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French luxury goods group Hermès released its third-quarter financial report on Thursday, October 24. At constant exchange rates, third-quarter sales revenue grew by 11.3%, slightly above analysts’ expectations, continuing to show double-digit growth.
In a context where the overall growth rate in the luxury goods sector is slowing down, Hermès’ performance stands out. Just a day earlier, Kering Group, after releasing its third-quarter report, warned that weak consumer demand was hindering the recovery of its main brand, Gucci, predicting that annual profits might fall to the lowest level since 2016.
As a top luxury brand, Hermès’ performance significantly surpasses that of its competitors. The French company enjoys strong pricing power, and its most coveted handbags have waiting lists, targeting the wealthiest clientele, whose spending power is often more resilient to economic cycles.
However, a comparison of the financial reports reveals that Hermès’ 11.3% growth this quarter shows signs of fatigue when compared to the 13.3% growth in the second quarter of this year and 15.6% in the same quarter last year. “Luxury brands are not as attractive as before, and Hermès is effectively ‘lowering prices,'” said fashion industry analyst Tang Xiaotang in an interview with Daily Economic News. According to his observations, Hermès is adjusting its product mix to “stabilize” its performance.
Q3 Sales at Hermès Show Double-Digit Growth, But Performance Weakness Emerges
In 2024, amidst a generally sluggish luxury goods market, even top-tier Hermès was not immune.
In the third quarter, Hermès’ performance remained stable, with sales revenue at constant exchange rates increasing by 11.3% year-on-year to €3.7 billion, slightly exceeding analysts’ expectations of 11%. However, compared to the 13.3% growth in the second quarter of this year and the 15.6% increase in the same period last year, the growth rate this quarter shows some weakness.
2024 Q3 Performance (by Business Line)
At constant exchange rates, and by business line, a review of the data shows that all divisions, except for watches, recorded growth in the third quarter. The leather goods and saddlery segment saw the highest increase at 14%. Watch sales revenue, however, dropped by 18.2%, double the expected decline.
The ready-to-wear and accessories division (+13.5%), other Hermès businesses (+13.6%), and the perfumes and cosmetics division (+10.6%) all posted double-digit year-on-year growth. The other business segment at Hermès includes jewelry and home products (Art de vivre and Hermès tableware).
As the most profitable division at Hermès, the leather goods and saddlery segment showed a 15.8% year-on-year increase in the third quarter last year and 17.9% in the second quarter of this year. While still strong, there are signs of a slowdown.
James Grzinic, an analyst at investment bank Jefferies, stated in a report that Hermès’ sales growth “confirms its industry-leading resilience, which is attributed to the higher-end portion of the group’s products,” such as leather goods and ready-to-wear.
At constant exchange rates, a breakdown of the first three quarters shows that Japan and Europe (excluding France) led growth with increases of 22.8% and 20.3% respectively. The Americas and France saw similar growth rates of 13.4% and 13.1%, while the Asia-Pacific region (excluding Japan) grew by just 1% year-on-year.
In the third quarter, Hermès exceeded expectations in Europe (excluding France), Japan, and the Americas. However, sales in the Asia-Pacific region, including China, rose by only 1%, falling short of analysts’ previous forecast of 2.3%. Last year, this region recorded a 10.2% increase in the same period.
Hermès’ Chief Financial Officer, Éric du Halgouët, mentioned that although customer traffic in Hermès stores in China has slowed since the beginning of this year, the brand’s performance remains stable. This stability is attributed to its most loyal customers, who continue to spend generously on luxury items such as jewelry, handbags, and ready-to-wear.
Thanks to new designs, new pricing, and waiting lists, Hermès has remained relatively stable compared to many of its competitors.
A Drop in “Product Mix”? Why Hermès Can Defy the Luxury Market “Winter”
In the third quarter, Hermès’ flagship product line, the leather goods and saddlery division—home to the famous Birkin bag—saw a sales revenue increase of 14% at constant exchange rates, reaching €1.573 billion. However, the performance of the silk and textile division has yet to show a clear improvement.
The financial report shows that in the second quarter, the silk and textile division recorded a 4% increase to €210 million, a slight recovery from a 5.6% decline in the second quarter, but still lagging behind the 6.3% increase in the same period last year. For the first nine months of this year, the silk and textile division’s overall revenue at constant exchange rates grew by only 2.2%, compared to a substantial increase of 16.7% in the same period last year.
“Luxury brands are not as attractive as before, and Hermès is effectively ‘lowering prices,'” said Tang Xiaotang. He noted that in previous years, the entry-level price of a Hermès Birkin bag was about 100,000 yuan, but customers needed to spend around 300,000 yuan in total to get one. “Now, the total price to obtain a bag has dropped to between 150,000 and 180,000 yuan.”
What Tang describes is the “product mix” strategy that Hermès has long been known for. In a previous investigation, Daily Economic News reported that in the Chinese market, Hermès’ product mix ratio typically ranges from 1:1.15 to 1:2. This means that to purchase a 100,000-yuan Hermès bag, customers must first buy other Hermès products worth 115,000 to 200,000 yuan. This has led many Chinese “Hermès enthusiasts” to express frustration. However, Hermès’ staff clarified: “We do not have a ‘product mix’ policy.”
“Through such adjustments, Hermès has managed to maintain growth over the past few quarters,” Tang noted. He believes that by adjusting the product mix to effectively lower prices, Hermès can boost handbag sales, though this disguised price reduction may impact other departments that previously benefited from the “product mix” strategy.
Daily Economic News learned that when purchasing through product mixes, Hermès scarves, shawls, and other items are often popular choices. However, examining the growth rates of Hermès’ seven main departments over the first nine months of this year reveals that, except for the other divisions, the growth rates of the remaining six divisions were all lower than the same period last year.
This year, multiple luxury brands, including Luxury Gucci and Louis Vuitton, are facing a “winter.” The day before Hermès released its third-quarter report, Gucci’s parent company Kering also released its third-quarter report, showing a 15% year-on-year revenue decline to €3.79 billion, with its flagship brand Gucci down by 25%. The previous week, LVMH, Louis Vuitton’s parent company, reported a 3% year-on-year revenue decline to €19.076 billion. In comparison, Hermès is one of the few luxury brands that can withstand the industry’s “cold winter.”
“Consumers still want to buy Hermès’ high-end leather products. Among the major luxury groups, Hermès is the only one that can ‘adjust’ to stabilize its performance,” Tang Xiaotang analyzed for Daily Economic News.
