Hermès — The World’s Most Valuable Luxury Brand — 1/6 of the Revenues of LVMH — Outperforms the S&P500!
Hermès CEO Axel Dumas: “We'll increase, and our American customers will understand, and will remain loyal.” The Veblen Effect in all its glory. Higher prices drive more desire!
KEY POINTS
Hermès valuation, by market capitalization, is on par with LVMH Moët Hennessy Louis Vuitton, with both hovering around $243 billion euros.
Hermès revenue is 1/6th that of LVMH — $15.2 billion compared to $85 billion in 2024.
One year ago, the Hermès valuation was half that of LVMH.
Hermès is planning to fully offset the impact of U.S. President Donald Trump's 10% universal tariffs, starting May 1.
Other tariff-related price increases could follow.
Hermès CEO Axel Dumas: “We'll increase [prices], and our American customers will understand and will remain loyal.”
The House is still seeing double digit growth in the United States.
Hermès is the only luxury brand with secondary market bag prices at 2-3x boutique prices — Sotheby’s
The House doesn’t work with consultants.
Hermès margins similar to software/tech, with gross margins of ~71%.
Backdrop
Hermès’ first-quarter sales slightly missed analyst expectations, although it outperformed its peers. The Chinese market was identified as one likely cause of the miss.
Revenue growth was 7%, compared to nearly 18% in 4Q24.
Hermès store count: 294
P/E ratios: Hermès 49.3; LVMH 22.7; Prada 22.6
"The price increase that we're going to implement will be just for the U.S. since it's aimed at offsetting the tariffs that only apply to the American market." —Eric du Halgouët, Hermès' EVP of Finance.
The tariff-related increases are on top of planned 2025 price increases, which were between 6%-7%.
[There was a price increase in January 2025. Two of the most popular Birkins — the 30 and 25 in Togo leather — were 6% higher in the US, then.]
Exclusivity
Hermès spends comparably less on advertising than its competitors, ~$500 million versus ~$10 billion euros at LVMH. Word of mouth is free!
Asia nearly 1/2 the business, but, on a per capita basis, Japan contributes more to total revenue than China.
Most luxury firms work with ambassadors — Hermès does not. Chanel, as an example, just announced Kendrick Lamar as a brand ambassador.
Hermès’ inventory levels are tightly controlled. No one knows how much there is, but one can assume there isn’t much, or at least that those coffers will be opaque!
Hermès production increases are 6% to 7% each year.
The House inaugurated its 23rd leather workshop in France in 2024. Three new workshops are planned over the next three years.
Petit H — work backwards: start with the leftovers and come up with designs; use ‘scraps’ to create something whimsical and salable.
They are among the most expensive handbags in the world, but the Birkin and Kelly prices are LOWER than what the market could bear.
16 total metiers (direct translation: job), this relates to the different segments; 7,000 artisans and 21,000 employees.
There are limits — a client can only purchase two Kelly and Birkin bags, per year; if you can even get one (or two), that is.
One hundred twenty thousand Birkin and Kelly bags made in a year (Acquired podcast, refers to WSJ); these two bags alone comprise ~ 30% of total revenue.
Hermès is vertically integrated — the firm tightly controls its sourcing and manufacturing processes. They take craftsmanship, artisanship, and apprenticeship very seriously; key executive family members, like Axel Dumas, got their start learning House stitches.
A poison pill-like structure was formed in 2011— “H51” — to prevent a hostile takeover, such as the positions that were being built up by Bernard Arnault (LVMH). He and his family now own less than 10% of Hermès.
Axel Dumas, “We are not financially-driven.”
The Birkin and Kelly bags alone account for between 25%-28% of total Hermès revenue.
Veblen Goods
Definition: When the price is above a certain level, the demand curve turns upward, when the price is below a certain point, the demand curve turns downward. The higher the price, the more desirability, since the cost of an item is itself a proclamation of status.
The primary aim of Veblen customers is to impress others.
Price to this group of consumers is an indicator of prestige, and they attach importance to this.
As the price of the product increases, so too does their demand, and thus, the demand curve slopes upward. As a complement to this, inventories are kept low or are very controlled, so there are relatively few ‘supplies’.
Birkins start at about $10,000. It’s hard to get one even if you’re spending money with the House.
The planned price bumps, along with the tariff-related increases, will only serve to drive demand higher, à la Veblen, especially as relates to bags like the Birkin.
Ongoing Lawsuit
A group of Hermès shoppers are attempting to revive an antitrust lawsuit against the firm.
The case, initially filed in 2020, was dismissed by a federal judge in August 2022. The plaintiffs have appealed the decision and are seeking to have the case reinstated, a third time.
A key tenet of the case is that clients are expected to purchase ancillary products to have a chance at buying a Birkin. In legal terms, this is referred to as tying.
False advertising and fraud claims have been added to this third case. Reuters:
Hermes and its sales staff “know that many of the people they induce to buy ancillary products will not in fact get a Birkin bag,” according to the lawsuit.