Hermès Remarkable China-Fueled Strategy Pays Off

    Hermès' 2019 full-year earnings report reveals exceptional results and revenue growth, with the Greater China region leading the way once again.
    Hermès is positioned to weather this trying period very well and remain a favorite among not only Chinese luxury consumers, but also the Greater China region in the long-term. Photo: Courtesy of Hermès
      Published   in Hard Luxury

    What happened

    The French luxury house Hermès reported Wednesday exceptional results and revenue growth in 2019, stating that revenue increased by 15.4% at the current exchange rate and by 12.4% at the constant rate, amounting to €6.8 billion (7.4 billion), while the annual growth of recurring operating income climbed from 6 percent to 13 percent, according to their 2019 financial results.

    “Hermès achieved outstanding performance this year, based on a balanced growth in all the business lines and in all the geographical areas,” said Axel Dumas, Executive Chairman of the group.

    Among all areas, Asia-Pacific, excluding Japan, offered the greatest potential, accounting for 38 percent of their global revenue and achieving 18 percent growth. In particular, the Greater China region’s revenue contribution held fast despite the ongoing protests in Hong Kong in the last quarter. The addition of two stores in Qingdao and Xiamen, as well as the roll out of a host of new digital channels throughout the mainland helped the house reach a larger customer base in China.

    However, the impact of the Covid-19 virus remained unclear by the end of the first quarter 2020, as Dumas commented, “This has happened in an important country and at an important moment — Chinese New Year. While the group has not come across supply chain issues, as 80% of our production is based in France, 11 stores in the region were closed for health reasons and four of them are still closed thus far.” The group contended that it is still too early to estimate when business might rebound despite seeing a potential normalization in terms of store operations in the near future.

    Overall, Hermès confirmed “an ambitious goal for revenue growth” in the medium term despite economic, geopolitical, and monetary uncertainties around the world.

    The Jing Take

    Hermès gave a brief overview of their current operation status in Greater China, as they continue to adjust their plans due to the virus, while also recognizing the impact on the neighboring countries, such as Singapore and South Korea, but did not disclose too many detailed implications. The group appears more resilient than other luxury players under the crisis thanks to its unusual business model that is highly demand-driven, meaning their production and inventory can be naturally adjusted according to need.

    Meanwhile, balancing growth in all business lines will continue to help the brand with its organic growth, building on last year’s outstanding performances from their ready-to-wear, accessories, and “hard luxury” divisions, including jewelry and watches. Their upcoming beauty line, which launches in March, is expected to arm the legacy brand with a new cash cow.

    Given the brands successful online to offline campaigns, which helped boost their offline footprint in China, as well as their WeChat Mini Program that helped to engage a younger generation of customers — and not to mention the brand’s Covid-19 virus donations — Hermès is positioned to weather this trying period very well and remain a favorite among not only Chinese luxury consumers, but also the Greater China region in the long-term.

    The Jing Take reports on a leading piece of news while presenting our editorial team’s analysis of its key implications for the luxury industry. In this recurring column, we analyze everything from product drops and mergers to heated debates that sprout up on Chinese social media.

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