ack, the vultures are circling

  1. today's wsj has an article that focuses on the future of independent luxury companies (the outlook is not good). this article does go a long way in explaining the thought process behind Hermes' recent expansion plans, and after reading this, i am hoping they are successful in accomplishing it on their own - the alternative could have a major impact on the brand and their products.

    Brave New (Luxury) World

    Hermès, Bulgari Can't Just Go It Alone if They Want To Sustain Their Expansions

    Luxury's first families can't hang on forever.
    "Keep it exclusive" has proved a winning strategy for luxury brands. Hermès International and Bulgari, among the most prestigious, even applied it to their shares. Both are listed, but takeover-proof thanks to family shareholdings. Covetous rivals like PPR's Gucci Group and LVMH Möet Hennessy Louis Vuitton have been free to look, but not touch.
    Staying relatively small worked in the old world. Hermès, with a market value of €8 billion ($11.1 billion) and famous for a handbag named after Grace Kelly, and Bulgari, a €3 billion jeweler famous for its classical designs, avoided the fate of rivals like Gucci, which chased growth too eagerly in the 1990s and lost some of its cachet.
    But a new world needs new thinking. Modern luxury is about untapped regions such as China, India and the U.S. heartland. In emerging markets, brands can't rely on longstanding cultural romances. They need to move fast and invest heavily before rivals get there.
    Bulgari and Hermès have cash. With respective margins of 15% and 25%, both can easily sustain their expansions out of cash flows. If they need a little more, they can tighten working capital, as Bulgari has done, or raise money in the market. What they lack is the scale to make a big impact quickly. Now that the industry's push into emerging markets has started in earnest, the stand-alone approach looks less attractive.
    Luxury conblomerates like PPR and LVMH have vast experience selling in emerging markets. And both need new glitter to add to their core brands, Gucci and Louis Vuitton, respectively.
    To avoid falling behind, the best hope for investors in Hermès and Bulgari might be that big rivals rekindle their interest in these objects of desire -- and that the aging barons of bling who control them finally decide to sell.



    the business minds that wrote this (from breakingviews.com) scare the begeezus out of me with this one line: "What they lack is the scale to make a big impact quickly." fascinating that the antithesis of hermes could be their undoing. is anything about hermes quick? i guess maybe the insta-status or credibility some people erroneously feel the label gives them, but that's about the customer, not the brand. the art of hermes (the process), and their resistance to fast, fad-based fashion and design) is about patience and appreciation. *sigh*
     
  2. I'm with you. I'd love to see them continue to succeed on their own.
     
  3. Interesting...that article answers the question posed in another thread about Hermes' markup/profit margins.

    I actually vehemently disagree with this idea. Hermes very specifically does NOT want to 'expand' in the way that many retail outlets aspire to do. I think you said it well, HiHeels, basically Hermes is all about doing things "slow but right".
     
  4. I think what the writer doesn't take into account is that the competitive brands also produce their products with machinnes or outsource production to cheap-labour markets, thus securing a constant supply to the demands that the Asian markets have.

    With Hermes, IMO, there is only so much expansion they can do , due to their manufacturing methods. Also, let's not forget that Hermes moves into markets after their competitors have been there for a while and the waters are tested, so to speak.

    I don't think they'll sell and I also don't believe that their Asian expansion will break their financial back.
     
  5. Overexpansion has been the death of so many companies. I hope that Hermes continues to keep its old traditions so we do not wake to find that H is offering poorly made products. Maybe with expansion in mind this is why H is offering a lot of newer styles like the Victoria.

    Thanks for the article HH.
     
  6. You know, the more I think about it, the more I think that the writer just doesn't get it.
    Hermes isn't intending to be Starbucks (or Louis Vuitton, or Tiffany) with a boutique on every corner. That's not the point. The point is to offer the very finest products to the appropriate audiences--period. Sometimes I think that Hermes' adherence to their own strictures of exclusivity is a little maddening, but at the same time I vastly prefer that they stay that course than turn into a mega-franchiser or worse, sell out.
    Coach is a great example of a formerly family-owned company which sold its business and saw an incredibly a steep decline into a "fashion" company with items mass produced in Asia, instead of a quality leathergoods company that took true pride in its products. I would be devastated, as I think we all would be, if something like that happened to Hermes. Thankfully, I don't believe it ever will happen.
     

  7. i think the article was addressing what these companies have to do IF they want to compete on the same level as these other companies, LVMH, etc. but maybe, hopefully, hermes doesn't want to be an LVMH. maybe, hopefully, hermes wants to be hermes. i don't think they lose customers to other luxury brands. if someone wants hermes, they want hermes.
    the writer says that hermes cannot rely on cultural romance, but um...i think many of the customers are very happily seduced by cultural romance and hermes is one of the very very few that can offer it still.
     
  8. cultural romance - i love your phrase hiheels, it says it all.
     
  9. SO true.
     
  10. I truly hope that Hermes doesn't take too much notice of the other hyped design houses when considering business plans of expansion. I know my SA always spoke negatively about the construction of YSL bags and others. Hermes is not even on the same planet as far as the way they do business compared to the other big name "Luxury" Companies (service SPA and color choices just to name two categories). Hopefully they will just enjoy being Hermes and catering to the people that adore them and gradually expand if they want to.

    Frankly all this recent press is irritating. I always loved that while only certain people knew the cost of Birkins or Kellys, that the majority of the people around me just saw a nice bag. Now it seems everyone has the knowledge that we are lugging around pieces that cost over 7K and that is just so far off from what Hermes means to me. The media is ruining Hermes' subtlety and it really pisses me off.

    I imagine that people that buy Hermes simply as a status symbol are gleefully reveling in all this attention.
     

  11. I totally agree with what you say, HH!
     
  12. It's interesting that this article appeared in the Wall Street Journal which just sold out to Rupert Murdoch. I wonder if his long arm is already reaching into their editorial or if those at the journal are justifying the sale of their company to Murdoch.
     
  13. ^^ Wow that is very interesting luvtoshophandbag. Gives whole new meaning to "consider the source".
     
  14. haute couturess i was quoting the article. no credit for me.
    gazoo hermes was always very uncooperative in the past with the media. i think this attention is something they pursued - you can't expand successfully without awareness. this is free advertising.
    luv2shophandbag the piece was written by breakingviews.com, an "international source of online financial commentary" and not, directly by wsj journalists, however, that said, i don't know that murdoch doesn't own them too. lol
     
  15. Whoever wrote that article has no idea about Hermes at all. Another 'OMG, I'm a journalist trying to have a field day!'. Besides, one can't compare Hermes & LV, they are 2 completely different commodities. Somebody needs to get back to their storyboard/s and get the facts straight.