This story was updated on Feb. 9 at 3 p.m. CET.
PARIS — Hermès raised prices by 8 percent to 9 percent in January in response to rising inflation, which has increased its production costs by 6 percent, and negative currency fluctuations, the company confirmed Friday.
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But chief executive officer Axel Dumas doesn’t believe that will impact the company’s stellar sales trajectory.
“This is our strategy and I believe that our clients understand it, probably better than financial analysts do,” Dumas said in a call with analysts and reporters following the release of the company’s fourth-quarter sales and full-year results.
The French brand is proving to be resilient in the face of slowing luxury spending, with sales at constant exchange rates up 18 percent to 3.36 billion euros in the three months to Dec. 31.
Sales for the full year topped 13.42 billion euros, up 21 percent at constant exchange rates, despite a price increase of about 7 percent in 2023.
Hermès continued to ride its “strong brand momentum,” Bernstein analyst Luca Solca said of the French luxury goods brand famous for its Birkin and Kelly bags. The numbers put it above consensus that had predicted 13.7 percent sales growth in the fourth quarter.
“Importantly, leather goods is ahead and double digits in the quarter, defying the usual end of year lull on the back of satiated store managers having met targets long before. Hermès is yet another company to confirm reviving momentum of the American consumers, on the back of resurgent confidence and lower inflation,” he said in a note after the initial release.
That momentum has put Hermès ahead of the luxury pack. Sales at rival LVMH Moët Hennessy Louis Vuitton were up a more conservative 5.5 percent in the fourth quarter, while Kering lagged far behind, with a 6 percent sales drop during the period.
It proved pleasing to investors, who sent shares up close to 5 percent in midday trading.
“For other luxury companies, it was not such a good year. So there seems to be a polarization in our industry, those who are very successful and those less so,” said Dumas, without specifying any corporate competitors.
The company’s numbers underscored that the brand equity is boosting more than just handbags.
Growth in the ready-to-wear and watches categories outpaced its core leather goods category in recent quarters. That trend continued over the holiday period, with ready-to-wear jumping 27.5 percent, while sales of leather goods were up 10.4 percent.
Beauty, an accessible and expanding category for the company, and its watch division both clocked 22 percent growth in the fourth quarter.
Dumas repeatedly emphasized the importance of the beauty category, both its current success and its future potential. It’s looking to capitalize on the segment with a planned expansion into skin care, he indicated.
He did not give a target date for new products but said that the overall beauty category will grow into a “holistic” and “three-dimensional brand” with skin care items increasingly joining its color makeup assortment and expanded fragrance range within the beauty division.
That is where Hermès can reach a range of new and aspirational customers. Its fragrances and makeup have already made inroads with these buyers, as the category is carried in a wider range of retailers than its usual distribution channels, such as Sephora in some regions and duty free shops in airports. Travel retail drove wholesale activities up 24 percent in 2023.
“We have huge expectations for beauty,” Dumas said. “There is a larger assortment of customers than a normal Hermès store so it’s new customers, if you like.”
The executive joked that the company has “too many clients” and does not see that trend slowing down. That will translate into increased square footage under the direction of real estate operations manager Florian Gamrat.
The company will enlarge its retail footprint. It opened a new store in Wuxi, China, on Jan. 5 and has a new boutique in Princeton, N.J., slated for April. It’s expanding in other cities including Lille, France, and in Shenzen, China, and also plans to renovate its store in Singapore.
The company’s cash position and vertical integration model will allow it to snap up prime real estate locations, and Dumas indicated Hermès is looking for additional flagship sites outside of the usual shopping hotspots.
He emphasized it is not taking part in the current Fifth Avenue real estate battle with brands such as Prada and Gucci snapping up buildings in New York City, and doesn’t plan to compete against LVMH to secure locations on the Avenue des Champs-Élysées in Paris.
Hermès also plans to open a third store in India, though Dumas did not disclose the city.
While wealthy Indian customers continue to shop abroad in destinations like Abu Dhabi and Dubai, the brand hopes to cultivate the country’s younger aspirational middle class.
In the Middle East, Hermès has taken a majority stake in its distribution partners following changes in various ownership laws in the region, in accordance with its general vertical integration strategy. Dumas framed the change as “very easy and supple” as the company had already been heavily involved in direction and strategy in the countries.
“We see a great dynamism in the Middle East,” he said. “The city of Dubai is performing strongly as a sort of turning point in the region with this strong momentum.”
Where others see trouble in China, Dumas stuck to his optimistic outlook. The executive downplayed any economic woes in the country, with its real estate market in turmoil and the country in a deflationary drop since last summer, and said that although Hermès has observed slightly lower footfall in recent months, it will not lower prices to lure customers.
“We are not deflationists,” he said, emphasizing that any slowdown in China is tempered by strong growth across the rest of Asia in countries including South Korea, Indonesia and Thailand.
The company invested 250 million euros in improving its Asia distribution, with an emphasis on the Beijing and Chengdu regions in China. Sales in Asia were up 14.8 percent at constant exchange, with Japan up a sharp 26.2 percent in the fourth quarter.
Dumas also brushed aside any concerns about the upcoming presidential election in the U.S and uncertainty about the economy. Any wavering on the part of the luxury consumer is usually short-lived, he said.
“For the moment, we haven’t seen any changes in the trend. It’s meant to be a little bit lower up until the elections and, regardless of who is elected, it picks up afterward,” he said. “We could always make up for any losses incurred in November and December with the end-of-the-year events and holidays.”
The brand’s fourth-quarter performance over the most recent holiday season, against a backdrop of economic uncertainty in other sectors, bore that out.
Growth in the Americas was particularly strong in the three-month period to Dec. 31, with sales up 21.6 percent.
In Europe, where growth was 21 percent in the fourth quarter, Hermès is less reliant on the return of Chinese tourists than other brands.
“The impact of tourist flows is not as important as for our peers,” he said, citing a mix of loyal local clients and traveling high-net-worth individuals who continue to flock to Hermès. “The high-end tourists can spend more on average than local clients,” Dumas noted.
The communications spend in 2023 was 860 million euros, with 600 million euros of that in the second half of the year on brand and customer events. Chief financial officer Éric du Halgouët emphasized the company is focusing its communication budget on invite-only events for clients.
The company is combating the luxury sector’s recruitment issues with another bonus for employees, and will pay 4,000 euros to all staff worldwide as a reward for the year’s stellar results.
Hermès has more than 22,000 employees worldwide, and is continuing to recruit to meet its sales volume growth. It hired around 2,400 new employees last year and sees that number steady in 2024.
It will open another leather goods workshop in France later this year, adding roughly one per year for the next three years. Each new workshop increases capacity by about 6 percent.
Looking ahead, the company sees itself staying steady despite the geopolitical headwinds and slowing economic growth in other categories as consumers become more cautious about their spending.
“The group starts the year with confidence with its unique corporate model, and particularly robust deployed around our values that have independence, spirit of enterprise craftsmanship and creativity,” Dumas said.
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