From today's New York Times

Dec 21, 2007
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http://www.nytimes.com/2014/08/30/b...prod=nytcore-iphone&smid=nytcore-iphone-share
INTERNATIONAL BUSINESS

Hermès Posts Rise in Profit, Despite Slowing Sales in China
By NICOLA CLARKAUG. 29, 2014

PARIS — The French luxury group Hermès International said on Friday its profit rose 8 percent for the first six months of 2014, despite signs of slowing sales growth for high-end goods in China.

Hermès, famed for its Birkin and Kelly handbags and vibrant silk scarves, recorded a net profit of 413 million euros, or about $545 million, for the six months of the year, up from €382 million in the period a year earlier. Group sales rose 8 percent to €1.9 billion, bolstered by stronger sales in the United States and Japan, which helped offset the weaker performance in China. Half-year operating profit rose 6 percent to €621 million.

Hermès, along with other purveyors of high-end fashion and luxury goods, like Burberry of Britain and Richemont, the Swiss conglomerate that owns Cartier and Van Cleef & Arpels, have begun to feel the pinch of a slowdown in spending on luxury goods in mainland China, one of the world’s largest markets for such goods, as the government in Beijing has cracked down on lavish gift-giving.

Hermès’s larger French rivals, LVMH Moët Hennessy Louis Vuitton and Kering, whose brands include Gucci and Yves Saint Laurent, have also reported weaker sales growth in China.

The consulting firm Bain & Company estimates that Chinese demand for luxury goods will grow no more than 4 percent this year from 2013, in line with expectations for Europe, which continues to struggle to emerge from the recent economic crisis. In China and Europe, growth is expected to be slower than in North America. That is in sharp contrast to the high double-digit growth in China in previous years.

Luxury spending by the Chinese abroad, while still representing the bulk of Chinese luxury consumption, has also begun to moderate this year. Spending by Chinese tourists on high-end goods grew 9 percent in the second quarter from the level of a year earlier, according to Global Blue, a tax refund company in Geneva that tracks luxury purchases. That is well below the annual growth rates of 30 to 50 percent in recent years.

The slowdown in Chinese sales comes as Hermès looks to bolster its presence in China with the opening of a new Hermès Maison flagship in Shanghai in September, followed later this year by a new store in Beijing and the opening of a larger outlet in a new location in Chengdu. Hermès already has more than a dozen stores in mainland China, as well as locations in Hong Kong and Macau.

The company did not break out financial results for the second quarter. But the 8 percent rise in first-half revenue reflects a sharp slowdown from the first three months of the year, when sales rose nearly 15 percent. In the first half of 2013, net profit rose 14 percent, and sales 11 percent.

Hermès said revenue growth in the first half was driven mainly by a 16 percent increase in sales in its ready-to-wear clothing and in fashion accessories. Sales of leather goods rose 13 percent, bolstered by an increase in the output of the company’s coveted handbags as a result of the addition of two new production sites that opened in France in 2012.

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Watches were among the hardest-hit divisions in the first half, dropping 7 percent, mainly because of the sharp decline in gift giving in China.

In addition to the moderation of luxury spending by Chinese tourists, analysts are also keeping a close eye on the impact of the crisis in eastern Ukraine. The United States and the European Union have imposed sanctions on Russia as a result of its policy toward Ukraine and pro-Russian separatists there.

The tensions, along with a weakening Russian economy since last year, have already begun to curtail travel abroad by wealthy Russians, who have traditionally been big spenders on luxury goods in Europe. According to Global Blue, duty-free spending by Russian tourists fell 18 percent in the three months that ended June 30.

At a briefing with analysts in Paris, Axel Dumas, the chief executive of Hermès, said there were signs that the company’s Russian clientele was “buying more at home” this year, but that the effect on overall sales had so far been modest. “For now, we don’t see a significant impact for the remainder of this year,” Mr. Dumas said.

Hermès is hoping to maintain sales momentum in its apparel and accessories lines after a shake-up in July at its women’s ready-to-wear division, when it named Nadège Vanhee-Cybulski, 36, as its new artistic director. Ms. Vanhee-Cybulski, who previously worked at Céline and The Row, replaces Christophe Lemaire, 49, who is leaving the brand after four years to focus on his personal label.

Hermès said it was maintaining its forecast of 10 percent sales growth for the full year in 2014, but cautioned that the impact of a weaker dollar and Japanese yen would most likely mean a slightly lower operating margin than in 2013, when it was 32 percent of sales.

Hermès manufactures the vast majority of its products in Europe, but the region accounts for only one-third of its sales, making the group’s results highly sensitive to fluctuations in exchange rates.

A version of this article appears in print on August 30, 2014, on page B2 of the New York edition with the headline: Hermès Profits Rise, Despite Slowing Sales in China. Order Reprints|Today's Paper|Subscribe
 
Interesting article. Thanks for sharing, Madam Bijoux. Although I don't see H ever having a fire sale despite slagging sales (and a few less $ millions probably won't cause the management to lose any sleep).
 
Interesting read, hopefully they will consider this before major price increases again in 2015. It would make sense for them to evaluate the changing market for several quarters before deciding to hit very hard again.

it may also be that they are finding their consumers price threshold or close to it. they know that people will still buy bags but they want to sell from the other categories. Every product had a price point threshold where the consumers start to say no, in my own business it's a constant test to see where our competition is while making a steady but not exorbitant profit. H profits are stellar but they would be wise to not push too much farther for next year to see where Asia and Russia end up.
 
Interesting read, hopefully they will consider this before major price increases again in 2015. It would make sense for them to evaluate the changing market for several quarters before deciding to hit very hard again.

it may also be that they are finding their consumers price threshold or close to it. they know that people will still buy bags but they want to sell from the other categories. Every product had a price point threshold where the consumers start to say no, in my own business it's a constant test to see where our competition is while making a steady but not exorbitant profit. H profits are stellar but they would be wise to not push too much farther for next year to see where Asia and Russia end up.

I agree with you (the Russians were conspicuously absent in S.France this Summer, goodness knows what will happen in the Middle East) but alas, I don't think H is listening as it's still funding expansion plans.
 
Interesting read, hopefully they will consider this before major price increases again in 2015. It would make sense for them to evaluate the changing market for several quarters before deciding to hit very hard again.

it may also be that they are finding their consumers price threshold or close to it. they know that people will still buy bags but they want to sell from the other categories. Every product had a price point threshold where the consumers start to say no, in my own business it's a constant test to see where our competition is while making a steady but not exorbitant profit. H profits are stellar but they would be wise to not push too much farther for next year to see where Asia and Russia end up.
Agree, MrsOwen!