Hermes Denver

PARIS — Who thought the flag-planting era of retail expansion was over?

Defying the movement towards retrenchment seen across much of the fashion industry, Hermès International has been adding new stores around the world at a brisk pace. Just this month, the company opened new stores in Madrid and Stockholm, offering its furniture line in Sweden for the first time and including details that recall the floor tiles on the brand’s Rue Saint Honoré flagship in Paris. Over the course of the third quarter, new stores were opened in Japan — where the company’s performance drew praise from analysts — along with one in Dalian, China, and another in Moscow. The Denver location was reopened after refurbishment.

“Hermès continues to invest in its retail network worldwide,” an Hermès spokeswoman said in an emailed response to questions about the expansion plans.

The company’s latest sales figures offer evidence those investments are paying off.

The French luxury firm sprinted past its larger rivals over the third quarter, posting growth of 6.9 percent at constant exchange rates, boosted by a strong performance in Asia.

Sales in its own stores were up 12 percent over the period, while wholesale activities were strongly affected by the drop-off in international tourism. For the first nine months of the year, own-store sales declined 11 percent overall while wholesale activities were down 35 percent — adding to the case for investing in one’s own retail network.

Industry executives are not expecting a bounce-back in international tourism anytime soon — deep-pocketed travelers have fueled much of the luxury industry’s growth in recent years. LVMH Moët Hennessy Louis Vuitton’s chief financial officer Jean-Jacques Guiony said last week that he does not forecast a change in travel trends until a vaccine for the coronavirus is found. “I am not particularly hopeful that we’ll see a lot of touristic flows before that,” he said. With Chinese travelers staying home, fashion brands are shuttling their wares to the mainland for domestic consumption — marking a big shift given that around 40 percent of Chinese spending took place overseas before the pandemic.

The acceleration of online sales seen since the start of the year continued over the third quarter, the company said. Analysts at Bernstein, who took part in a call with Hermès on Thursday, noted the online growth figured in the triple digits in all geographic areas. They also said the company indicated overall October sales trends remain along the same trajectory observed over the past three months, even if half of travel retail stores have been closed and as there are no plans for price increases this year.

“Management presented a confident front,” said the analysts.

Hermès outpaced expectations with third-quarter sales of 1.8 billion euros, an increase of 4.2 percent, or 6.9 percent at constant rates, lifted by Asian demand, which offset declines elsewhere in the world. Analysts at HSBC, for example, had estimated 0.4 percent growth at constant rates for the period.

The performance affirmed the region’s role as a crucial market for the luxury sector.

“In 2020, we are seeing the affirmation of major strategic commitments with social and environmental responsibility, the digitalization of uses and lifestyles as well as positive market dynamics in Asia,” said Axel Dumas, executive chairman of Hermès.

Sales in Asia were boosted by appetite in mainland China, South Korea, Australia and Thailand, the company said, touting improvements in Hong Kong and Singapore as well. Online sales platforms were rolled out in Hong Kong, Macao and South Korea, which also served to spur growth. Growth in Japan was more subdued, up 11.1 percent to 244.3 million euros, nonetheless flagged by Bernstein analysts as an “extraordinary achievement,” given a tough comparison last year, when consumers binged ahead of an expected sales tax increase. “Not even LVMH was able to do that,” noted the analysts, speaking of Hermès’ performance in Japan.

In Europe, the worst-performing market, sales dropped 15.2 percent at constant rates to 448.1 million euros, reflecting that tourist flows to the region have dried up. The decline in the Americas came to 5.2 percent to 269.8 million euros, with Hermès citing a store closure in Hawaii for renovations as weighing on business.

In terms of products, the leather goods and saddlery division recorded a 7.8 percent rise in sales at constant rates to 879.8 million euros.  Ready-to-wear and accessories sales were up 6.8 percent at constant rates while ‘other sectors’, which includes jewelry and home products, jumped 42.4 percent.

Despite ongoing uncertainty, with the impact of the coronavirus pandemic still difficult to assess, Hermès said it targets revenue growth at constant exchange rates in the medium term.

Last week LVMH beat expectations with a sharp improvement in sales trends over the quarter, posting a 7 percent decline in organic revenues, raising hopes for a recovery of the overall luxury sector.

Kering also flagged strong improvement in business, reporting on Thursday that third quarter sales were down 4.3 percent.

Compagnie Financière Richemont is set to present interim results on Nov. 6, and Burberry on Nov. 12.

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