LVMH: Part 3, Hermès comparison

Feb 28, 2024

Full series:
1. (a) Intro & (b) The Journey
2. The Business Model
3. Hermes Comparison (the anti LVMH?) 👈

3. HERMÈS: THE ANTI LVMH?

i.e. not owned by a group, no portfolio, one brand (like Chanel)
tightly controlled by 7th generation Dumas family (descendants of founder, Thierry Hermès)
started in 1837 specialising in premium leather goods for horse carriages (see logo)
started expanding into other leather goods & accessories in the 1920’s
famously narrow product range, that are built on heritage
been multiple (failed) hostile takeover attempts by Bernard Arnault, turning ugly

Hermès philosophy is “quality” and “refinement”, not scale
focussed on high-end craftsmanship, limited manufacturing throughput, minimal advertising, steady organic growth
~315 exclusive brand outlets worldwide (vs ~5,000 for all LVMH groups’ brands)
extremely tight control over supply - they reduce supply when demand spikes (inverted economics), like in Japan during the 90’s
cannot purchase most products online or even at the store (!)
long waiting list for main product categories, ‘purchase by appointment’ style
in fact, customers must qualify to buy the high-end bags by building up a purchase history of the smaller, more widely available pieces (over years)
stores are relatively small, catered for fewer visitors at a time, generating (~$50,000 / square meter), its ‘a stage’ not a store
today ~50% of business are leather goods, ~20% is silk products, rest is accessories

arguably most sought after luxury bags, narrow product lines that evolve over time
classic, non-monogram / subtle logo, leather bags
named after Jane Birkin (Hollywood star) & Grace Kelly (actress & Princess of Monaco)
extremely limited supply - making it like a commodity (vs fashion item)
huge cult following over 60+ years, with items maintaining resale value
extremely high demand today, average price of ~$25,000 and often stretching to 6 figures 😮
often sold at auction house

extremely strong sales & margins thanks to tightly controlled, premium positioning
revenue of ~€11.6bn, operating income of ~€4.6bn (2022)
strong consistent performance, even during recent (2H-2023) slowdown in luxury spend
demands huge valuation multiples (similar to a tech companies) - 13x sales and 48x earnings, as of mid 2023 (vs LVMH 4.5x sales and 24x earnings)