The price of exclusivity: Hermès’ leather goods lose 5.4%

The price of exclusivity: Hermès’ leather goods lose 5.4%

For once, Hermès didn’t deliver on the expectations. The 4th quarter sales of the leather goods and saddlery division, worth about half of the brand’s total, decreased by 5.4% at constant rates, compared to the same period of 2020. Double the decrement that analysts had forecasted, and an opposite trend to the positive one experienced by other luxury groups that incremented the revenue from fashion and leather goods items. Yet, the brand’s CEO, Axel Dumas, didnt appear concerned and went on to explain this decrease by saying that Hermès imposed a cap on the amounts to be manufactured. It does seem strange, but it’s the price that the French brand is paying to ensure exclusivity. So much in fact, that the brand didn’t have enough items on hand to cover demand. The stock price, following the news, dropped to the minimum price for the last 5 years.

The price of exclusivity

“It takes 15 hours for an Hermes bag. Even if there’s a lot of demand, I’m not going to start doing them in 13 hours to raise production”, said Mr. Dumas to journalists, according to Reuters. The group is hiring about 400 new artisans every year. The number can’t go any higher, as the brand needs time to train them, added the CEO. Meanwhile, the waiting list for handbags Birkin and Kelly keeps on getting longer. Yet, every year the production levels of the brand grow by between 7% and 8%, regardless of demand. The moral is: the price of exclusivity doesn’t scare Mr. Dumas, who confirmed that Hermès doesn’t plan on changing its strategy.

Pricing strategy

As far as prices go, the brand increased them by 3.5% in January all over the world, while in 2021 the increase was of 1.5%. Dumas, reported Bloomberg, stated that the luxury brand is currently increasing prices once a year only to manage the increase in production and labor costs. The same CEO believes that, given the brand’s artisanal manufacturing process, Hermès is less impacted than rivals when it comes to raw material and energy prices.

Quarterly results

Hermès reported sales up by 11% in the 4th quarter of 2021, compared to the same period od 2020. A value below the growth recorded in the previous quarters, as well as lower than that of competitors. That being said, the group’s performance throughout the pandemic was much better than those of its rivals, and sales in 2021 were reported at 8.92 billion euro: up 42% from 2020 and +33% on 2019.

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