Hermes Everything Under Control

From the upstream raw material supply to the downstream retail stores, Hermès has been adhering to an endogenous growth strategy for many years. More than 75% of its products are produced in-house, which can be described as the entire luxury goods industry. The most ‘independent’ brand. While continuously increasing the overall scale, this also fully explained the continuous improvement of Hermès’ profitability. Its net profit margin not only increased by about 14 percentage points from the beginning of listing, but also significantly better than LVMH, even with higher profitability. Coach, a light luxury brand, is not its rival.

9In September 2013, the French financial regulator AMF finally ruled that LVMH Group was fined 8 million euros for the private acquisition of Hermes shares before 2010. LVMH Group said it would not appeal. In the eyes of its head Arnold, Hermes’ 23.1% equity and 8 million euros, the two are important and obvious. As one of the few brands in the luxury industry still controlled by families, Hermès has enough capital to make this luxury crocodile pay patience and money. Although no one can predict, what will happen in the end.

Starting from the ‘Horse Workshop’ in 1837, Hermès has now become a top luxury brand with annual revenue of about 3.5 billion euros. Its sales have tripled since its launch in 1993. Not only does its subsidiary Birkin and Kelly have a long ‘customer waiting list’, it is obviously its profitability that makes Arnott covet. In 2012, Hermes stated in its annual report that the operating profit margin reached a record high, and the operating profit margin of 35% in the first half of 2013 showed that it had once again surpassed; the net profit attributable to the parent company experienced a ‘bottleneck period’ after many years After that, it also reached a new high, not only an increase of about 14 percentage points from the beginning of the listing, but also has certain advantages compared to 12.19% of LVMH or 20.39% of Coach, which represents light luxury (Figure 1).

All this is thanks to the endogenous growth strategy Hermes has been adhering to for many years. To a certain extent, it may also be the most ‘independent’ brand in the luxury industry, because more than 75% of its products come from its 45 workshops. Not only do all the leather goods be arranged by themselves, but they also have several leather factories. At the downstream end of the industry chain, the policy of ’emphasizing direct sales and selling lightly’ has been implemented for decades. Although it has slowed down the pace of opening stores in recent years, both the revenue scale and profitability have risen. For Hermès, it is a natural and gradual process to continue to extend the industrial chain and gradually strengthen the control in all aspects, until finally everything is under control and it becomes the true ‘maker’ of luxury goods.

Vertical integration

1In January 2013, Hermès acquired Annonay, a French cowhide manufacturer, to strengthen its control in the upstream of the leather goods industry chain. Prior to this, it had owned 3 factories for processing rare leather. This not only guarantees the quality of leather produced by Hermès, but also makes it play a middleman role in the leather industry chain-selling raw leather to other luxury brands in 2012 generated 69 million euros in revenue. In recent years, the major groups have been increasingly competing for leather materials, Hermès has undoubtedly established its own advantages.

Today, Hermes leather products are produced by more than 2,000 highly trained artisans located throughout France. In order to cope with the growing consumer demand for leather products, based on the acquisition of three leather workshops in the first 10 years, it added two more workshops and more than 200 artisans in 2012.

Although the average price of 300 euros of scarves and 6000 euros of Birkin handbags are not at all on the order of magnitude, for the silk scarves that need to be completed through seven sessions and lasted 18 months, Hermes also grabbed the source and controlled it. From the purchase of silk raw materials, spinning, weaving, printing and dyeing to the final manual crimping. In order to ensure quality, Hermès also has a textile company that specializes in the development of various technologies related to fabric design, coloring and weaving. This textile company also owns 39.5% of Perrins & Fils, a leader in the knitting industry. , And gradually enhance their professional skills through cooperation with them. In 2012, Hermès acquired a new dyeing factory.

Even for the tableware sector with revenue of 60 million euros, which only contributed 2% of the group’s revenue, Hermès has spared no effort in its vertical integration. As early as the 1980s, it became a famous French glassware manufacturer Saint-Louis and silverware manufacturer Puiforcat. Major shareholder. And in 2011, he set up a joint venture with Italian fabric expert Dedar and began to study related interior design and decoration skills, including wallpaper.

From the perspective of the company’s structure, in addition to perfume, the remaining five departments of Hermès currently introduce foreign aid to strengthen their own strength or extend upstream to increase control over the supply chain. Benefit maximization has helped Hermès reduce costs to a certain extent and achieved continuous improvement in profitability. ‘Make a line, drill a line, make a line, refine a line’, although simple, it is not easy to do, and Hermès has always done it. In the silk business, the vertical integration process has been up to 75 years ago, and it is still continued. Now, it has started to do the same in the field of watches.

Unlike other departments stationed in France, Hermès’s watch department (La Montre Hermès) was built in the watch kingdom Switzerland from the beginning. The consideration of “the moon is near the water tower” shows Hermès’ determination. In the beginning, brands such as Jaeger LeCoultre, Vacheron Constantin and Audemars Piguet produced watches for them. From these collaborators, Hermès learned the original skills of watchmaking. It was not until 1978 that its watch department was formally established, and Hermès began to move towards becoming a true watchmaker.

In 2006, in order to master the core technology of watches and clocks, Hermès invested 25 million Swiss francs to buy a 25% stake in Swiss high-end movement maker Vaucher. Prior to this, Vaucher had been the supplier of its movements for 3 years. . In the production of watch cases and dials, Hermès has repeated the tricks, cooperating and then investing in shares, and has successively become the watch case manufacturer Joseph Erard (32.5%, 2011) and the watchmaker Natéber (100%, 2012 ) Shareholders. According to the person in charge of its watch department, 95% of Hermès watches currently starting at 3,000 euros have been produced in-house, and in some models, this proportion is even as high as 98%. You know, Hermès is also the only watchmaking company in the world that produces its own straps. Its first intimate contact with watches began in 1912 with leather straps.

After infiltration in the industrial chain in recent years, in addition to the surface of outsourcing, in the production of watches, Hermes is the only pointer that has not been touched. Obviously, this product that requires large-scale industrial production to achieve economies of scale and Hermes Not very tuned. In fiscal 2012, against the background of the overall slowdown in the growth of Swiss watch production, the Hermès watch department still submitted a transcript of 173 million euros in revenue, contributing 5% to the group’s revenue (Figure 2).

Emphasis on direct management, not authorization

进一步 In order to further expand the watch business, in addition to cooperating with dealers, since 2009, Hermès has begun to build specialized direct watch stores. At present, there have been 20 stores ranging from 50 to 120 square meters. The practice of opening a direct-operated store not only conforms to the trend of watchmaking companies to gather together to build their own channels in recent years, but more importantly, it is in the same vein as Hermès has always insisted on “focusing on direct sales and neglecting authorization”.

Authorized stores were once the main way for Hermès to explore overseas markets. Since the 1980s, Hermès has widely distributed authorized marketing points in the United States, Japan, other Asian countries and Pacific Rim countries, and has successfully stepped out of France and Europe. By the early 1990s, its authorized marketing points distributed around the world had exceeded 225 In 1994, the revenue from overseas markets accounted for almost half of the total revenue.

此 But since then, Hermès has adjusted its strategy, gradually replacing authorization with direct management, and tightened its control over the channel. From 1999 to 2012, it opened an average of 7.6 directly-operated stores each year, while authorized stores only increased by 1.5 each year. Under this pace of shop opening, by the turn of the century, the number of directly operated stores and authorized stores was almost the same. At the moment, the former is close to twice that of the latter, accounting for more than 63% of the overall channel (Figure 3). . In 2011, after cooperating with local agents for 10 years, two authorized dealerships originally operating in Moscow were also included by Hermès. The Chinese brand “Xia Shang”, which was founded in 2008, previously only opened two directly-operated stores in Shanghai and Beijing. In September 2013, its third store finally appeared in Paris, France, and was exclusively sold by Hermès. The shop is adjacent.

On the whole, Hermès’s store opening speed is not fast. No matter whether it is compared with LVMH or Coach, it is a model of steadiness. In the period of unprecedented prosperity of the luxury goods industry from 2003 to 2007, the total increase of Hermès directly-operated stores + authorized dealerships was only 42, and LVMH and Coach expanded at a rate of more than 20 and 50 each year, respectively. In the past two years, although it has continued to enter new markets, Hermès’s store opening speed has slowed significantly, and it has focused on increasing single-store sales. In 2012, it only opened two new stores in Wuhan and Taichung, and they are all concentrated in the Chinese market.

Obviously, the Asia-Pacific region, and especially China, has become a major town for Hermès formation. In 2012, sales in the Asia-Pacific region (excluding Japan) not only led other markets with a growth rate of 14%, but also contributed significantly to the Group’s overall sales by 4 percentage points to 32% over the previous year (Figure 4). In the first half of 2013, although the Chinese market was facing multiple adverse effects, the entire Asia-Pacific region (excluding Japan) continued to grow with the American market with a 17% increase as the main driving force for the Group’s business growth.