores, and this young man comes in and says, ‘I can’t afford to buy that, but I will be back soon, and I will buy it,’” recounted Dumas, adding: “I’m not sure there are many Western Millennials with these kinds of budgets.
“Our aim with each person who enters this industry is that, one day they will arrive at Hermès,” the executive said.