Struggling economies mean that most luxury brands are struggling around the world, except for Birkin bag-maker Hermès. In fact, Hermès is performing so well that it is well on track to outperform Louis Vuitton (LVMH) as the most highly sought-after luxury brand in the world. The reason for Hermès’ success? Their handbags.
As most purchases go, buying a Hermès product is more an investment decision than a consumer one. There’s a reason why they tend to be so highly coveted: all of the brand’s pieces are made from high-quality authentic raw materials. These even include more ‘exotic’ materials like calf, crocodile and ostrich. The Hermès brand dates back to 1837, when Thierry Hermès opened up a shop in Paris to produce harnesses and bridles of exceptional quality for European aristocrats. Handbags would not become a product offering until 1922, when the Sac à dépêches was catapulted into fame after it was photographed being carried by Princess Grace of Monaco. Since its humble beginnings, Hermès has now become a world-renowned fashion brand that produces high-end men’s and women’s wear, perfume, leather goods, scarves, ties, enamelware, and decorative arts.
The latest market reports show that the demand for Hermès bags—Birkins—helped drive profits by 17% in the first quarter of this year. The dollar value equivalent of this growth sits around at about US$4.08 billion. However, Louis Vuitton’s growth amounted to only about 2%. Gucci actually pulled down parent group Kering’s profits by 10% in the same time period. Kering actually expects this trend to continue throughout the entirety of the first half of this year, amounting to a total reduction of 40-45% in profits. So far, Gucci’s sales have reduced by 18% in the first quarter alone. Gucci is currently Kering’s biggest brand in its portfolio, accounting for almost half of the group’s consolidated sales and about two-thirds of its profits. The smaller luxury brands, such as Brunello Cucinelli, Prada, and Moncler all enjoyed steady growth in the double digits in the past quarter.
A standard Birkin has an average entry price point of US$10,000, which can go all the way up to US$2 million for its own high-end versions. The US$2 million Birkin was actually launched way back in 2012: the iconic Sac Bijou Birkin. The price range that Birkin offers may actually be one reason for its longevity while other luxury brands are struggling, as even new consumers in the luxury goods market can afford a premium bag without breaking the bank. Hermès did increase their prices by between 8% and 9% this year, which consumers seem to be accepting of so far. Compared to Hermès, competitor brands such as Chanel and LVMH-owned Louis Vuitton and Dior had been much more aggressive in their price hikes during the pandemic.
Industry analysts forecast that there is a high likelihood that Hermès will ultimately end up surpassing Louis Vuitton by turnover. These forecasts are not based on flights of fancy either—despite slowing economies around the world, Hermès is set to reach €20 billion in sales within the next three years. This is a symbolic revenue mark in the luxury goods industry and one that Louis Vuitton achieved in 2022. In 2023, the company made €13.4 billion or US$14.3 billion. In addition to having a loyal local consumer base, Hermès is also enjoying widespread geographical success in Asia, except for Japan. In fact, much of the brand’s popularity is fuelled by strong demand from China. The same can’t be said of LVMH and Kering, who are both experiencing waning interest even from China. According to Hermès Executive Vice President-Finance Eric du Halgouet, Chinese interest in Hermès is led by its wealthier clientele. The store visits by clients shopping for their more affordable products have been declining since the pandemic.
On a broader level, Birkins’ leather goods division, which is the company’s largest, grew by about 20% in the first quarter of this year. New launches such as the company’s new Constance Elan bag kept Birkins at the forefront of consumer interest.
(Theruni Liyanage)