Hermes chief eyes haute couture push as Paris house rides out luxury gloom

Axel Dumas says group is still planning to expand in China, where others are hurting.

Hermes executive chairman Axel Dumas is considering a push into haute couture as the Parisian house emerges largely unscathed from a luxury slowdown that has exposed the widening gap between the strongest and weakest brands.

The 54-year-old Frenchman said Hermes, known for its colourful silk carres scarfs and coveted Birkin handbags, would resist emulating peers that have made forays into eyeware, travel or hospitality, because it would require ceding operational control along the way. But he said: “We could do couture — we don’t rule it out.”

Haute couture is the most exclusive service offered by a select number of luxury houses, such as Chanel and Christian Dior, where garments are custom made. Gowns can run into the five and sometimes six figure price ranges. While Hermes has a fast-growing ready-to-wear fashion division designed by Nadege Vanhee and offers custom leather goods to select customers, it has yet to venture into couture.

While some rivals have suffered lower sales in China, the Paris-listed house has withstood waning luxury demand triggered by the end of the pandemic shopping boom thanks to its ultra-wealthy client base and tightly controlled production.

This explains why Hermes’ shares have outperformed rivals LVMH and Kering. The stock has risen 7 per cent this year, giving the group a market value of €215 billion (US$240.05 billion; S$307.46 billion), while Bernard Arnault’s LVMH is down 14 per cent. Kering, which is grappling with Gucci’s bad performance, is down more than 41 per cent.

“There is a large mathematical dispersion in the growth of our industry that wasn’t the case before,” Dumas told the Financial Times in Paris. “The big houses have held up better, been more resilient, because we still have the financial capacity to continue investing, to develop ecommerce [and] to control our retail.”

As extra savings and furlough checks amassed during the Covid pandemic have dried up and China’s economy — the motor for luxury growth — sputtered, sales have slowed, particularly for brands targeting aspirational middle-class shoppers. HSBC has downgraded growth expectations for the sector from 5.5 to 2.8 per cent for 2024, from over 10 per cent in 2023.

But Hermes’ leather goods and fashion divisions seem insulated, driving a 15 per cent group sales growth on a like-for-like basis in the first half of the year.

Analysts at Citi now predict that Hermes could soon overtake Louis Vuitton, LVMH’s most lucrative brand, as luxury’s biggest franchise. The US bank forecasts that Hermès will exceed €20 billion in sales in 2027, or about the same level as Louis Vuitton now. 

But Dumas is keen to distance his family-owned house from a brand that has embraced a more mainstream positioning to turbocharge growth. “We don’t sell the same products [as Louis Vuitton], so surpassing their size is not a goal as such. There is very little comparison between us,” he said.

The swipe underlines some lingering hostility towards Bernard Arnault’s LVMH, whose failed attempt to take over Hermes about a decade ago precipitated the appointment of Dumas.

“My uncle [Hermes’ former chief executive] used to say I’m not a luxury company but a high craftsmanship company . . . he would also say: I do not look at what others do, I could be influenced,” Dumas says. “That has stayed with me.”

Investors seem to agree. Hermes is valued at over 45 times estimated earnings for 2024, according to HSBC, more than double that of peers including LVMH and Cartier-owner Richemont.

“We are classified in the luxury industry by analysts, but with multiples that put us outside of the category,” said Dumas. “But then, we can’t be in a category alone. It’s like Ferrari among carmakers.”

In the time since Dumas became executive chairman in 2013, the maker of handbags whose starting price for a Kelly model is about €8,000 has grown its market value eight-fold to around €215 billion today.

All eyes are now on China as Beijing attempts to rekindle growth with a new stimulus package. Luxury sales in mainland China fell by 10 per cent on average in the first half of 2024, according to Barclays. LVMH, Richemont and Kering all suffered contractions in the second-largest economy, the bank estimated.

Sales at Hermes meanwhile grew an estimated 10 per cent there, but the group did experience softening demand globally for lower priced items such as silk scarves and perfume.

“I am not worried about Hermes structurally in China. What has changed is there is an aspirational clientele that is not showing up as much,” said Dumas.

“If you walk around Shanghai today, it’s interesting to note that the traffic in malls has fallen considerably. . . but the attachment to quality of Chinese customers remains and this will be an advantage for Hermes,” he said. 

I joined a small company that is now a very large company, though I still have time to screw up and make it a small company again!” - Hermes executive chairman Axel Dumas

The company is however pressing ahead with plans for a new store in Chengdu and still aims to open in one new Chinese city every year. 

“We are fairly cautious in our development. If you look at the number of stores we have compared to others like Louis Vuitton or Chanel, it’s quite low,” said Dumas. “Of course we’re not idiots: When there is a subsidiary that is over its budget, we pay attention to its costs. But on our strategic budget plans, nothing has changed.”

In France, the company keeps on boosting its network of ateliers employing 7,300 craftspeople. Earlier this month, Dumas was on hand to open the latest leather goods one in Auvergne, central France.

“If this is the only crisis we know, I’m ready to sing for it,” Dumas said. He has already surpassed his “dream” of hitting €10 billion to €11 billion in sales by the time he retires, he noted: Hermes reached €13.4 billion in sales last year.

Succession is never far from his mind. “I don’t want to be like my predecessors in the family, that is to say, to die in office,” he said. “The risk is falling in love with what one has made, and not being able to change. At some point, you need fresh eyes.”

Arnault has placed his five children in operational roles within LVMH. Earlier this year, the 26-year-old grandson of Kering’s billionaire founder Françcis Pinault joined the board of auction house Christie’s.

Hermes’ Dumas too is working on this delicate topic, but details on the preparations and who it might involve are well-guarded secrets. On the new generation of potential leaders he said: “We inform them, we try to be close to them, we put them on some subsidiary boards which gives them the opportunity to learn, and for us to watch how they react,” adding: “I’m pretty confident.”

Dumas, who is the sixth generation in the family to lead Hermes, knows the perils of a rocky succession. His ascension took place as the group was battling LVMH’s takeover efforts under the leadership of the first family outsider, Patrick Thomas, who had succeeded a very ill Jean-Louis Dumas. When the latter died in 2010, no clear successor had yet been named, increasing the group’s vulnerability when Arnault made his move.

Dumas had worked his way up, heading up jewellery then leather goods, the group’s biggest division. He was in the US studying at Harvard when Arnault 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 by the market watchdog for failing to properly disclose its stakebuilding in Hermes.

This crisis and the company’s rapid expansion have “forced us to structure ourselves,” said Dumas, who recalled the bygone era when the family would sort its affairs at baptisms, weddings and funerals.

“I joined a small company that is now a very large company,” he said, adding, tongue in cheek: “Though I still have time to screw up and make it a small company again!”

Adrienne Klasa © 2024 The Financial Times.

This article originally appeared in The Financial Times.