Any information on 2015 price increase?

[MSO13]

The idea the Hermes is only focused on high net worth customers is the illusion they want to portray, but the facts don't bear it out. As klynneanne stated, they are just as focused on the aspirational buyer, because that's where they can show growth on the balance sheet. Look at their marketing strategy over the past decade: Hermes, Chanel, and the rest of the lot have expanded production, advertising, stores, and product line. Each company continues to introduce products at lower price points while keeping their marquee product high.

Compare this with the 70s and 80s, when my mother was a typical client. These were much smaller brands then. Certainly well known, but far fewer boutiques and offerings, and less marketing, less focus on "growth"

The same is true in jewelry, autos, etc. Patek started offering mid-level watches a decade ago, and Mercedes now offers cars at the Honda price point. Most of these companies are chasing growth. These were not "growth" companies two decades ago.

That being said, price increases happen, whether for milk or a Birkin.
The only reason I'm surprised at the 10% increase in the US, is that it puts US prices completely out of balance with other markets. I may not drive two blocks to save a dollar on a gallon of milk, and I won't jump on a plane just to save on a bag, but I will delay some purchases until I head to France this summer, and fewer foreigners will head to the US to shop, so there will be some disruption in volume here in the US.

Good post Monceau! ITA

 

[Monceau]

Bain, which does the most detailed forecasting of the Luxury sector, has for years credited the "aspirational buyer" as one of the main drivers of growth in luxury. I believe they coined the term.

 

[Israeli_Flava]

If you look back at previous price increase threads, the reaction is pretty much the same. People say Hermes prices are now too high and they will stop buying. Some do. Most don't. While there are likely economic reasons (higher costs for labour, materials, shipping, currency issues, etc.) I think that Hermes raise prices simply because they can, and because regardless of the initial sticker shock, people continue to buy, year after year.

Hermes is likely not concerned about customers for whom a 10 per cent increase prices them out of buying. Not saying this to be unkind, but they are a carriage trade company and see their customers as those who don't, for the most part, worry about price. I am sure their sales will continue to be robust this year regardless of the increase or those customers who now feel it is too expensive across the board.

I haven’t gone through the old threads but I suspected that every year people have the same reaction but I think what I’m feeling is specific to this year because of the Euro and the economy.

I agree that for the most part Hermes doesn’t worry about it’s price increases because they think most of their consumers don’t worry about price tags but since I’ve been frequenting my boutique regularly in the US I’m not sure that this is the majority of their customer base anymore. There’s no way that the most affluent individuals in the world skyrocketed their spending to increase Hermes global sales at the rate they’ve climbed in recent years. The growing middle class around the world did that for them, allowed them to open new stores and add product lines. I would consider myself one of those new consumers.

What is upsetting to me is that in light of the current global economy and knowing that labor, materials, transportation etc did not climb 10% in 2014 that they are going on the offensive to shut out the group of consumers like myself from their price point. I may be projecting but I run a high end business and I have 20 years experience in retail and this feel like a slap in the face. As has been pointed out again and again, with the Euro falling prices in the US will be close to 35%-40% over the French price before VAT refund. It’s bad business on paper so it must be strategic. That’s what’s upsetting me.

+1 to Monceau and MrsOwen's comments. Maybe it's more upper middle class or lower upper class than actual middle class but whatever you want to call it, it's a group of people making aspiring purchases and you have to start somewhere. Theoretically this group will continue to increase their wealth and possibly eventually become wealthy enough to make these purchases more easily and if they get a bad taste in their mouths from a company's particular business practices, whether actual our perceived, they may take their money elsewhere.

Also, while there may be some luck involved, those who are truly wealthy but maybe irritated with, say, this particular increase, may end up making their purchases in Europe, so that takes care of their possible strategy of padding the US purchases.

The idea the Hermes is only focused on high net worth customers is the illusion they want to portray, but the facts don't bear it out. As klynneanne stated, they are just as focused on the aspirational buyer, because that's where they can show growth on the balance sheet. Look at their marketing strategy over the past decade: Hermes, Chanel, and the rest of the lot have expanded production, advertising, stores, and product line. Each company continues to introduce products at lower price points while keeping their marquee product high.

Compare this with the 70s and 80s, when my mother was a typical client. These were much smaller brands then. Certainly well known, but far fewer boutiques and offerings, and less marketing, less focus on "growth"

The same is true in jewelry, autos, etc. Patek started offering mid-level watches a decade ago, and Mercedes now offers cars at the Honda price point. Most of these companies are chasing growth. These were not "growth" companies two decades ago.

That being said, price increases happen, whether for milk or a Birkin.
The only reason I'm surprised at the 10% increase in the US, is that it puts US prices completely out of balance with other markets. I may not drive two blocks to save a dollar on a gallon of milk, and I won't jump on a plane just to save on a bag, but I will delay some purchases until I head to France this summer, and fewer foreigners will head to the US to shop, so there will be some disruption in volume here in the US.

Outstanding dialogue ladies! THIS is why I love tPF!!!!

 

[Fabfashion]

I think once the sticker shock has worn off after a few months or so, people who are aware of the price increase will start buying again albeit more cautiously. I for one will only buy what I need. Just think how much cheaper the new 2015 prices will be compared to 2016!

 

[rosewang924]

I'm with you.

I think once the sticker shock has worn off after a few months or so, people who are aware of the price increase will start buying again albeit more cautiously. I for one will only buy what I need. Just think how much cheaper the new 2015 prices will be compared to 2016!

 

[MYH]

I must admit I keep coming back to this thread because I'm enjoying the discussion. Here's my two cents.

From the corporation's perspective, I think they feel the need to "make-up" lost revenue from the decrease in the value of the Euro. So if the euro keeps dropping, the revenue needs to be made up somewhere. That's where the US comes in. Our price increase and the strength of the dollar helps fill the revenue gap. I've been part of many large companies that don't feel like currency fluctuations are any excuse to not show growth in their bottom line. Now, to further play this out, H may even shift inventory for their desired bags (like B's and K's) out of the Euro zone to the US for purchase, because why wouldn't they want to get a higher price for the same product? So we may find that scoring a B or K in Paris will become a lot harder and much easier in the US this year. But, this may all backfire on Hermes and the US customer may slow down purchases but guess what? prices are easy to change. Just get your employees to spend a day re-ticketing and reprograming the computers and voila, you can go back to your old price that's more acceptable to your customers. But I highly doubt this is going to happen!

Now, from my perspective, the reason I find the price hike in the US ridiculous is because our friends in the Euro Zone are paying thousands less for the exact same product! It's kind of like airplane seats. I get a bit miffed if I know the person in the seat next to me paid much less for the same seat. It's a matter of principle. I just don't like to get snookered. And it doesn't matter if you're upper class, middle class, or somewhere in between, almost everyone likes to get a good deal.
So personally, for me, I'm with Vigee. I will delay any large purchases for the trips I take to Europe. Smaller purchases like scarves or bracelets, will probably continue to be made in the US because the price difference is not so great. But this plan may backfire on us for my reasoning above....

Personally, I'm also surprised that H would crack the door wide open for arbitrage. This will only fuel the re-seller market further.

 

[mistikat]

Aspirational buyers can still easily buy into the Hermes brand through perfume, some of the less expensive jewellery and silks. Bear in mind that an Hermes "entry level" bag is still in the multi thousand price range. And there are many who aspire to own a Kelly or a Birkin and will make that happen some way - a different kind of aspirational buyer, IMO. If they cared a lot about entry level buyers (which is different from an aspirational buyer) their pricing and product offering would reflect that.


I don't believe Hermes is only trying to portray that they are after high net worth customers - that is who their key client is. They are not growing on people who buy the occasional bottle of perfume (though as an aggregate, this is a big part of their business).

 

[Fabfashion]

The idea the Hermes is only focused on high net worth customers is the illusion they want to portray, but the facts don't bear it out. As klynneanne stated, they are just as focused on the aspirational buyer, because that's where they can show growth on the balance sheet. Look at their marketing strategy over the past decade: Hermes, Chanel, and the rest of the lot have expanded production, advertising, stores, and product line. Each company continues to introduce products at lower price points while keeping their marquee product high.

Compare this with the 70s and 80s, when my mother was a typical client. These were much smaller brands then. Certainly well known, but far fewer boutiques and offerings, and less marketing, less focus on "growth"

The same is true in jewelry, autos, etc. Patek started offering mid-level watches a decade ago, and Mercedes now offers cars at the Honda price point. Most of these companies are chasing growth. These were not "growth" companies two decades ago.

That being said, price increases happen, whether for milk or a Birkin.
The only reason I'm surprised at the 10% increase in the US, is that it puts US prices completely out of balance with other markets. I may not drive two blocks to save a dollar on a gallon of milk, and I won't jump on a plane just to save on a bag, but I will delay some purchases until I head to France this summer, and fewer foreigners will head to the US to shop, so there will be some disruption in volume here in the US.

Great points, Monceau. A SA at Cartier mentioned that their company tries to keep their retail list price across the globe consistent (or as much as feasible) so there are not too much discrepancies barring exchange rate fluctuation, imported duties, etc. I think they sometimes have mid-year price adjustment too. I've found it to be quite true when checking prices in N America vs Europe a couple of years ago. Mind you their price have gone up about 25-40% on some items in the last 3-4 years. At least I was attributing it to rising gold price which is now cooling off. Not sure what H strategy is to create such a huge discrepancy between the US and Europe.

On the other hand, aspirational buyers who are buying H for the first time will probably not know how much the bags were in 2014. They'll just take it as face value.

 

[perlerare]

Price increase is just PLAIN Luxury Marketing.
There is plenty of litterature about this, so please, no speculations, no bad feelings, no regrets...

They must stand out of the crowd of Premium companies...
They must make you feel like YOU have to make the last step to become/stay their client.

Price increase is the ultimate weapon, when everything else (like outstanding quality) has gone...

 

[mistikat]

Great points, Monceau. A SA at Cartier mentioned that their company tries to keep their retail list price across the globe consistent (or as much as feasible) so there are not too much discrepancies barring exchange rate fluctuation, imported duties, etc. I think they sometimes have mid-year price adjustment too. I've found it to be quite true when checking prices in N America vs Europe a couple of years ago. Mind you their price have gone up about 25-40% on some items in the last 3-4 years. At least I was attributing it to rising gold price which is now cooling off. Not sure what H strategy is to create such a huge discrepancy between the US and Europe.

On the other hand, aspirational buyers who are buying H for the first time will probably not know how much the bags were in 2014. They'll just take it as face value.

Gold prices have been declining for at least the last two years so any jeweler claiming that increases are due to increased materials cost .... In fall 2011, gold hit a high of about $1900 an ounce. It is, as I write this, trading at $1293.85. Let me know when Cartier drops prices to reflect that change in raw materials.

I echo what perlerare just wrote about why Hermes is doing this.

 

[afsweet]

I'm surprised how many people say they'll go to Europe to purchase a B/K/etc. because of the price discrepancy. Does everyone have a SA there? Lol. We all know it's hard to get a coveted bag without being a local or regular...how many people are willing to pay thousands to go to Europe and run the risk of not being offered anything? With H, it's always been a take it or leave it type of mentality. After the price increase, I bet people will still take whatever they're offered in fears of not being offered anything else in the near future.


I don't worry much about the price increase- I'll still buy if I'm offered something I love. I do hope my Paris SA pulls through for me and gets me something nice this summer, and I almost secretly hope my US SA's don't get those K's I've been waiting on, but I'll play it all by ear. I do know I don't really want a Toolbox anymore if it's going to cost nearly as much as a K or B though! And I sure hope housewares don't increase too much since I still need to buy more dishes!

 

[mistikat]

An interesting blog post on this, which references Hermes
http://retailtouchpoints.tumblr.com/post/71960568291/analyzing-the-aspirational-customer:

Analyzing The Aspirational Customer

Following the economic collapse in 2008, many retailers thought the aspiration consumer was gone for good.

Gone were the days of high-price impulse purchases, and the endless appetite for designer goods, they thought.

Now, as we venture into 2014, it is evident that the aspirational consumer is back again, with luxury retailers vying for their time, attention and dollars. Additionally, more consumers in a variety of income brackets now have the desire to buy luxury products, presenting a plethora of new opportunities for brands and retailers alike to engage shoppers and drive sales.

In the below Q&A, Hana Ben-Shabat, luxury expert and a partner in the Retail Practice of A.T. Kearney, delves into the state of the aspirational consumer, her browsing and buying behaviors, and how luxury brands can see success as the economy recovers.

Retail TouchPoints (RTP): Can you share the characteristics of the aspirational consumer?
Hana Ben-Shabat: Aspirational consumers are those with household income of $100,000 to $400,000. They are affluent, but not yet rich. These consumers typically have a college education or higher. Based on the 2010 U.S. census, about 20 percent of U.S. households fall into this income category.

The aspirational shopper’s approach to shopping is “Mix and Match” — you are equally likely to meet them at Target or Neiman Marcus. They shop carefully, not necessarily for the best price but certainly for the best value. Prior to the recession, they most likely practiced “Stretching Up,” or spending more time and money at Neiman Marcus than in Target.

Taking advantage of easy credit, these consumers were acting on their aspiration for luxury goods and services, but they often got over extended, wrapping themselves in the credit bubble.
Once the financial bubble burst in 2008, many felt the decline or loss of their key assets and therefore a reality check set in. For a while the newspaper headlines read “RIP aspirational consumer.” It seemed that they would never bounce back, but they have, finally.

RTP: Based on your research, what is the current state of the affluent customer? Is the affluent customer thriving and or bouncing back after the recession?

Ben-Shabat: The aspirational consumer is back, but in a very different way. It is about true “Trading Up” not “stretching up.” They still seek the pleasure of owning a luxury goods product either as a status symbol or as true appreciation of the brand craftsmanship, but they do so carefully. As such, they are more likely to purchase items they can really afford — the Hermes Scarf, not the Hermes bag for example.

RTP: How is the volatile economy impacting the lifestyle and/or buying decisions of affluent consumers?

Ben-Shabat: The most important factors are employment and savings. If they feel secure about these two factors they are more comfortable making the occasional luxury purchase. However, having experienced the impact of the last recession, they do so very carefully.

RTP: Do you find that affluent consumers are loyal to only a few key brands/retailers, or are they shopping across a variety of outlets and in several channels? How will these shopping behaviors change during 2014 and beyond?

Ben-Shabat: Like every shopper, aspirational shoppers do favor a few key brands and they will shop directly at the branded store, department store or outlet store when available. Recently, the increase of e-Commerce opened up new opportunities for aspirational consumers to find the products they look for on different websites globally. This trend will get stronger in 2014 and beyond.

RTP: What do affluent consumers expect from brands and retailers in terms of the browsing and buying experience?

Ben-Shabat: Great Products, Good Pricing, Good Service. Nothing new to report, here…

RTP: Can you share more details regarding the luxury pyramid? What is it and what is it comprise of?

Ben-Shabat: Luxury goods are defined by their premium price and availability in exclusive retail locations. They are differentiated from other goods on the basis of price, exclusivity, limited availability, and quality.

However, as a part of the quest for growth, some luxury brands started to offer products that are more accessible, offering larger numbers of consumers the opportunity to participate in the brand experience. These products are available and distributed in a less exclusive manner than others, creating the distribution pyramid effect.

At the top of the pyramid are the items one can find in the branded boutiques or high-end department stores. At the bottom of the pyramid are the items that are more widely distributed through mid-tier department stores or other channels.

RTP: How are luxury brands improving their products and/or marketing strategies to appeal to affluent consumers, as well as a broader base of customers in lower income brackets?
Ben-Shabat: Advertising print “spreads,” e.g. multiple pages in fashion magazines like Vogue where they display side by side the top of the pyramid items with bottom of the pyramid items. In addition, social media outlets such as Facebook are becoming important vehicles to drive consumer engagement with the brand.

 

[Fabfashion]

Gold prices have been declining for at least the last two years so any jeweler claiming that increases are due to increased materials cost .... In fall 2011, gold hit a high of about $1900 an ounce. It is, as I write this, trading at $1293.85. Let me know when Cartier drops prices to reflect that change in raw materials.

I echo what perlerare just wrote about why Hermes is doing this.

If Cartier ever drops their price, I'll be the first in line.

I agree with perlerare. It's pure luxury marketing. The more out of reach it is, the more desirable.

 

[MSO13]

Aspirational buyers can still easily buy into the Hermes brand through perfume, some of the less expensive jewellery and silks. Bear in mind that an Hermes "entry level" bag is still in the multi thousand price range. And there are many who aspire to own a Kelly or a Birkin and will make that happen some way - a different kind of aspirational buyer, IMO. If they cared a lot about entry level buyers (which is different from an aspirational buyer) their pricing and product offering would reflect that.


I don't believe Hermes is only trying to portray that they are after high net worth customers - that is who their key client is. They are not growing on people who buy the occasional bottle of perfume (though as an aggregate, this is a big part of their business).

I think the point we're all going round in circles on is that many of us agree that the Aspirational buyers are not buying fragrance but bags. It seems that you do not agree but I cite this from Q3 Financial Report found on H.com that Leather Goods lead the double digit growth and they're even expanding ateliers. As Monceau pointed out the original wealthy consumer did not allow the company to grow, sales were flat and stagnant all through the 70s/80s.

What we're talking about is complicated by the relativity of who would be considered an aspirational consumer. There's no arguing with this info however.

Below is from the Q3 Info Report on H.com Financial Site:

"Sales by sector at the end of September
(at comparable exchange rates unless otherwise indicated)
Growth in Leather Goods and Saddlery (+15%) was supported by the increased production capacities of the two new sites in Isère and Charente. Plans to build two new workshops in Franche-Comté are underway.

The dynamism in Ready-to-wear and Accessories sales (+13%) results notably from the success of fashion accessories and the latest ready-to-wear collections.

The Silk and Textiles business line (+9%) continues to expand its collections with new formats and exceptional materials. A new online showroom and store for Hermès silk lamaisondescarres.com was launched in September.

Perfumes (+9%) continue to grow. Two lines were extended with new launches, Terre d'Hermès eau très fraîche and Jour d’Hermès absolu, which were warmly received.

Watches (-10%) continue to be penalized by wholesale sales in a market that remains challenging, particularly in Asia (excluding Japan).

Other Hermès sectors (+15%) continue to grow. Jewellery, which presented its new haute bijouterie collection at the 24 Faubourg Saint Honoré store in Paris, made a significant contribution to this dynamic with the success of the latest collections in gold."

To put this info in perspective even though perfume and other sectors grew considerably, Leather Goods makes up 43% of revenue in 2014 according to the Half Year Financial Report whereas perfume is just under 6% of revenue and silk is 11%. My point is the company and brand is not growing this much selling silk and perfume. They're selling bags and lots of them. We may disagree about who is buying those bags, apparently is a bunch of resellers but this is from H corporate.

 

[Bostonjetset]

I think the point we're all going round in circles on is that many of us agree that the Aspirational buyers are not buying fragrance but bags. It seems that you do not agree but I cite this from Q3 Financial Report found on H.com that Leather Goods lead the double digit growth and they're even expanding ateliers. As Monceau pointed out the original wealthy consumer did not allow the company to grow, sales were flat and stagnant all through the 70s/80s.

What we're talking about is complicated by the relativity of who would be considered an aspirational consumer. There's no arguing with this info however.

Below is from the Q3 Info Report on H.com Financial Site:

"Sales by sector at the end of September
(at comparable exchange rates unless otherwise indicated)
Growth in Leather Goods and Saddlery (+15%) was supported by the increased production capacities of the two new sites in Isère and Charente. Plans to build two new workshops in Franche-Comté are underway.

The dynamism in Ready-to-wear and Accessories sales (+13%) results notably from the success of fashion accessories and the latest ready-to-wear collections.

The Silk and Textiles business line (+9%) continues to expand its collections with new formats and exceptional materials. A new online showroom and store for Hermès silk lamaisondescarres.com was launched in September.

Perfumes (+9%) continue to grow. Two lines were extended with new launches, Terre d'Hermès eau très fraîche and Jour d’Hermès absolu, which were warmly received.

Watches (-10%) continue to be penalized by wholesale sales in a market that remains challenging, particularly in Asia (excluding Japan).

Other Hermès sectors (+15%) continue to grow. Jewellery, which presented its new haute bijouterie collection at the 24 Faubourg Saint Honoré store in Paris, made a significant contribution to this dynamic with the success of the latest collections in gold."

To put this info in perspective even though perfume and other sectors grew considerably, Leather Goods makes up 43% of revenue in 2014 according to the Half Year Financial Report whereas perfume is just under 6% of revenue and silk is 11%. My point is the company and brand is not growing this much selling silk and perfume. They're selling bags and lots of them. We may disagree about who is buying those bags, apparently is a bunch of resellers but this is from H corporate.

Very interesting, thorough research Mrs. O!! This thread has proved to be the best entertainment for a snowed-in day!!

I, too, agree that aspirational customers are buying more than perfume. There are much higher end perfumers than H. This demographic seems to want to own what the company is known for which in Hermes' case is leathergoods and silks. Also, it is interesting to see that watches were the one area of decline. They even point that it is a difficult market. This also goes back, IMO, to there being horologists who specialize in this art and have for centuries. I, for one, feel a Rolex or Patek is more aspirational to a watcher buyer than an H watch. As such, H watches are much more reasonably priced than these other brands