Article: Hermes Drifting?

Mali_

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Jun 12, 2016
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Interesting take:
https://www.businessoffashion.com/a...il&utm_term=0_d2191372b3-4f7c8b203d-420547593

BY LUCA SOLCAFEBRUARY 14, 2017 05:29

LONDON, United Kingdom — There is no doubt that Hermès sells exquisitely made products, but so do many other luxury brands. What is most unique about Hermès is the company’s decision to frustrate consumer demand, making it difficult for people to buy its most coveted products, namely its Birkin and Kelly handbags. It’s a strategy that works incredibly well.

The fact that people consider the Birkin handbag to be genuinely exclusive is itself an astonishing feat considering that there must be more than a million Birkin bags in circulation. For this, Hermès deserves infinite respect.

Better still is Hermès’ skill at conjuring a halo of exclusivity over its wide range of other products, no matter how trivial they are. Fragrances that sell for $100 a bottle, silk scarves that go for $400; consumers can buy any of these products and leave an Hermès store feeling like a star.

Put simply, Hermès has pursued one of the most effective stratagems for marrying high sales volume with the perception of exclusivity — category segregation — by confining iconic, core-category products (like bags) to high-end price ranges while offering other categories (like scarves) at lower price points to aspirational consumers.

But now, Hermès appears to be moving away from this tried-and-tested formula of frustrating demand for its core products. In 2016, I was able to find standard Birkin handbags available in stores in Europe for the first time in years. The brand also seems to have moved away from the principle of category segregation, as consumers can now buy Hermès handbags at significantly lower prices, only slightly above the €1,000 threshold. Of course, at this price point, we’re talking about the Evelyne, Garden Party and Picotin ranges — not the Birkin or Kelly bags. But, even so, they are Hermès handbags just the same.

Demand frustration and category segregation were the two traits that set Hermès apart from its luxury megabrand peers. Without these elements, the genetic difference between Hermès and, say, Louis Vuitton is more difficult to discern. Hermès is still more desirable in the eyes of some consumer groups, especially the Chinese. But this seems more a difference of degree than essence. In fact, French consumers seem to have the opposite feeling.

Today, Hermès is valued significantly above the industry average based on the uniqueness of its strategy. But as the company's business model becomes less special, should its multiple not reflect this?

Luca Solca is the head of luxury goods at BNP Exane Paribas.

Related Articles:

The Secret to Hermès’ Success

Hermès Bets on Ready-to-Wear

Where Will Hermès Find Growth in a Slowing Luxury Market?
 

papertiger

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I think many business experts should look at some basic principles of human psychology. I think it's very hard for industry insiders who often only think in terms of bottom-line annual figures to appreciate the complexity of motivations of people's purchasing patterns, especially in a global market, and this includes people who work in so-called luxury goods. Statistics don't reveal the whole story, nor do carefully constructed market research exercises that select 'volunteers' to back up what consultancies think they already know. Hermes purposely don't use the word luxury because their products are designed to be used and be a part of everyday life (including fragrance and scarves). I know this because Hermes have let it be known. No one outside the company has knows Hermes traditional or new global pricing policies and/or marketing strategies. There have been a few changes made recently but Hermes would be the biggest fools on the planet to change its most important draws a) excellent aftercare for all products b) quality.

Just some comments:

1. People buy scarves when they want to keep their necks warm or buy a lovely gift for someone (which is returnable for exchange). They buy a bag when I need something to carry things. Most people don't buy a scarf when they need/want a bag, whichever brand. By some reports on tPF it's clear that some people have been told to buy lots of other things before they are allowed to buy certain bags but not instead of.

2. To most people $400-ish is a ridiculous price to pay for anything when you can get 400 X in Poundland. Generally, only people who would pay $9K and up for a bag would consider $400 (and up and up) for a scarf/GM/Mousseline.

3. People who buy Hermes bags are more likely to buy other H accessories and "trivial" items. This has always been the case.

4. In many countries (the land of my birth included) men still traditionally buy for their partners. None of these men would go into a store for a bag and come out with a gavroche. This writer is informed by a generally Western perspective. The lion-share of the luxury market place is non-Western.

5. I don't know any scarf buyers who think Hermes scarves are "trivial", someone should read the 'Grail Thread'.

6. Sorry, but the bags mentioned are wayyyyyy more expensive than 1K Euro (even pre-loved) someone needs to go shopping in the 21 century.
 
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Sickgrl13

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Aug 1, 2013
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Interesting take:
https://www.businessoffashion.com/a...il&utm_term=0_d2191372b3-4f7c8b203d-420547593

BY LUCA SOLCAFEBRUARY 14, 2017 05:29

LONDON, United Kingdom — There is no doubt that Hermès sells exquisitely made products, but so do many other luxury brands. What is most unique about Hermès is the company’s decision to frustrate consumer demand, making it difficult for people to buy its most coveted products, namely its Birkin and Kelly handbags. It’s a strategy that works incredibly well.

The fact that people consider the Birkin handbag to be genuinely exclusive is itself an astonishing feat considering that there must be more than a million Birkin bags in circulation. For this, Hermès deserves infinite respect.

Better still is Hermès’ skill at conjuring a halo of exclusivity over its wide range of other products, no matter how trivial they are. Fragrances that sell for $100 a bottle, silk scarves that go for $400; consumers can buy any of these products and leave an Hermès store feeling like a star.

Put simply, Hermès has pursued one of the most effective stratagems for marrying high sales volume with the perception of exclusivity — category segregation — by confining iconic, core-category products (like bags) to high-end price ranges while offering other categories (like scarves) at lower price points to aspirational consumers.

But now, Hermès appears to be moving away from this tried-and-tested formula of frustrating demand for its core products. In 2016, I was able to find standard Birkin handbags available in stores in Europe for the first time in years. The brand also seems to have moved away from the principle of category segregation, as consumers can now buy Hermès handbags at significantly lower prices, only slightly above the €1,000 threshold. Of course, at this price point, we’re talking about the Evelyne, Garden Party and Picotin ranges — not the Birkin or Kelly bags. But, even so, they are Hermès handbags just the same.

Demand frustration and category segregation were the two traits that set Hermès apart from its luxury megabrand peers. Without these elements, the genetic difference between Hermès and, say, Louis Vuitton is more difficult to discern. Hermès is still more desirable in the eyes of some consumer groups, especially the Chinese. But this seems more a difference of degree than essence. In fact, French consumers seem to have the opposite feeling.

Today, Hermès is valued significantly above the industry average based on the uniqueness of its strategy. But as the company's business model becomes less special, should its multiple not reflect this?

Luca Solca is the head of luxury goods at BNP Exane Paribas.

Related Articles:

The Secret to Hermès’ Success

Hermès Bets on Ready-to-Wear

Where Will Hermès Find Growth in a Slowing Luxury Market?
Who did this research and in what alternate reality are shopping at? Slightly above 1000 Euro for a GP or Evie? A canvas GP is about 1600 Euros.....
 
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danny123

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But now, Hermès appears to be moving away from this tried-and-tested formula of frustrating demand for its core products. In 2016, I was able to find standard Birkin handbags available in stores in Europe for the first time in years. The brand also seems to have moved away from the principle of category segregation, as consumers can now buy Hermès handbags at significantly lower prices, only slightly above the €1,000 threshold. Of course, at this price point, we’re talking about the Evelyne, Garden Party and Picotin ranges — not the Birkin or Kelly bags. But, even so, they are Hermès handbags just the same.

what does this mean? the writer makes it seem like they just recently introduced the evelyne, garden party and picotin to sell bags at a lower price point, however, they have been around for a long time

also very great comment from papertiger i agree 100%
 

papertiger

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what does this mean? the writer makes it seem like they just recently introduced the evelyne, garden party and picotin to sell bags at a lower price point, however, they have been around for a long time

also very great comment from papertiger i agree 100%
40- years and more LOL.

Actually, I'm not quite sure what the author is trying to say. So long as it has 'Hermes' in the title it will get lots of clicks and the writter can then say they've written about Hermes. Sad but true.
 
Mar 26, 2009
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Yet another article by someone who doesn't know what they are talking about! :rolleyes:

Hermes have been selling those so called "low price" items for years, no, for decades! Hermes is not a luxury handbag maker, Hermes is a life style concept. Hence they produce a very large range of products for a very wide range of usage in every day life.
 
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40- years and more LOL.

Actually, I'm not quite sure what the author is trying to say. So long as it has 'Hermes' in the title it will get lots of clicks and the writter can then say they've written about Hermes. Sad but true.
It sounds like a writer who just wanted to write about his/her favorite fashion brand but had to somehow incorporate business into the article. I certainly hope that this person who works for BNP Paribas is not an actual paid financial analyst. From a finance point of view, the article is completely worthless. From a "breaking news" point of view, well, there's nothing new mentioned whatsoever.
 

MmeDumas

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Apr 11, 2015
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What a terrible article! So incorrect and off base on so many levels. Anyone who spends just twenty minutes reading this forum could have done a better job writing this. And like others, please direct me to the 1000 euro Evelynes. I'll take three!
 
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Aelfaerie

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I think it's very hard for industry insiders who often only think in terms of bottom-line annual figures to appreciate the complexity of motivations of people's purchasing patterns, especially in a global market, and this includes people who work in so-called luxury goods....No one outside the company has knows Hermes traditional or new global pricing policies and/or marketing strategies..
At first glance, I disagree with your earlier comment. Hermes is a publicly traded company (Euronext RMS) and has been for a while. Similar to what any other public company does, they have investor calls and presentations, either to the public or in private with key shareholders, to discuss strategy and plans for growth.

Also, Exane BNP Paribas is a joint venture between Exane and BNP Paribas. I don't know too much about Exane, but BNP is one of the top 3 investment banks in France. I haven't heard of this Luca Solca person, but my first impression is that he can't be an idiot if he's had a lengthy career at many top name firms.

Now granted, I think a few of his comments in the article are rather near-sighted. A simple Google search will show that GPs and Picos are much more than he thinks, but anecdotes on even this forum will show that it's much easier to be shown a Birkin as a man than a woman. However, I believe the majority of his article is correct. People who buy H scarves are either silk aficionados or people who want an "entry level" H item, but H has marketed itself so well that both group of clients walk away feeling pleased with their purchases. Also, for this second group of people, there's a business opportunity for H to start graduating them from accessories to more lucrative sales.

I do appreciate his hypothetical comparison to another large French luxury retailer. If H goods were as easy to find in every H store as Vuitton's are, would there be the same level obsession? For me, probably not. Half the fun for me when shopping at H is never knowing what I'll find in a store and the excitement of tracking down an item or colorway.
 
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cvw1004

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Personally, I've always considered the scarves an iconic, core category product - H was known for them way before B was made for JB or the K was made famous by Grace.

I do agree with his comment on the perceived exclusivity of the B though.

However, H to me has always been about craftsmanship rather than exclusivity (perceived or otherwise), I do fear though that this has slipped somewhat in recent years, whether it can be pulled back remains to be seen (for me at least).
 

OneMoreDay

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Oct 1, 2014
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I've been meaning to read this article but it wouldn't load on my Blackberry for some reason. Shame about the quality of the article. I expected more from BoF. :amazed:
 
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Mali_

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Jun 12, 2016
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I think many business experts should look at some basic principles of human psychology. I think it's very hard for industry insiders who often only think in terms of bottom-line annual figures to appreciate the complexity of motivations of people's purchasing patterns, especially in a global market, and this includes people who work in so-called luxury goods. Statistics don't reveal the whole story, nor do carefully constructed market research exercises that select 'volunteers' to back up what consultancies think they already know. Hermes purposely don't use the word luxury because their products are designed to be used and be a part of everyday life (including fragrance and scarves). I know this because Hermes have let it be known. No one outside the company has knows Hermes traditional or new global pricing policies and/or marketing strategies. There have been a few changes made recently but Hermes would be the biggest fools on the planet to change its most important draws a) excellent aftercare for all products b) quality.

Just some comments:

1. People buy scarves when they want to keep their necks warm or buy a lovely gift for someone (which is returnable for exchange). They buy a bag when I need something to carry things. Most people don't buy a scarf when they need/want a bag, whichever brand. By some reports on tPF it's clear that some people have been told to buy lots of other things before they are allowed to buy certain bags but not instead of.

2. To most people $400-ish is a ridiculous price to pay for anything when you can get 400 X in Poundland. Generally, only people who would pay $9K and up for a bag would consider $400 (and up and up) for a scarf/GM/Mousseline.

3. People who buy Hermes bags are more likely to buy other H accessories and "trivial" items. This has always been the case.

4. In many countries (the land of my birth included) men still traditionally buy for their partners. None of these men would go into a store for a bag and come out with a gavroche. This writer is informed by a generally Western perspective. The lion-share of the luxury market place is non-Western.

5. I don't know any scarf buyers who think Hermes scarves are "trivial", someone should read the 'Grail Thread'.

6. Sorry, but the bags mentioned are wayyyyyy more expensive than 1K Euro (even pre-loved) someone needs to go shopping in the 21 century.
Very well stated...thanks for your thoughtful and knowledgeable comment.:yes: