Hermès shows luxury stability

20 March 2009

PARIS: Hermès, the world's second-largest luxury goods company by market value, saw its operating profit rise by 8.4% last year to €449.2m ($616.7m; £422.8m), and net profits by just 0.8% to €290.2m, and the company now plans to expand its operations in Asia.

While luxury brands are expected to come under pressure in the downturn, it has been argued that if they focus on their core areas of expertise, differentiate their products and avoid going down-market they can still flourish.

Hermès' sales in the US rose by 8.6% to €1.76bn, just below analysts' estimates, and the company generated around 15% of total revenues from the country, compared with 25% from Japan.

The highest level of growth came from Asia (outside Japan), with an uplift of 22%, and Hermès also opened three stores in China last year.

Patrick Thomas, the company's ceo, says he is "not measuring our performance in terms of market share", but is focusing on a "value strategy."

He also argued the company will continue to open new stores despite the downturn, with a focus "particularly in Asia outside Japan."

Bain & Co. values the luxury market at €175bn, and argues category sales will fall by between 3% and 7% over the course of this year.

However, Yasuhiro Yamaguchi, a UBS analyst, says Hermès "strong brand equity, high customer loyalty, stable revenue from timeless signature products [and] tight cost management," leaves it in a strong position for 2009.

Data sourced from Financial Times; additional content by WARC staff